2015 (7) TMI 390 - HC - Service Tax

Failure to Deposit Service Tax Leads to Upheld Penalties: Analysis of Finance Act Sections

INDSUR GLOBAL LTD. Versus ADDL. COMMR. OF SERVICE TAX, VADODARA

The judgment upheld the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 due to the failure of the assessee to establish a reasonable ... Levy of penalties under Sections 77 and 78 - Bonafide belief - Held that:- Even if the provisions of Sections 76, 77 and 78 of the Act are otherwise applicable, no penalty would be imposed on an assessee for the failure referred to in such provision, if he proves that there was reasonable cause for such failure. Thus the primary duty is on the assessee to establish reasonable cause for failure. What would constitute reasonable failure in a given case would essentially be a question of fact. The Revenue authorities as well as the Tribunal concurrently came to the conclusion that the assessee failed to offer any such reasonable cause. In particular, as noted earlier, the Tribunal recorded that the assessee had in fact recovered Service Tax periodically from the service recipient. Not only that such service tax was not deposited with the Government in the returns filed it was declared that Service Tax liability was nil. - No question of law arises. - Decided against assessee. Issues:1. Challenge to the judgment of the Customs, Excise & Service Tax Appellate Tribunal.2. Levy of penalties under Sections 77 and 78 of the Finance Act, 1994.3. Applicability of Section 80 of the Finance Act, 1994 regarding penalty imposition.4. Reasonable cause for failure to deposit Service Tax with the Government.Issue 1: Challenge to Tribunal's JudgmentThe appellant challenged the Tribunal's judgment questioning the justification of not dropping penalties when duty and interest were voluntarily paid before notice issuance. The issue also raised concerns about the imposition of penalties and the fit case for granting waiver under Section 80 of the Act. The Tribunal was questioned for ignoring its own settled orders and decisions of Higher Courts.Issue 2: Levy of PenaltiesThe issue revolved around the levy of penalties under Sections 77 and 78 of the Finance Act, 1994 for collecting Service Tax but not depositing it with the Government. The adjudicating authority imposed penalties rejecting the assessee's defense of bona fide belief and error. The appellate authority and Tribunal upheld the penalties due to the failure to show reasonable cause for not making the tax payment despite recovering it from the service recipient.Issue 3: Applicability of Section 80 of the Finance ActThe judgment analyzed the applicability of Section 80 of the Finance Act, 1994, which states that no penalty shall be imposed if the assessee proves reasonable cause for the failure. The primary duty lies on the assessee to establish reasonable cause, and failure to do so may result in penalty imposition. In this case, the Tribunal and Revenue authorities concluded that the assessee failed to provide any reasonable cause for not depositing the Service Tax with the Government.Issue 4: Reasonable Cause for FailureThe judgment emphasized that the assessee's failure to deposit the Service Tax despite recovering it from the service recipient could not be justified under a bona fide belief. The Tribunal found that the assessee did not offer any reasonable cause for the failure to make the payment before notice issuance. The conclusion was based on factual findings that the Service Tax was collected but not deposited with the Government, leading to the dismissal of the Tax Appeal and Civil Application.In summary, the judgment upheld the penalties imposed under Sections 77 and 78 of the Finance Act, 1994 due to the failure of the assessee to establish a reasonable cause for not depositing the Service Tax with the Government, despite collecting it from the service recipient. The applicability of Section 80 was analyzed, emphasizing the assessee's responsibility to prove reasonable cause for any failure to avoid penalty imposition.