Whether penalty under section 78 is applicable in case of sua moto deposition of service tax by the assessee?

PJ/CASE LAW/2016-17/3053

Case: COMMR. OF S.T.-I, MUMBAI Vs TIRUPATHI TRAVEL NETWORK PVT. LTD

Citation:2015 (39) S.T.R. 852 (Tri. - Mumbai)

Brief Facts: - The appeal is directed by the Revenue against Order-in-Appeal No. passed by the Commissioner of Central Excise wherein the Commissioner (Appeals) while maintaining the penalties under Sections 76 and 77, dropped penalty under Section 78.
The respondent is rendering services under the category of Air Travel Agency Services. The respondent filed ST-3 returns for the period ending September, 2003 on 27-10-2003 and not filed ST-3 return for the period ending March, 2004. The respondent were issued a show cause notice dated 30-7-2004 for non-payment of service tax for the period April 2003 to March, 2004. Subsequently, an addendum to the show cause notice was issued on 23-3-2006. The said show cause notice was adjudicated vide Order-in-Original dated 28-9-2006 wherein an amount of ` 3,29,059/-; ` 2,72,445/- and ` 5,53,511/- were confirmed along with interest. The adjudicating authority also imposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994. Aggrieved by the said order, the respondent filed appeal before the Commissioner (Appeals) who upheld the demand which was already paid and appropriated by the adjudicating authority. However, he set aside the penalty imposed under Section 78. Hence, Revenue is before CESTAT

Appellant’s Contention: The respondent has not only evaded the payment of service tax which was not disputed, but they had collected the said amount from their service recipients. After collection of the service tax amount from the service recipient and non-payment of the same to the government exchequer is clearly with a mala fide intention which attracts penalty under Section 78. The respondent also delayed in filing the ST-3 returns. Taking all these into consideration, the respondent had a clear intention to evade payment of service tax.

Reasoning of Judgement: In the present case, the demand of service tax and payment thereof, interest and penalty under Sections 76 and 77 are not the subject matter of the appeal. The Revenue is only contesting the setting aside the penalty under Section 78 by the learned Commissioner (Appeals). They have carefully gone through the findings of the Commissioner (Appeals) which is reproduced below:
“5. I have carefully gone through the records of the case and the submissions made in the grounds of appeal. The appellants do not dispute the service tax liability of Rs. 11,55,015/-. However, they have stated in the grounds of appeal that the payment on account of service tax could not be made due to financial difficulties and that various constraints prevented them from discharging the service tax liability even though they had a bona fide genuine intention to clear the same and that they have paid the service tax whenever possible. Thus they had cleared the tax liability to the extent of Rs. 7,06,791/-. There is no dispute that the appellants have not only failed to file the ST-3 returns in time but after filing the service tax return have continued to default in payment of service tax and have been depositing some amounts from time to time. They have never been able to completely wipe out the service tax liability. The non-payment of service tax on the due dates is certainly violation of the provisions of service tax Sections and Rules made thereunder and would certainly invite penalty under Section 76. Considering the fact that service tax is payable only on receipt of the consideration for services rendered the appellants cannot take shelter under the excuse of financial difficulties. It is evident that the tax so collected from the customers has been diverted elsewhere. Such actions invite strict penalties. Non-filing of returns has also resulted in invocation of Section 77. The adjudicating authority has therefore correctly imposed the penalties under both the Sections.
6. However the penalty under Section 78 is not called for. The appellants have themselves declared the tax liability to the department and hence the provisions of fraud or misdeclaration do not get attracted. The penalty imposed under Section 78 is accordingly set aside.
7. The impugned order is modified to the above extent and appeal filed by M/s. Tirupati Travel Network Pvt. Ltd. partially allowed.”
From the above findings of the learned Commissioner (Appeals) it can be observed that there is sufficient cause to set aside the penalty under Section 78 which is provided under Section 80 of the Finance Act, 1994. Therefore, the learned Commissioner (Appeals) has rightly exercised the power vested in him for setting aside the penalty imposed under Section 78. It is also a fact that the respondent have themselves suo motu deposited the service tax amount. The respondent also declared part of the taxable value in their ST-3 returns. The show cause notice was issued within the normal period of one year. Taking into consideration all these facts they are of the view that the penalty under Section 78 was correctly set aside by the learned Commissioner (Appeals) which does not require any interference.

Decision: Department Appeal Rejected

Comment: In this case, the assessee has themselves declared the tax liability to the department and hence the provisions of fraud or misdeclaration do not get attracted. The penalty imposed under Section 78 is accordingly set aside.

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PJ/CASE LAW/2016-17/3053

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