Collected service tax must be deposited; financial difficulty is no defence to Section 78 penalty.

Penalty under Section 78 of the Finance Act, 1994 was upheld where service tax had been collected from customers, reflected in receipts as included in the fee, but was retained instead of being deposited with the Government. The plea that financial difficulty prevented remittance was rejected because financial constraint is no defence once tax has already been recovered from service recipients. Authorities cited by the appellant were distinguished on the ground that they did not concern collected tax being withheld without deposit. The penalty was therefore sustained.

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Issues: Whether penalty under Section 78 of the Finance Act, 1994 was sustainable where service tax had been collected from customers but not deposited in the Government treasury, and the default was attributed to financial constraints.

Analysis: The appellant had admitted collection of service tax from students, and the receipts also showed that the fee was inclusive of service tax. The tax so collected was retained and not remitted to the Government. The plea of financial difficulty was held to be no defence in such circumstances, especially when the tax had already been recovered from the service recipients. The authorities relied upon for the appellant were distinguished because they did not involve collected service tax being withheld without deposit. Reliance was placed on the view that financial constraint cannot justify non-deposit of duty or tax once collected.

Conclusion: The penalty under Section 78 was rightly imposed and the appeal was rejected.

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