CESTAT upholds Penalties for Non-Payment of Service Tax, Citing Intent to Evade Taxes and Lack of Revenue Neutrality [Read Order]

The Allahabad Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT )upheld penalties for non-payment of service tax, citing the assessee's intent to evade taxes and the lack of revenue neutrality.

Rama Shankar Sharma,appellant-assessee, was a registered service provider offering services to M/s Hindalco Industries Ltd., the service recipient. These services included Cargo Handling, Cleaning, Maintenance & Repair, Manpower Recruitment, and Construction services. However, the assessee failed to pay the service tax due for these services.

After an investigation, a show cause notice dated October 22, 2010, was issued, demanding Rs.17,71,846 in service tax (including cess) with interest and proposing penalties under Sections 75A, 76, 77, and 78 of the Finance Act for various violations.

Get a Copy of Boost Your Earning Potential: Upskill in Tax and Finance, Click here

The assessee did not dispute the show cause notice on merit, only challenging the tax calculation. They claimed deductions for non-taxable services before 16.06.2005 and the threshold exemption. A revised tax calculation was provided, showing a taxable turnover of Rs.1,56,19,865. The assessee agreed to pay the tax and requested a waiver of penalties.

The Original Authority allowed deductions for services before 16.06.2005 and recalculated the tax due, reducing it to Rs.17,19,158. The claim for Provident Fund deductions was rejected, as no such amount was found in the invoices.

The extended limitation period was applied, as the assessee had not disclosed taxable services, indicating an intent to evade tax. Interest was charged, and penalties under Sections 77 and 78 were imposed for non-compliance and suppression of taxable values.

Get a Copy of Boost Your Earning Potential: Upskill in Tax and Finance, Click here

The First Appellate Authority(FAA) found that the assessee had suppressed the value of taxable services, leading to short payment of Rs.17,71,846. The assessee argued that the tax paid was revenue neutral since Hindalco could claim Cenvat credit, and penalties and interest should not apply for non-taxable services.

The authority rejected the revenue neutrality argument, stating it had no legal basis, and confirmed penalties due to the assessee's failure to register and file returns on time. It was clear that the assessee intended to evade taxes.

The assessee also contested the inclusion of Rs.22,93,296 for Provident Fund, but the authority ruled it was part of the taxable value. However, the assessee received a deduction for services provided before 16.06.2005, which were not taxable.

The appeal was dismissed.The assessee challenged the extended limitation period and penalties on the grounds of revenue neutrality.

Get a Copy of Boost Your Earning Potential: Upskill in Tax and Finance, Click here

The two member bench comprising P.K Choudhary ( Judicial Member ) and Sanjiv Srivastava ( Technical Member ) referencing the Jay Yushin Ltd. case, held that revenue neutrality applies only if the tax credit directly benefits the taxpayer and not merely the service recipient. It further clarified that choosing to pay duty obligates the taxpayer to fulfill all associated legal requirements, and non-compliance indicates intent to evade taxes.

In similar cases like Afsar Tour and Travels and Digital Magic Visual India Ltd., the tribunal upheld penalties when service providers collected taxes but failed to deposit them, emphasizing that tax liability exists irrespective of reimbursement from clients.

Given these precedents and the assessee’s inability to justify their non-payment, the appeal was dismissed.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates