2019 (5) TMI 148 - AT - Service Tax

Penalty u/s 77 and 78 of FA - non-payment of service tax - Man-power Recruitment and Supply Agency Service - reason for non-payment given is Financial Hardship - HELD THAT - An amount of ₹ 95,90,656/- has been recovered from the recipients of service by the department. In fact, this is reflected in the show-cause notice para 9, wherein, it is stated that the said amounts was collected from the service recipients. This proves that the appellant could not discharge the service tax liability as the payments were not received from their customers. The appellant has given reasonable cause for failure to discharge the service tax during the relevant period. This is a fit case for invocation of section 80. Impugned order is modified to the extent of setting aside the penalties only without disturbing the confirmation of demand or interest thereon - appeal allowed in part.

Summary

Issues:
1. Appellant's liability for service tax on Man-power Recruitment and Supply Agency Service.
2. Imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Analysis:

Issue 1: Appellant's liability for service tax
The appellants were engaged in providing Man-power Recruitment and Supply Agency Service and were registered with the department. The original authority confirmed the demand of ?19,64,360/- along with interest for not discharging service tax on the services provided. The Commissioner (Appeals) upheld the decision. The appellant contended that they faced financial constraints as their clients failed to pay the service tax to them, resulting in non-payment of service tax. The department had issued notices to service recipients to collect dues pending on their side. The appellant later paid the entire service tax, attributing the delay to non-payment by clients. The Tribunal acknowledged the financial constraints faced by the appellant due to non-payment by clients and held that the appellant had reasonable cause for failure to discharge service tax during the relevant period. The Tribunal found the appellant's explanation credible and set aside the penalties imposed under sections 77 and 78.

Issue 2: Imposition of penalties
The penalties under sections 77 and 78 were imposed on the appellants for failure to pay service tax within the prescribed time. The Revenue argued that the appellants failed to discharge the service tax liability and that explanations regarding non-payment by clients were unacceptable. However, the Tribunal considered the appellant's financial hardships due to non-payment by clients and the recovery of dues from service recipients by the department. The Tribunal noted that the appellants maintained proper accounts, filed returns regularly, and found no evidence of intentional evasion of service tax. Consequently, the Tribunal set aside the penalties under sections 77 and 78 by invoking section 80 of the Act, without disturbing the confirmation of demand or interest. The appeal was partly allowed, providing consequential reliefs as necessary.

In conclusion, the Tribunal recognized the appellant's genuine financial constraints due to non-payment by clients and found no evidence of intentional evasion of service tax. The penalties under sections 77 and 78 were set aside, and the appeal was partly allowed with consequential reliefs.