Service Tax - Penalty u/s 76 or u/s 78 is not attracted to demands u/s 73(A )( 2) - High Court reverses order of Tribunal
By TIOL News Service
CHANDIGARH, MAY 13, 2015: THE issue before the High Court was "Whether Section 78 of the Finance Act, 1994 stipulates imposition of penalty on any person liable to pay such service tax or erroneous refund as determined under Section 73A(2) of the Finance Act.".
The respondent assessee is a service provider and is registered under Business Auxiliary Service. The assessee had raised three invoices dated 29.03.2008 with service tax element, but deposited the service tax only on 15.11.2008, after initiation of enquiry by the department. In adjudication, penalties under Section 76 ,77 and 78 were imposed while confirming the demand under Section 73A of the Finance Act, 1994. It is the case of the assessee that, as the service rendered by them was not liable to service tax at the material time, penalty is not attracted.
On appeal, the Commissioner (Appeals) held that the legal consultancy service had been brought under the service net from 01.09.2009 and during the year 2007-08, service tax was not leviable on legal consultancy service and it was his duty to deposit the said amount with the Central Government, forthwith, as per Section 73A of the Act. It was held that the amount collected was not chargeable but it was his duty to deposit with the Central Government and therefore, penalty was not liable to be imposed under Sections 76 & 78 of the Act whereas the nominal penalty imposed under Section 77 of Rs.1000/ was upheld and the order was, accordingly, modified.
On appeal filed by the revenue, the Tribunal restored the order of original authority.
The assessee is now in appeal before the High Court.
After hearing both sides, the High Court held:
Once the appellant was not liable to pay under the provisions of Section 68 since he was not providing taxable service at that point of time, the penalty imposable under Section 76 was rightly deleted by the Commissioner (Appeals). Another factor which has to be taken into consideration is that the penalty under Section 78 also pertains to the penalty for suppressing of value of taxable services. The intention, thus, of the person, has to be for evading the service tax which would impose the liability of the penalty and the section further provides that there has to be fraud, collusion or wilful mis -statement or suppression of facts and contravention of the provisions of the Chapter or of the Rules with intent to evade payment of service tax.
Once the service tax was not leviable under Section 68 at that point of time and the liability was only to deposit the tax under Section 73A( 2), which has been done on 15.11.2008, after delay, but due to the service being not taxable at the relevant time when the invoices were raised, the case would not fall under the provisions of Section 78 for invoking of the penalty, as has been held by the Tribunal. It was the categorical stand of the appellant before the First Appellate Authority that the service tax had been collected by mistake, on account of the new provision and the office of the appellant was not fully acquainted with the interpretation of the statute due to which the default had occurred and therefore, in view of the defence taken, the Tribunal was not justified, in the present facts and circumstances, to hold that there was a wilful suppression of facts, to bring it within the ambit of Section 78.
Accordingly, the High Court answered the substantial question in favour of the assessee and against the revenue.
(See 2015-TIOL-1239-HC-P&H-ST)
