2019 (2) TMI 682 - AT - Service Tax

Imposition of penalty - service tax with interest paid on being pointed out - no malafide intent - section 80 of FA - Held that - Although the appellant initially disputed the service tax liability on the ground that they had not yet received the amounts from their clients, that they paid the full amount of service tax as demanded and interest - the appellant is a retired Hawaldar of CISF and it would not be unreasonable to expect that he may not be fully aware of the provisions of service tax Act. The service tax was not due immediately on providing service because they had not yet received the payments while the income tax and balance sheets were on accrual basis. The appellant had paid the service tax as demanded along with interest - penalty waived by invoking section 80 - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Discrepancy in service tax payment and balance sheet figures.
2. Applicability of service tax on actual receipt vs. accrual basis.
3. Liability to pay service tax only upon receipt of amounts.
4. Imposition of penalties under sections 77 and 78.
5. Invocation of Section 80 for waiver of penalties.

Analysis:

Discrepancy in Service Tax Payment and Balance Sheet Figures:
The appellant, a security services firm, faced discrepancies in service tax payments for the period 2003-04 to 2006-07. The audit revealed that the turnover in ST-3 returns did not align with balance sheet figures, with income reported in income tax returns being higher. The appellant argued that service tax was payable only on actual receipt, not accrual basis, causing differences. The firm, managed by a retired CISF personnel, lacked expertise in tax laws, leading to errors in tax filings.

Applicability of Service Tax on Actual Receipt vs. Accrual Basis:
The appellant contended that service tax should be paid upon actual receipt, not accrual basis, as reflected in income tax returns. The firm's limited understanding of tax provisions and reliance on a clerk for filings resulted in underreporting service tax liabilities. Notably, significant amounts were outstanding from clients like Reliance Group, affecting their ability to pay service tax promptly.

Liability to Pay Service Tax Only Upon Receipt of Amounts:
The appellant emphasized that service tax obligations should align with actual receipts, especially when substantial amounts were pending from clients. Despite discrepancies, the firm paid the demanded service tax and interest before the show cause notice, demonstrating a willingness to comply with tax obligations.

Imposition of Penalties under Sections 77 and 78:
The adjudicating authority imposed penalties under sections 77 and 78, equivalent to the duty amount, for contravention of tax laws. The appellant sought penalty waiver under Section 80, citing reasons such as lack of familiarity with tax laws and adherence to tax payments upon receipt of amounts.

Invocation of Section 80 for Waiver of Penalties:
The tribunal deliberated on the arguments presented by both sides. While the Departmental Representative (DR) contended that mere payment of service tax and interest did not warrant penalty waiver, the tribunal acknowledged the appellant's limited tax knowledge and the timing of service tax payments vis-a-vis actual receipts. Considering these factors, the tribunal invoked Section 80 to waive the penalties under sections 77 and 78, upholding the demand and interest but setting aside the penalties.

In conclusion, the tribunal upheld the confirmation of demand and interest while setting aside the penalties imposed under sections 77 and 78, granting relief to the appellant under Section 80. The appeal was disposed of with this decision pronounced on 28.01.2019.