2018 (11) TMI 1150 - AT - Service Tax

Penalty u/s 76, 77 and 78 - Non-payment of Service tax - appellants though collected service tax, had not deposited the same to the Government - no intent to evade - Held that - The appellants, though initially were paying service tax and were filing returns properly, had defaulted payment of service tax and filing of returns after 2005-06. The company was going through much financial hardship and it took some time for them to recover and for that reason, the service tax liability got accumulated. Nothing is brought out from evidence that there was any positive act of suppression with an intention to evade payment of service tax. Other than the delay caused due to financial crisis, we do not find any material to establish an intention to evade payment of service tax. This is a fit case to invoke Section 80 since the appellant has put forward reasonable cause for the failure to discharge the service tax liability - the penalties imposed under Section 76 and 78 of the Finance Act, 1994 set aside without interfering with the penalty imposed under Section 77 of the Act ibid - appeal allowed in part.

Summary

Issues:
Non-payment of service tax leading to penalties under Sections 76 and 78 of the Finance Act, 1994.

Analysis:

1. Background: The appellants were found to have collected service tax but failed to deposit it with the Government for the periods from 2006-07 to 2008-09. Show Cause Notices were issued, resulting in a demand of ?4,15,70,262/- along with penalties. Another notice for a subsequent period led to a demand of ?1,40,64,132/- with penalties.

2. Appellant's Arguments: The appellant attributed the non-payment to financial crisis, stating they prioritized day-to-day expenses to sustain the business. They argued there was no intention to evade tax, and delays were due to financial difficulties. They contended that penalties were excessive and requested them to be set aside.

3. Revenue's Position: The Revenue argued that financial crisis cannot justify setting aside penalties, as the appellants had collected but not deposited service tax, indicating suppression of facts. They supported the penalties imposed under Sections 76 and 78 but acknowledged a miscalculation in one instance.

4. Judgment: The Tribunal considered the financial hardship faced by the appellants, noting their efforts to raise funds and eventual payment of the tax liability. Citing precedents, including the invocation of Section 80 in similar cases, the Tribunal found reasonable cause for the payment delays. Consequently, penalties under Sections 76 and 78 were set aside, while the penalty under Section 77 was upheld.

5. Precedents: The Tribunal referenced cases where penalties were set aside due to financial crises and voluntary payment of tax, emphasizing the importance of proving reasonable cause for payment failures under Section 80 of the Finance Act, 1994.

6. Decision: The Tribunal modified the impugned orders to set aside penalties under Sections 76 and 78, partially allowing the appeals based on the appellant's demonstrated reasonable cause for non-payment. The penalties under Section 77 were not interfered with.

In conclusion, the Tribunal found that the financial crisis faced by the appellants constituted a reasonable cause for their failure to discharge the service tax liability promptly, leading to the setting aside of penalties under Sections 76 and 78 while upholding the penalty under Section 77. The judgment highlighted the importance of proving reasonable cause for payment delays in tax matters, as per the provisions of Section 80 of the Finance Act, 1994.