By TIOL News Service

MUMBAI, APR 23, 2014: THE appellant is engaged in providing various taxable services viz. Storage and Warehousing Service, Cargo Handling Service, Management, Maintenance and Repair Service, Technical Inspection and Certification Service and took registration on 10.10.2003.

During investigation, it was found that although the appellant had taken registration in October, 2003, they had not filed any returns or deposited the service tax collected from their clients. And on the occasions that they had deposited the ST, the same was far less than their service tax liability. After detection of the case, they started paying arrears of service tax in piecemeal. At the time of recording of the first statement, appellant admitted that there is unpaid service tax for the year 2004-05 amounting to Rs. 92,50,777/-. A part of the amount along with interest was deposited also. In respect of a service for which they were collecting the service tax under the head Business Auxiliary Service the tax was paid in December 2004 and the return was filed only in February 2007. Investigation further yielded that even the service tax returns which were filed after initiation of investigation did not reflect the position correctly relating to value of service tax and payments. Appellant admitted these and also paid service tax thereafter.

ASCN was issued on 24.08.2008 demanding service tax of Rs. 5,85,86,971/-. By this time, appellant had paid an amount of Rs.5,57,22,052/-. It was proposed to appropriate the same. It was also proposed to appropriate the interest of Rs. 70,66,597/-already paid by them. The original authority confirmed the various demands and appropriated the various sums and imposed penalties under Section 76, 77 & 78 of the FA, 1994.

Aggrieved by the said decision of the Adjudicating Authority, the appellant is before the CESTAT and submits -

+ They do not dispute the tax liability or classification of the services, however, since the substantial amount was paid by them before the issue of SCN, as per the provisions of Section 73 (3) of FA, 1994 no show-cause notice should have been issued to them.

+ At the most, a SCN for a differential amount of Rs.28,64,919/- could have been issued and even this amount was immediately paid by them, partly in cash and partly in CENVAT credit along with 25% penalty; that the part of the tax amount paid through CENVAT has now been paid in cash to avoid any further controversy or litigation.

+ The promoter of the appellant company was a Captain in the Merchant Navy and is not familiar with the tax aspect and all the financial work was assigned to an independent Chartered Accountant who committed financial irregularities and hence was removed;

+ Penalties should be waived in view of the aforesaid submissions taking cognizance of s.80 of FA, 1994 - a handful of case laws were cited in support.

The Revenue representative strongly objected to the submissions of clemency sought by the appellant by laying the blame at the end of the Chartered Accountant for non-deposition of taxes on time by submitting that no criminal complaint had been filed by the appellant against the CA or by referring the misdeeds of the CA to the Instituted of Chartered Accountants for initiating action. It was also submitted that even after the CA was removed in the year 2005, no concrete action was taken by the appellant to pay the dues and it was only when the investigation commenced in September, 2006 that they started paying the ST; considering the amount of ST involved, the penalties are correctly imposable.

The Bench inter alia extracted the following findings of the adjudicating authority -

The noticee has made the service tax payments as under: (A) Service Tax paid belatedly before initiation of investigations dated 26-6-2006: Rs.65.97 lakhs which includes Rs.12.59 lakhs paid on due date); (B) service tax paid belatedly during the course of investigation: Rs.491.25 lakhs (which includes Rs.8.82 lakhs paid on due date) & (C ) Service Tax paid after issue of SCN dated 24.10.2008: Rs.28,64,919/- (this includes cash payment of Rs.10,66,501/- and Cenvat credit of Rs.17,98,418/-)

- and observed that there was suppression of facts as also contravention of Rules with willful intent to evade payment of duty.

The Bench, therefore, observed that the conduct of the appellant left no doubt that ingredients to invoke proviso to Section 73(1) of FA, 1994 are present in the case.

In the matter of the submission of the appellant for waiver of SCN in terms of s. 73(3) of FA, 1994, the Bench noted that sub-section (4) of Section 73 lays down that the sub-section (3) of Section 73 shall not apply in case where any ST has not been paid by reason of suppression of facts etc. Inasmuch as since it is held that there was suppression of facts as also contravention of Service Tax Rules with willful intention, the Bench rejected the contention of the appellant that no notice was required to be issued as per Section 73 (3).

The penalties imposed under sections 76 & 78 of the FA, 1994 were also upheld.

As for invocation of the provisions of section 80 of the FA, 1994 for waiver of penalties on the ground of their having a reasonable cause for failure to pay tax due to the deficiencies of the CA, the Tribunal observed that if the appellant had chosen to appoint an independent Chartered Accountant, then he had acted as an agent of appellant and appellant would be responsible for all his acts and, therefore, the claim made by the appellant is not tenable.

Holding that the plethora of decisions cited by the appellant were distinguishable and do not apply to the facts of the case, the CESTAT held that there was no merit in the appeal and hence dismissed the same.

(See 2014-TIOL-612-CESTAT-MUM)