Whether assessee liable to be penalizedfor non-payment of service tax already collected from customer?

PJ/CASE LAW/2015-16/2899

Case:- KETAN ENGINEERING SERVICES PVT. LTD. VERSUS COMMR. OF C. EX. & S.T., SURAT

Citation:- 2014 (36) S.T.R. 196 (Tri. - Ahmd.)

Brief Facts:-This stay application and appeal has been filed by the appellant with respect to Order-in-Original No. SUR-EXCUS-001-COM-044-13-14, dated 31-12-2013 passed by Commissioner, Surat-I. Under this order-in-original, adjudicating authority confirmed service tax amount of Rs. 99,86,617/- along with interest and appropriated the payments made by the appellant towards duty and interest. In addition, penalties were also imposed upon the appellant under Section 77 and Section 78 of the Finance Act, 1994. Appellant has only contested imposition of penalty of Rs. 99,86,617/- under Section 78 of the Finance Act, 1994 on the grounds that the entire payment of tax and interest were made much before the issue of show cause notice.

Appellants Contention-Shri Birju S. Shah, Chartered Accountant appeared on behalf of the appellant and argued that in view of the following case laws appellant has a strong case for non-imposition of penalties :-
(a)       Warna Industries Limited [2006 (4) S.T.R. 535 (Tri.-Mum.)]
(b)       M.D. Engineers [2013 (30) S.T.R. 389 (Tri.-Ahmd.)]
(c)       Lynx Communication Systems Pvt. Limited [2013 (31) S.T.R. 331 (Tri.-Ahmd.)]
(d)       M.R. Coating Pvt. Limited [2013 (30) S.T.R. 76 (Tri.-Ahmd.)]
(e)       Atwood Oceanics Pacific Limited [2013 (32) S.T.R. 756 (T.-Ahmd)]
(f)        Bhoruka Aluminium Limited [2008 (11) S.T.R. 163 (Tri.-Bang.)]
(g)       U.B. Engineering Limited [2009 (15) S.T.R. 200 (Tri.-Ahmd.)]
(h)       Auto Transport Services [2006 (3) S.T.R. 330 (Tri.-Del.)]
(i)        Super Star Security Services [2013 (30) S.T.R. 700 (Tri.-Chennai)]
(j)        Oriental Steel Trunks Agrico Inds. [2011 (23)S.T.R.212 (Ker.)]

Respondents Contention:-Shri S.K. Mall (AR) appearing on behalf of the Revenue argued that appellant had collected the entire service tax from the service recipients and retained the same with them. No ST-3 returns were filed during the prescribed period so that Revenue could detect any short-payment/non-payment of service tax. It was his case that as the appellant was a registered unit and has recovered the service tax from the customers therefore, penalty under Section 78 of the Finance Act, 1994 was correctly imposed.

Reasoning Of Judgement:-Heard both sides and perused the case records. Appellant has only contested the imposition of penalty under Section 78 of the Finance Act, 1994. As the issue involved lies in a narrow compass, therefore, after allowing the stay application, appeal itself is taken up for disposal. It is observed from the facts available on record that the entire service tax payable was recovered by the appellant from the service recipients. Appellant was a registered unit and was well aware of their liability to pay service tax to the Revenue. Even if there was any financial difficulty, appellant was required to file the periodical returns indicating therein the correct service tax liability. Had the appellant filed such returns showing correct duty liability, which he had already recovered, may be appellant’s bona fides could have been accepted. In the present case, appellant recovered the entire service tax from their customers and also did not file periodical prescribed returns with the Revenue. Non filing of returns and non-payment of service tax, in spite of collecting the same from the customers, clearly convey mala fide on the part of the appellant making them liable to penalty under Section 78 of the Finance Act, 1994. The case laws relied upon by the appellant does not pertain to a situation when service tax was recovered by the appellant and deliberately not paid to the Revenue. The facts of the relied upon case laws are different than the facts of the present proceedings and are not applicable. In view of the above observations, appeal filed by the appellant is rejected.

Decision:-Appeal rejected.

Comment:- The crux of the case is that thenon-filing of returns and non-payment of Service Tax in spite of collection from customer clearly convey the mala fide intention of the assessee and henceforth he is liable to be penalized under Section 78 of Finance Act, 1994. The plea that no penalty should be imposed as service tax along with interest was paid before issuance of show cause notice was rejected as there was no bonafide intention of the appellant.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2899

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