2018 (11) TMI 1464 - AT - Service Tax

Penalties u/s 76 and 78 of FA - Short payment of service tax - service tax paid belatedly for the period from April 2006 to June 2008 - Held that - On perusal of the documents such as the list of sundry debtors etc., it is seen that there was huge amount pending as receivables. So also they had to meet expenses for salary, accident compensation of employees provided under manpower supply service - The department does not have a case that any of the transactions were unaccounted or that they had been indulging in a parallel accounting. It is commonly understood that the employees supplied through manpower supply service have to be given the salaries within due time. If the service receivers delay the payment, it would cause much hardship to the service provider as they have to make the statutory payments such EPF, ESI etc. to the Government - the appellant has put forward reasonable cause for not paying the service tax within due time and is a fit case for invoking Section 80 of the Finance Act for setting aside the penalties. The impugned order is modified to the extent of setting aside the penalties imposed under sections 76 as well as 78 in these appeals - appeal allowed in part.

Summary

Issues:
Penalties imposed under section 76 and section 78 of the Finance Act, 1994 for delayed payment of service tax by the appellant engaged in manpower supply service.

Analysis:
The appellants were engaged in manpower supply service and had short-paid service tax for a specific period, leading to the issuance of show cause notices proposing demands for service tax, interest, and penalties. The original authority confirmed the demands and imposed penalties, prompting the appellants to appeal before the Tribunal. The appellant contested only the penalties imposed under section 76 and section 78 of the Finance Act, 1994. The appellant's consultant argued that the delayed payments were due to financial constraints, with all transactions properly accounted for in income tax returns. The appellant's lack of filing ST-3 returns was attributed to the misconception that returns couldn't be filed without paying the full service tax liability. The consultant highlighted the financial hardships faced by the appellant, including delayed payments from clients and pending refunds, leading to difficulties in meeting financial obligations. The appellant's case emphasized belated payments rather than intentional evasion of service tax.

The department contended that the appellant collected service tax but failed to remit it to the Government, alleging a deliberate suppression of facts to evade tax payment. However, upon hearing both sides, the Tribunal considered the appellant's arguments and supporting documents. It noted the substantial outstanding receivables, the necessity to cover employee expenses and statutory payments, and the absence of unaccounted transactions or parallel accounting practices. The Tribunal recognized the challenges faced by the appellant due to delayed payments from clients and financial constraints. Consequently, the Tribunal invoked Section 80 of the Finance Act, setting aside the penalties imposed under sections 76 and 78. The Tribunal concluded that the appellant's delayed payments were justified by reasonable causes, leading to the partial allowance of the appeals with consequential relief.

In summary, the Tribunal's judgment focused on the appellant's genuine financial difficulties, the absence of intentional tax evasion, and the reasonable causes for delayed service tax payments. By considering the appellant's challenges and supporting documents, the Tribunal concluded that the penalties imposed were unwarranted, leading to the modification of the impugned orders to set aside the penalties under sections 76 and 78.