By TIOL News Service

CHENNAI, JAN 25, 2019: THE appellant challenges the order of the CESTAT to the extent of granting only partial relief of reducing penalty to 25% of the amount as imposed in the order-in-original when the fact of the matter is that the appellant had paid the entire service tax along with interest before filing reply to the SCN.

The Adjudicating Authority came to the conclusion that though the assessee collected the amounts payable from their customers along with service tax, they did not remit the same into the Government account, but utilized the same for their day-to-day business.

The High Court noted that such a finding was not supported by any material and that the same had been rendered without considering the specific contention of the assessee that the delayed payment of service tax was on account of delayed payment by their clients and that the payments received belatedly were first utilized to pay the wages, since their nature of business, namely, security service is labour intensive.

It was, therefore, observed that the Adjudicating Authority was not right in concluding that the assessee had collected money from their clients but not remitted to the Government.

Insofar as imposition of penalty u/s 78 of the Finance Act, 1994 is concerned, the High Court observed that the crucial words in Section 78(1) are 'by reason of fraud or collusion' or 'willful misstatement' or 'suppression of facts' and which are to be read in conjunction with 'the intent to evade payment of service tax'. However, there was no finding rendered by the Adjudicating Authority stating that there was either fraud or collusion or willful misstatement or suppression of facts or contravention of the provisions of Chapter V with an intent to evade payment of service tax.

Opining that, in the strict sense of the matter, without a finding rendered by the Adjudicating Authority that there was an intention to evade payment of service tax, under normal circumstances, penalty could not be imposed, the High Court further added-

+ However, the facts of the case have not fully convinced us to waive the entire penalty, as there has been chronic default committed by the assessee in regular intervals by failing to pay the service tax within the time permitted under the Statute. Hence, we are of the considered view that this can be taken as a mitigating factor to reduce penalty, but not to waive the entire penalty.

+ We modify the order passed by the Tribunal to the extent of reducing penalty to 10% of the penalty imposed under Section 78 of the Finance Act, 1994 vide the Order-in-Original dated 19.12.2008.

The appellant assessee was directed to comply with the said direction within one week and to facilitate the same, the attachment of the assessee/appellant's bank account was ordered to be lifted.

The High Court also clarified that the order should not be treated as a precedent considering that it had been passed in the peculiar facts and circumstances of the case and the nature of business done by the assessee, whose managing director is an Ex-serviceman.

The appeal was partly allowed.

(See 2019-TIOL-206-HC-MAD-ST)