Network Company Collected Service Tax on Broadcasting Services but Failed to Deposit: CESTAT Upholds Penalty [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a network company that collected service tax on broadcasting services but failed to deposit the amount with the government is liable for penalty.

Narne Networks Pvt. Ltd., the appellant, is engaged in providing broadcasting and advertising services. Based on an investigation, the department found that the company had collected service tax from clients for broadcasting services but did not remit it to the government. It was also alleged that the company failed to pay service tax on the sale of film rights and irregularly availed CENVAT credit amounting to Rs. 1,40,14,440.

After adjudication, the Commissioner confirmed the demands under different categories and imposed penalties under Section 78 of the Finance Act, 1994. Aggrieved by the order, the appellant approached the tribunal.

The appellant’s counsel argued that they were not contesting the service tax liability on broadcasting services but only the penalty. They explained that the non-payment occurred during a period of severe financial crisis faced by the company. The counsel submitted that the new management, after taking over, cleared all dues by paying Rs. 1.60 crore in cash and Rs. 1.34 crore through CENVAT credit before the show cause notice was issued.

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The counsel argued that there was no intention to evade tax and that the company should be granted relief under Section 80 of the Finance Act, 1994, which allowed waiver of penalties for reasonable cause. The counsel relied on the decision of the Mumbai Bench of the Tribunal in Commissioner of CGST & Central Excise, Raigad v. Siddhivinayak Estates [2019 (6) TMI 846].

The revenue counsel argued that the company had deliberately withheld the service tax collected from customers and had not filed service tax returns for several years. They argued that this conduct showed clear intent to evade payment, justifying the invocation of the extended period and imposition of penalty under Section 78. The revenue counsel also argued that financial difficulty cannot be considered a valid reason for non-payment of government dues.

The two-member bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the appellant had collected service tax but intentionally failed to remit it for a long period.

The tribunal pointed out that the appellant neither filed returns nor disclosed the liability despite being registered under the Finance Act and being aware of their obligation to pay service tax. It observed that such conduct demonstrated a clear mens rea to evade tax.

The tribunal explained that the plea of financial hardship was not sufficient to justify non-payment of service tax and could not be treated as a reasonable cause under Section 80. It observed that once the intention to evade is established, the penalty under Section 78 automatically follows.

The tribunal upheld the findings of the adjudicating authority and confirmed the penalty imposed under Section 78 in respect of the broadcasting service demand. The appellant’s request for relief under Section 80 of the Finance Act, 1994, was rejected.

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