Spa Company Collected Service Tax but fails to Deposit: CESTAT Confirms ₹17.28 Lakh Tax Demand and Penalty [Read Order]
CESTAT upholds Rs. 17.28 lakh service tax demand and penalties for collecting tax from customers but not depositing it with the government.
Service Tax - CESTAT - Tax Demand - Penalty - taxscan.
Service Tax - CESTAT - Tax Demand - Penalty - taxscan.
The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) upheld a service tax demand and penalty against a Noida-based spa company for collecting service tax from customers but failing to deposit it with the government.
Dream Spa Enterprises, engaged in providing health club, fitness centre, and beauty treatment services, was accused of suppressing income and evading service tax for the period from September 2015 to June 2017.
The Directorate General of GST Intelligence (DGGI) searched the premises of RDS Hospitality Pvt. Ltd. in December 2017, where month-wise daily sale sheets of Dream Spa Enterprises were recovered. The investigation revealed that Gufran Khan, a director of RDS Hospitality Pvt. Ltd., was also the proprietor of Dream Spa Enterprises.
Based on the evidence, the department alleged that the spa collected service tax from clients but did not reflect all receipts in its accounts or returns. The adjudicating authority confirmed a demand of Rs. 17,28,847 along with interest and imposed an equivalent penalty under Section 78 of the Finance Act, 1994.
An additional penalty of Rs. 5,000 was levied under Section 77(2). The Commissioner (Appeals) later upheld this order.
Before the tribunal, the appellant argued that the sale records recovered belonged to another entity, Dream Spa Centre, and not to Dream Spa Enterprises. They claimed that its accountant had wrongly filed service tax returns and that the demand was based on incorrect and mismatched data.
The department’s counsel countered that the proprietor had admitted during the investigation that the documents belonged to his business and that the receipts were genuine records of taxable income.
The single-member bench comprising Sanjiv Srivastava (Technical Member) observed that the proprietor had admitted ownership of the recovered documents and the suppression of receipts. The tribunal explained that the appellant’s plea of ignorance was not credible since the proprietor was also a company director.
It pointed out that the firm had issued bills showing service tax collection but failed to deposit it and even filed nil or incomplete returns. The tribunal found no merit in the appeal and held that the extended period of limitation was rightly invoked due to deliberate suppression of facts.
The appeal was dismissed, and the demand of Rs. 17,28,847 with interest and penalties was confirmed.
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