2019 (1) TMI 1311 - HC - Service Tax

Imposition of penalty u/s 73(4) read with Section 78 of the Finance Act, 1994 - non-payment of service tax - it was alleged that for certain period starting from 2006-07, 2007-08 to 2008-09 April to September the appellant had not paid the entire service tax liability but only discharged a part thereof and also did not pay the amounts due in time - suppression or mis-representation of facts - Held that - This Court is of the opinion that the impugned order is justified and warranted in the circumstances. Whatever be the constraint, the assessee was faced with, it was duty bound to remit amounts collected by it towards service tax, in a planned manner, and as required by law. The deposit belatedly, by it, on the ground that the amounts were deposited on adhoc basis due to operation of a centralised system, cannot be a legitimate excuse. What is evident is that the assessee/appellant withheld the amounts collected from the service recipient as tax liability. As the remitter, assessee/appellant was duty bound to comply with the terms of the Finance Act and Rules, which prescribed not only filing of returns but also periodic deposit of these amounts. The delay in deposit of these amounts spanned over a period of two and half years and therefore, amounted to misreporting of true and correct facts. To that extent, the Show Cause Notice was justified. The finding of misreporting too was warranted. As far as the penalty goes, the provision under Section 78 of the Act, and also even Section 73(4), leave no manner of choice; it is a matter of course. Benefit of reduced penalty - Held that - The only mitigating circumstances whereby the penalty could be reduced might have been if the assessee had deposited the reduced amounts within 15 or 30 days of receipt of the Show Cause Notice as indicated in proviso 1 and 2 to Section 78 - In the present case, concededly, reduced penalty amounts were not deposited by the assessee, which is a statutory mandate. No doubt they were paid in the interregnum, at a later stage, pursuant to the permission granted by this Court on account of pre-deposit order made by the CESTAT after 03.10.12, having regard to the order in CEAC 8/2012 , however, that did not in any manner mitigate the appellant s liability; it ought to have deposited the reduced penalty amounts within the time stipulated by law. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Imposition of penalty for non-payment of service tax.
2. Contesting the Show Cause Notice and imposition of 100% penalty.
3. Analysis of facts by CESTAT.
4. Justification of the impugned order.
5. Penalty reduction plea and statutory provisions.

Imposition of penalty for non-payment of service tax:
The appellant, a service tax assessee, did not pay the entire service tax liability for certain periods and failed to pay the amounts due in time due to internal difficulties. The Commissioner issued a Show Cause Notice alleging non-payment of duty and suppression of facts, imposing 100% penalty under Section 73(4) read with Section 78 of the Finance Act, 1994. The appellant contested the Notice, but both the CESTAT and the High Court upheld the penalty, emphasizing the appellant's failure to remit the tax collected to the Government, using it for internal purposes instead.

Contesting the Show Cause Notice and imposition of 100% penalty:
The appellant argued that it did not indulge in suppression or misrepresentation of facts but was constrained by circumstances, leading to delayed tax payments. The CESTAT observed that the appellant failed to discharge the service tax liability even after receiving money from clients, using the tax amounts for internal purposes. The Tribunal found the appellant's actions did not support a claim of bonafideness for the delay in tax payment, citing relevant case laws. The appellant's plea for reduction of penalty to 25% was dismissed as they failed to pay the penalty within the stipulated time.

Analysis of facts by CESTAT:
The CESTAT noted that the appellant's delay in paying service tax spanned over a period of more than one financial year. The Tribunal found the appellant's actions evasive, as they recovered taxes from service recipients but did not remit them to the Government. The CESTAT agreed with the lower authority's decision to impose a penalty on the appellant for not filing statutory returns indicating service provision and taxable income.

Justification of the impugned order:
The High Court upheld the penalty, stating that the appellant was duty-bound to remit amounts collected towards service tax as required by law. The Court found the appellant's delayed deposits over two and a half years amounted to misreporting of facts, justifying the Show Cause Notice and penalty imposition for misreporting.

Penalty reduction plea and statutory provisions:
The Court cited Section 78 of the Act, which mandates a penalty equal to 100% of the service tax for non-payment due to fraud, collusion, or suppression of facts. The Court noted that reduced penalty amounts were not deposited by the appellant within the stipulated time, leading to the dismissal of the appeal for lack of merit and no substantial question of law.

In conclusion, the High Court dismissed the appeal, upholding the penalty imposition for non-payment of service tax due to misreporting and failure to remit tax collected to the Government.