Introduction:
In a recent judgment the Hon’ble Tribunal in the case of M/s IWI CROGENIC VAPORIZATION SYSTEMS INDIA Vs Commissioner of Central Excise Vadodar (2015-TIOL-1458-CESTAT-AHM) has held that recovering tax from the service recipients and not paying the same to Department has to be treated as evasion of service tax with an intention to evade the tax and hence penalty is leviable even if tax liability along with interest was paid before the issue of Show Cause Notice.
Facts of the case:
The Appellant is registered with the Dept. and are availing the facility of Cenvat Credit on services like GTA Services, Maintenance and Repair Services, Erection and Commission and Installation Services, Supply of Eligible Goods Services, Clearing Services etc. As a result of investigation carried out by the officers of Central Excise, appellant was found to be not paying Service Tax on certain services for which show cause notice dated 13.4.2012 was issued for Rs 34,06,598/-, along with interest, and imposition of penalties under Section 76 and 78 of the Finance Act 1994 were also proposed. That the entire Service Tax demands along with interest was paid by the appellant which has been appropriated by the appellant in the Order in Original along with equivalent penalty under Section 78 of the Finance Act 1994. The Commissioner Appeals has also confirmed the demand of penalty. Hence the Assessee contested only for penalty before the Tribunal on a plea that the entire tax with interest was paid well before the issuance of the Show Cause Notice from the Department. He also pleaded that there is revenue neutrality in the case certain service tax payments made by him under reverse charge mechanism. Reliance was placed by the assessee side by quoting the case law of Bhagwati Caterers Vs CST, Ahmedabad.
Legal Provisions:
Section 78 of the Finance Act, 1994.
Section 78 has been amended to rationalize penalty, in cases involving fraud or collusion or willful mis-statement of suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of Service Tax, in the following manner,-
a) penalty shall be hundred per cent of Service Tax amount involved in such cases;
b) a reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax, interest and reduced penalty is paid within 30 days of service of notice in this regard;
c) a reduced penalty equal to 25% of the Service Tax amount, determined by the Central Excise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paid within 30 days of such order; and
d) if the Service Tax amount gets reduced in any appellate proceeding, then the penalty amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be admissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellate order.
Section 78 has been substituted to simplify and rationalize the penal provisions where the Service Tax has not been levied or paid, or short levied or short paid or erroneously refunded by reasons of -
- fraud, or
- collusion, or
- willful mis-statement, or
- suppression of facts, or
- contravention of any provisions of Service Tax or rules with the intent to evade payment of Service Tax.
Revenue’s contention:
The case referred by the appellant side not applicable because in the present case no financial hardships has been contested by the appellant which was the fact in the relied upon case law and appellant was also paying Service Tax to some extent before filing of the periodical returns. It was strongly argued by the Learned Authorised Representative that the appellant was recovering the Service Tax from their customers and the same was not paid. The Department contended that the appellant was recovering the Service Tax from their customers but not paying the same to the department and therefore there was no need for any leniency.
Court’s Order:
It has been held that the only argument of the appellant is that penalty under Section 78 of the Finance Act 1994 is not imposable as the entire Service Tax demand along with interest, was paid before the issue of show cause notice. It was also their case, that that Service Tax required to be paid under reverse charge mechanism was admissible as Cenvat Credit to the appellant and accordingly there cannot be any intention to evade payment of Service Tax. In this regard, it is observed that the appellant was recovering the Service Tax from the services. Further, they were registered with the Central Excise Dept. for providing several services including the services on which Service Tax was required to be paid on reverse charge basis. Appellant was also recovering the Service Tax from the service recipients. Once appellant is registered with respect to services, it is understood that the due service tax should have been paid to the Central Excise Dept when the same is received from the Service recipients or payable on reverse charge mechanism. No Financial hardship has been claimed by the appellant as was the case before the Bench in the case of Bhagwati Caterers Pvt Ltd vs CST, Ahmedabad reported in 2014-TIOL-259-CESTAT-AHM as pointed out by the Learned Authorised Representative, appearing on behalf of the Revenue. It is not the case where the appellant was not registered with Central Excise Dept and could claim ignorance of law. By recovering the Service Tax from their service recipients and not paying the same to the Dept. has to be considered as evasion of Service Tax with intention to evade when no periodical returns were filed. In view of the above observations, there is no reason to interfere with the order passed by the lower authorities and the order passed by the first appellate authority is required to be upheld.
Conclusion:
The appellants were seeking waiver of penalties under Section 78 of the Finance Act, 1994 on the premise that they have paid service tax before issuance of the show-cause notice. But in this case, the assessee has collected the tax from the service recipients but not discharged his liability and also not filed the returns. There are many decided cases where the genuineness is not proved, penalty equivalent to the service tax was confirmed in the courts of law. The Hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported 2011 (21) STR 224 (Kar.). While it is so, the Chennai bench in the case of G. Kannan Versus Commissioner of Central Excise (Service Tax), Madurai has reduced the penalty when the payments along with interest have been made before issuance of SCN. So, in the author’s opinion, it is to be proved beyond doubt that there is no suppression or fraud or collusion with an intention to evade payment of tax to the Government to get waiver of penalty under Section 78 of the Finance Act, 1994.
The author can be reached at renga42002@yahoo.co.in
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