2017 (9) TMI 1635 - AT - Service Tax

Tribunal upholds penalty for Service Tax non-payment on recruitment services. Appellant's confusion not accepted.

The Tribunal upheld the penalty imposed under Section 78 of the Finance Act, 1994, on the Appellant for not paying Service Tax on charges for manpower ... Penalty under Section 78 of the Finance Act, 1994 - service tax liability on manpower recruitment/supply agency services - bona fide belief or reliance on alternative tax treatment (State VAT/Commercial Tax) as defence to penalty - duty to refer tax doubt to departmental authorities/voluntary disclosure - appellate scrutiny of penalty for failure to discharge service taxPenalty under Section 78 of the Finance Act, 1994 - service tax liability on manpower recruitment/supply agency services - bona fide belief or reliance on alternative tax treatment (State VAT/Commercial Tax) as defence to penalty - duty to refer tax doubt to departmental authorities/voluntary disclosure - Validity of penalty imposed under Section 78 for non-discharge of service tax on amounts received for manpower recruitment/supply agency services during Jun 2005 to March 2006 - HELD THAT: - The Appellate Tribunal examined whether the appellant's contention of bona fide belief-based on legal opinion obtained by clients and concurrent litigation before the State Commercial Tax Department regarding VAT treatment-excused non-payment of service tax and thereby precluded imposition of penalty. The Tribunal found that the appellant, though a registered unit under the service tax Commissionerate, did not bring the doubt to the notice of the Service Tax Department nor seek clarification or make voluntary disclosure during the relevant period. Reliance on the client's legal opinion and ongoing discussions with clients without any correspondence with the departmental authorities was held insufficient to negate the penal consequences of non-payment. Given the absence of any plausible reason for failing to discharge the liability in time and the appellant's position as an organized, registered assessee, the mitigating contentions were rejected and the concurrent findings of the adjudicating and first appellate authorities upholding the penalty were affirmed.Penalty under Section 78 upheld and appeal dismissed.Final Conclusion: The appeal is dismissed; the penalty imposed under Section 78 of the Finance Act, 1994 for non-payment of service tax on amounts received for manpower supply/recruitment during Jun 2005 to March 2006 is affirmed. Issues:Penalty imposed under Section 78 of the Finance Act, 1994.Analysis:The appeal before the Appellate Tribunal CESTAT Bangalore was directed against Order-in-Appeal No. 361/2011 dated 04.07.2011. The issue at hand revolved around the penalty imposed by the adjudicating authority under Section 78 of the Finance Act, 1994, which was upheld by the First Appellate Authority. The case stemmed from the Anti Evasion Staff of the Service Tax Commissionerate discovering that the Appellant had not paid Service Tax on charges for manpower recruitment or supply agency services during a specific period. The Appellant subsequently paid the outstanding amount in cash and Cenvat credit, along with interest. A show cause notice was issued for appropriation of the amounts paid and for the imposition of penalties. The adjudicating authority confirmed the demands, interest, and penalties under various sections of the Finance Act, 1994, leading the Appellant to appeal the penalty under Section 78.The Appellant argued that there was confusion regarding the taxability of the amounts received due to legal opinions received by their clients, and ongoing litigation with the Commercial Tax department of the State Government. They contended that they did not discharge the service tax liability during the relevant period in good faith, believing that if the Commercial Tax department deemed the activity taxable under VAT, no service tax liability would arise. However, the Tribunal noted that despite the ongoing discussions and correspondence with clients, there was no communication with the Service Tax department regarding the matter. The Tribunal found that as an Assessee in the organized sector, the Appellant should have been more knowledgeable about the law and should have discharged the service tax liability on time.Ultimately, the Tribunal upheld the findings of the First Appellate Authority, stating that the penalty imposed under Section 78 was justified. The Tribunal concluded that the appeal lacked merit and was therefore rejected. The judgment was pronounced in open court on 21.09.2017.