Whether pursuing of PHD by MD sufficient cause for non payment and non filing of ST returns and waiver of penalty under section 78?

PJ/Case law/2013-14/1902

Case:- GLOBAL INFORMATION TECHNOLOGIES VERSUS C.C.E., HYDERABAD

Citation:- 2013 (31) S.T.R. 179 (Tri. - Bang.)

Brief facts:-The facts of this case is that in a show cause notice dated 27-12-2010, the department demanded an amount of Rs. 9, 47,988/- towards service tax and education cesses for the period from October 2006 to September 2010 under the proviso to Section 73(1) of the Finance Act, 1994, and proposed to appropriate equal amount already paid by them towards such demand. The show cause notice also proposed to appropriate a payment of Rs. 1,09,241/- towards demand of interest on service tax and education cesses. It also proposed penalties on the party under Sections 77 & 78 of the Act. In reply to the show cause notice, the Managing Partner of the firm stated certain circumstances which were claimed to have caused delay in payment of service tax. He also requested for dropping the Section 78 penalty on the ground that the entire service tax and interest thereon had been paid before the issue of show cause notice. The Managing Partner also invoked Section 80 of the Finance Act, 1994 to get over penal liability. The adjudicating authority, in a detailed order, confirmed the demands against the assessee and appropriated their payments towards such demands. It also imposed a penalty of Rs. 9, 47,988/- on the assessee under Section 78 of the Act and also enabled the party to pay only 25% towards penalty if paid within 30 days from the date of communication of his order. The assessee did not exercise the option given by the adjudicating authority. They preferred an appeal to the Commissioner (Appeals) and the latter upheld the order passed by the lower authority. Hence the assessee is in appeal before the Tribunal.

Appellant’s Contention:-He had stated that he had depended on his accountant in these matters as he (Managing Partner) was busy pursuing his Ph.D. with S.K. University, Anantapur since February 2007. Apparently, because of his preoccupation with his studies, the Managing Partner depended on his staff members in matters pertaining to payment of service tax. It is also on record that, since he was alerted by the department, he started taking steps like filing of returns, payment of service tax, payment of interest, etc. He managed to pay up all dues before show cause notice was served on him. These circumstances should have weighed with the lower authorities while considering the assessee's prayer for the benefit of Section 80 of the Act.

Reasoning of Judgment:-After hearing both sides and considering the submissions, we have noted the following facts:-

(I)           The appellant admittedly did not pay service tax on their output service (maintenance or repair service) as required by the relevant legal provisions. Even though they had obtained registration with the department in 2006, they did not file returns during the subsequent period of dispute. The Service Tax and interest thereon were paid only in the wake of departmental intervention.

(II)          The appellant collected Service Tax from their customers as evidenced by the records. However, they did not pay the same to the exchequer as required by the relevant provisions.

(III)        Suppression of material facts by the appellant with intent to evade payment of service tax to the Government is evident from the above conduct of the party and, hence, the invocation of the proviso to Section 73(1) of the Act by the show cause notice and the adjudicating authority cannot be faulted.

However, neither in the order-in-original nor in the order-in-appeal did we come across proper discussion on the applicability of Section 80 of the Act to the facts and circumstances of the case. It is on record that the Managing Partner placed before the original authority certain circumstances which incapacitated him in the matter of filing Returns and paying service tax on time. The original authority appears to have been carried away by the rigour of law while dealing with the assessee's plea for the benefit of Section 80. It held that sufficient cause was not shown by the assessee for exoneration from payment of penalty under Section 78. The appellate authority sustained the finding of the lower authority mindless of the exceptional circumstances stated by the assessee. We have applied our mind to the aforesaid facts and circumstances and are of the view that, in such circumstances, the benefit of Section 80 would accrue to the assessee. The appellant has shown sufficient cause for their defaults. In this view of the matter, we set aside the Section 78 penalty and allow this appeal. The findings on other issues, recorded by the lower appellate authority, are sustained. The appeal stands allowed and the stay application stands disposed.

Decision:-Appeal allowed.

Comment:- The crux of this case is that if an assessee has sufficient and proper reasons for late filing of returns and payment of ST, then according to the Section 80 he may be granted waiver from the imposition of equal penalty under section 78 of the Finance Act, 1994.

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