ST - Whatever be constraint assessee was faced with, it was duty bound to remit amounts collected by it towards service tax, as required by law - penalty rightly imposed: High Court
By TIOL News Service
NEW DELHI, JAN 28, 2019: THE appellants, during the period 2006-2007 to September 2008, did not discharge service tax liability on the taxable considerations received by them. Upon follow up enquiry by the officers of the Department, an amount of Rs. 3,54,37,986/- was later paid by the appellant on 09.01.2009.
Proceedings were initiated for confirmation of service tax liability and for imposing penalties [SCN dated 12.03.2009 refers]. The adjudicating authority confirmed the service tax liability alongwith interest and appropriated the amounts paid.
Penalty of equivalent amount was also imposed on the appellant u/s 78 of the Finance Act, 1994.
Incidentally, in the matter of making the pre-deposit towards the appeal filed, the appellant had to knock the doors of the Delhi High Court. See - 2012-TIOL-900-HC-DEL-ST.
In the appeal filed before the CESTAT, it is submitted that they are not contesting the fact that they did not discharge service tax in time even after receipt of the consideration from the clients. However, it is the submission of the appellant that the delay in payment of service tax is due to acute financial problem; that there was no intention to evade the service tax; that the amount of service tax payable has been reflected in their annual balance sheet under the head "statutory liabilities". Moreover, since the entire amount of service tax along with interest for delayed payment has been paid before the issue of show cause notice, the proceedings against them should have been closed in terms of Section 73(3) of Finance Act, 1994.
The CESTAT while rejecting the appeal held thus -
"It is clearly recorded that the appellants realized the invoice amount inclusive of service tax and they have not paid the service tax to the Government thereafter, as stipulated by the provisions of FA, 1994 - It is clear that the amount realised from the clients which included the tax has been used for internal purposes by the appellant disregarding the statutory tax liability to the Government - bonafideness of the appellant cannot be accepted in such an act - also financial hardship cannot be pleaded against penal action when the tax collected is not remitted to the Government but used for other expenses - moreover, closure u/s 73(3) of FA, 1994 is not permissible if the case is covered under the provisions of Section 73(4) - further, as regards non-mentioning the option of 25% penalty in the order issued under Section 78(1) does not render the order bad in law as held by the Delhi and Bombay High Courts."
We reported this order as - 2017-TIOL-484-CESTAT-DEL.
Against this order, the appellant is before the Delhi High Court and urges the question of law as to whether "imposition of penalty for non-payment of service tax was unwarranted".
The High Court extracted the order passed by the CESTAT and mentioned that the order was justified and warranted in the circumstances.
It is further observed -
"…Whatever be the constraint, the assessee was faced with, it was duty bound to remit amounts collected by it towards service tax, in a planned manner, and as required by law. The deposit belatedly, by it, on the ground that the amounts were deposited on adhoc basis due to operation of a centralised system, cannot be a legitimate excuse. What is evident is that the assessee/appellant withheld the amounts collected from the service recipient as tax liability. As the remitter, assessee/appellant was duty bound to comply with the terms of the Finance Act and Rules, which prescribed not only filing of returns but also periodic deposit of these amounts. The delay in deposit of these amounts spanned over a period of two and half years and therefore, amounted to mis-reporting of true and correct facts. To that extent, the Show Cause Notice was justified…"
Insofar as imposition of penalty is concerned, the High Court noted that the provision under Section 78 of the Act and also even Section 73(4) leave no manner of choice; that it was a matter of course and the only mitigating circumstances whereby the penalty could be reduced might have been if the assessee had deposited the reduced amounts (of penalty) within 15 or 30 days of receipt of the Show Cause Notice as indicated in proviso 1 and 2 to Section 78.
Noting that the reduced penalty amounts were not deposited by the assessee, which is a statutory mandate within the time stipulated by law, the High Court concluded that there was no merit in the appeal.
The appeal was dismissed.
(See 2019-TIOL-215-HC-DEL-ST)
