Whether benefit of Section 80 available if service tax collected but not paid to government?

PJ/CASE LAW/2015-16/2631

Case:-INDSUR GLOBAL LTD. VERSUS ADDL. COMMR. OF SERVICE TAX, VADODARA

Citation:- 2015(38) S.T.R. 14(Guj)

Brief Facts:-The assessee recovered service tax from the service recipient but did not deposit with the Government till first it was so pointed out through communication by the adjudicating authority and thereafter, summons were issued by the investigation wing. Only thereafter, the assessee agreed to pay the same. In that view of the matter, features of Sections 76, 77 and 78 of the Act were applicable. The adjudicating authority imposed such penalties and did not accept the assessee’s defence of bonafide belief and error. The attempt on part of the assessee to bring the case within the ambit of Section 80 of the Finance Act, 1994 was repelled. The appellate authority also confirmed the decision of adjudicating officer. In further appeal before the Tribunal it was argued that the appellant had already paid tax before issuance of notice. The penalties therefore, ought to have been waived. The Tribunal noted that there was no dispute about the duty liability with respect to the business auxiliary service provided by the assessee. It was further held that the Service Tax was actually recovered from the service recipient in the invoices, However, while filing the returns for the relevant period, assessee had shown Service Tax payment on these services as nil. The Tribunal therefore, held that the assessee could not show reasonable cause to bring out as to what prevented the assessee from making the payment of Service Tax when the same was actually recovered from the service recipient. Aggrieved by the decision of Tribunal assessee filed appeal before High Court against the said order.

Appellant’s contention:-The appellant submits that they had already paid tax before issuance of notice and the penalties therefore, ought to have been waived.

Respondent’s Contention:-The Respondent submits that the appellant collected Service Tax on taxable service but not having deposited the same with the Government . The respondent further submits that the appellant has not given any reasonable cause for such failure. Hence the appellant is liable to pay penalties under Sections 77 and 78 of the Finance Act, 1994.

Reasoning of Judgment:-The High court heard both the parties and found that the only question that was raised in this case is that whether the assessee could get the benefit of Section 80 of the Finance Act, 1994 which reads as under :

“80. Penalty not to be imposed in certain cases. - Notwithstanding anything contained in the provisions of Section 76, Section 77, Section 78 or Section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure.”

The High Court further finds that It can thus be seen that even if the provisions of Sections 76, 77 and 78 of the Act are otherwise applicable, no penalty would be imposed on an assessee for the failure referred to in such provision, if he proves that there was reasonable cause for such failure. Thus the primary duty is on the assessee to establish reasonable cause for failure. What would constitute reasonable failure in a given case would essentially be a question of fact. The Revenue authorities as well as the Tribunal concurrently came to the conclusion that the assessee failed to offer any such reasonable cause. In particular, as noted earlier, the Tribunal recorded that the assessee had in fact recovered Service Tax periodically from the service recipient. Not only that such service tax was not deposited with the Government in the returns filed it was declared that Service Tax liability was nil. Now to argue that this was done under a bona fide belief and that the assessee having paid the Service Tax before the issuance of show cause notice which amounts to reasonable cause, cannot be accepted.

In view of the above findings, the appeal filed by the appellant is dismissed as devoid of any merits.

Decision:- Appeal dismissed.

Comment:-The benefit of section 80 for waiver of penalties is admissible only if there is reasonable cause. The activity of collecting service tax and not paying the same to the government exchequer cannot be considered as ‘bonafide’ or ‘reasonable cause’ so as to extend the benefit of section 80. Accordingly, the appeal filed for waiver of penalties was dismissed because the service tax collected from the service recipients was paid to the government only when pointed out by the service tax department.

Prepared by: Bharat Rathore

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PJ/CASE LAW/2015-16/2631

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