Penalty u/s 77 and 78 cannot be imposed in absence of Evidence of Suppression of fact to Evade Payment of Tax: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of Chennai Bench has held that penalty under sections 77 and 78  of the Finance Act, 1994 cannot be imposed in absence of evidence of suppression of fact to evade payment of tax.

M/s. Servocraft HR Solutions Private Limited, the appellants are engaged in the recruitment of skilled, semi-skilled and non-skilled persons as per the requirement of their client, and also supply manpower on a man-hour basis. They are registered with the Service Tax Department under ‘Manpower Recruitment or Supply Agency Service’.

During the course of the audit of accounts the Department noticed that though the appellant had raised bills on their customers indicating service charges and Service Tax separately, they were not paying Service Tax within the due date prescribed as per Rule 6 of the Service Tax Rules, 1994 and was habitually delaying payment of Service Tax on various occasions. It was also noticed that they had not paid the Service Tax collected from the customers for the period from August 2010 to October 2010 till the visit of the audit officers on 24.11.2010.

On being pointed out, the appellant paid the amount of Service Tax along with interest. It was also noted that the appellant filed ST-3 returns for the half year ending September 2010 and March 2011 on 21.02.2011 and 20.07.2011 and there was the late filing of returns for other periods.

Show Cause Notice No. 359/2011 dated 26.09.2011 was issued, proposing to demand the amount of Rs.50,11,790/- for the period from August 2010 to October 2010 along with interest and for imposing penalties. After due process of law, the Original Authority confirmed the above demand along with interest and appropriated the amount with interest already paid by the appellant.

The appellant was given the option to pay a reduced penalty of up to 25% of the Service Tax demanded if the Service Tax and interest were paid by the appellant within 30 days from the date of receipt of the order.

It was argued that since the appellant had paid the Service Tax along with interest upon being pointed out by the audit party, the Department ought not to have issued any Show Cause Notice; the Show Cause Notice has been issued alleging suppression to evade payment of Service Tax. She submitted that the appellant had no mala fide intention and that the delay in paying the Service Tax was only because of financial hardships and that the appellant had taken every effort to make the payments at the earliest.

Sub-section (3) of Section 73 of the Finance Act, 1994  provides that no Show Cause Notice is to be issued when the assessee has paid the Service Tax along with interest.

A Coram comprising of MrsSulekhaBeevi C S, Member (Judicial) and Mr Vasa Seshagiri Rao,  Member (Technical) observed that an assessee who has suppressed figures in their account or issued parallel invoices to evade the payment of tax will not be covered under sub-section (3) of Section 73 of the Finance Act, 1994.

Further held that there is no evidence that the appellant has suppressed facts with the intent to evade payment of tax. The Tribunal held that the penalties imposed are unwarranted and modified the impugned order to the extent of setting aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994.

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