2018 (11) TMI 1149 - AT - Service Tax

Penalties u/s 76, 77 and 78 of FA - Non-payment of Service Tax - appellant had collected service tax but had not remitted the same to the Government Account - no intent to evade - Held that - In the present case, facts indicate strongly that the non-payment was due to the financial difficulties. It is also brought out that appellant was burdened with payment of wages to the manpower supplied even though delayed amount / no amount was received from airlines. The amounts received from the customers were always less than the amounts to be spent by them and the difference was to be arranged through loan. The secured loans increased from 11.62 crores in April 2008 to 12.46 crores in March 2009 and unsecured loans increased from ₹ 76.67 lakhs to ₹ 97.78 lakhs; that sundry debtors have gone up from 4.43 crores to 7.56 crores during the same period. They furnished documents to establish these facts. The delay / non-payment of service tax cannot be said, is an act of suppression of facts with intent to evade payment of tax. In fact, the demand has been raised on the basis of figures furnished by appellant and department has no allegation of any deliberate act done to evade payment of tax - the ingredients for imposing penalty under section 78 are not attracted. Penalty u/s 76 and 78 set aside - penalty u/s 77 upheld - appeal allowed in part.

Summary

Issues:
Penalties imposed under sections 76 and 78 of the Finance Act, 1994 for non-payment and delayed payment of service tax.

Analysis:

1. Issue of Penalties Imposed:
The case involved penalties imposed under sections 76 and 78 of the Finance Act, 1994 due to non-payment and delayed payment of service tax by the appellant. The appellant, engaged in providing manpower supply services to airlines, argued that the non-payment was a result of financial crisis caused by delayed payments from airlines, leading to difficulties in meeting financial obligations, including service tax remittance. The appellant contended that invoking Section 80 of the Finance Act could set aside the penalties, citing precedents where penalties were overturned due to financial hardship reasons.

2. Arguments of the Appellant and Respondent:
The appellant's counsel argued that the non-payment of service tax was a consequence of financial constraints arising from delayed payments from airline clients, necessitating prioritization of payments to sustain operations. The appellant highlighted the financial difficulties faced due to delayed receipts and non-receipt of amounts from certain airlines, requesting the department to recover dues from major airline clients. In contrast, the respondent contended that the appellant collected service tax but failed to remit it to the Central Government, justifying the penalties imposed under sections 76 and 78 of the Finance Act.

3. Decision and Reasoning:
After considering the arguments from both sides, the Tribunal analyzed the facts and financial documents provided by the appellant. The Tribunal noted the increase in secured and unsecured loans, along with rising sundry debtors, indicating financial strain on the appellant. The Tribunal found that the non-payment of service tax was not an intentional act of evasion but a consequence of financial difficulties, as supported by precedents where penalties were set aside due to reasonable causes like financial hardship. Consequently, the Tribunal invoked Section 80 of the Finance Act to set aside the penalties imposed under sections 76 and 78, emphasizing that the appellant had valid reasons for the delay in payment and non-payment of service tax.

4. Final Judgment:
Based on the analysis and precedents cited, the Tribunal concluded that the penalties imposed under sections 76 and 78 were not justified in the appellant's case. The Tribunal upheld penalties imposed under section 77 but set aside the penalties under sections 76 and 78. The decision was pronounced on 12.09.2018, allowing the appeals partly with consequential benefits, if any, as per the law.

In summary, the judgment focused on the appellant's financial difficulties as a valid reason for the non-payment and delayed payment of service tax, leading to the invocation of Section 80 of the Finance Act to set aside the penalties imposed under sections 76 and 78.