2019 (2) TMI 23 - AT - Service Tax

Penalty u/s 76 and 77 of FA - non-discharge of service tax liability in spite of having collected the same from the service recipient - huge cash flow problem - immediate payment of tax with interest paid on being pointed out by audit team - ST-returns for half year ending 30.09.2009 on 27.08.2010. However, ST-3 returns for half year ending 31.03.2010 had not been filed - no intent to evade present - Held that - The identical dispute involving non-discharge of service tax liability in spite of having collected the same from the service recipient had been addressed by CESTAT Chennai in the case of Jeyam Automotive Vs CCE Coimbatore 2018 (11) TMI 1150 - CESTAT CHENNAI wherein it was held when reasonable cause for the failure to discharge service tax liability was available, and especially there is no evidence to show that that the delay / default was due to any wilful act to evade payment of duty, it is a fit case for invocation of Section 80 of the Act. There is no hesitation in holding that while the demand of tax liability is very much justified, imposition of penalty under Section 76 of the Finance Act, 1994 is not justified since there was reasonable cause for failure of the appellant to discharge tax liability - the penalty imposed under Section 77 ibid is fully justified and no interference is made with the same - appeal allowed in part.

Summary

Issues:
Non-discharge of service tax liability, imposition of penalties under various provisions of law, invocation of Section 80 of the Finance Act, 1994.

Analysis:
The case involved a dispute regarding the non-discharge of service tax liability by the appellants despite collecting the tax from their clients. The Commissioner, in the impugned order, held the appellants liable for the service tax under 'Manpower Recruitment or Supply Agency Service' and imposed penalties under Sections 76 & 77 of the Finance Act, 1994. The appellants argued that they faced cash flow problems due to delayed payments from service receivers, leading to borrowing at high rates to pay the tax liabilities. They contended that the penalty imposed under Section 76 was not sustainable as they intended to comply with tax obligations. They also cited precedents where penalties were set aside due to financial hardships.

During the hearing, the appellant's counsel highlighted delays in bill settlements by service receivers, leading to cash flow issues and borrowing to pay service tax liabilities. The appellants paid a significant amount of the tax liability after audit findings and argued that their intention was to comply with tax obligations, thus challenging the penalty under Section 76. They referred to tribunal decisions where penalties were set aside due to financial difficulties faced by the taxpayers.

On the contrary, the respondent supported the imposition of penalties, emphasizing the appellants' failure to pay tax within the stipulated timelines and disclose information in ST-3 returns. The respondent argued that penalties were justified due to non-compliance with tax payment regulations, especially regarding timely payments and disclosures.

The Tribunal referred to previous decisions where penalties were set aside under Section 80 of the Finance Act, 1994, due to reasonable causes for tax payment delays, such as financial hardships. Citing similar cases, the Tribunal set aside the penalty under Section 76 but upheld the penalty under Section 77, considering the justifications provided by the appellants for the delay in discharging tax liabilities. The Tribunal partially allowed the appeal by setting aside the penalty under Section 76, while upholding the penalty under Section 77.

In conclusion, the Tribunal invoked Section 80 of the Finance Act, 1994, to set aside the penalty under Section 76, considering the reasonable cause for the appellants' failure to discharge tax liabilities promptly. The decision aligned with precedents where penalties were waived due to financial hardships, ensuring a fair assessment of tax liabilities and penalties in light of the circumstances faced by the taxpayers.