No penalty for suppression of value of taxable services if ST wasn't paid due to bona fide belief

ST: Where assessee had not paid service tax only on bona fide belief that they have to pay Service Tax after completion of entire service not on basis of account payment received in several lots, assessee could not be made liable to evasion penalty under section 78

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[2013] 35 taxmann.com 560 (Kolkata - CESTAT)

CESTAT, KOLKATA BENCH

Active Construction Co.

v.

Commissioner of Central Excise & Service Tax, Jamshedpur*

S.K. GAULE, TECHNICAL MEMBER

FINAL ORDER NO. A-267 (KOL.) OF 2012 
STAY ORDER NO. S-395 (KOL.) OF 2012 
STAY PETITION NO. SP-771 OF 2011 
APPEAL NO. ST/299 OF 2011

APRIL  27, 2012 

Section 78 of the Finance Act, 1994 - Penalty - For Suppressing, etc. of Value of Taxable Services - Assessee did not pay service tax despite collecting it from their clients - On being pointed out by Department, it paid service tax along with interest - Department issued notice seeking levy of penalty under section 78 on ground that assessee deposited service tax only after being pointed out by department and, thus, they intentionally suppressed facts with an intent to evade payment of service tax - Assessee argued that it had not paid service tax only on bona fide belief that they have to pay service tax after completion of entire service not on basis of account payment received in several lots - HELD : Show-cause notice nowhere stated that unpaid/escaped service tax was a result of fraud or collusion or wilful misstatement or suppression of facts or contravention of any provisions of service tax law or rules made thereunder with intent to evade payment of service tax - Assessee had bona fide belief that service tax was not payable in respect of 'on-account' payments - Since department could not bring out any suppression or wilful misstatement or any intention to evade service tax on part of assessee, no penalty could be imposed under section 78 in view of judgment in Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 180 Taxman 609/20 STT 481 (SC) [Para 6] [In favour of assessee]

CASE REVIEW

Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 180 Taxman 609/20 STT 481 (SC) (para 6) relied on.

CASES REFERRED TO

Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 180 Taxman 609/20 STT 481 (SC) (para 5).

Dinesh Jha for the Appellant. K.P. Singh for the Respondent.

ORDER

1. Applicant filed this application for waiver of pre-deposit of penalty of Rs. 4,51,758/- (Rupees Four Lakh Fifty One Thousand Seven Hundred and Fifty Eight only). The contention of the applicant is that they have already paid the Service Tax and interest thereon before the issuance of show-cause notice.

2. After hearing both the sides I find that appeal itself can be disposed of at this stage. Therefore with the consent of both the sides and after waiving the requirement of pre-deposit of penalty I take up the appeal itself for disposal.

3. Briefly stated facts of the case are that the appellant did not pay the Service Tax for the period April, 2006 to December, 2006 and despite the fact that they have received the Service Tax amount from their client M/s. TCIL. On being pointed out by audit they paid the Service Tax and interest involved in this case. Thereafter the department issued a show-cause notice for imposition of penalty under Section 78 of Finance Act, 1994.

4. The contention of the appellant is that they were under the bona fide belief that they are required to pay Service Tax only when the entire service is completed. Therefore they did not pay the Service Tax on the basis of account payment received in several lots. They are not contesting the Service Tax and interest already paid by them. The contention is that there is no intention to evade Service Tax or suppression or wilful misstatement in this case and they could not pay Service Tax in time only due to bona fide belief. Therefore equal amount of penalty under Section 78 cannot be imposed since the department failed to bring out any suppression, wilful misstatement on their part nor it is disclosed in the show-cause notice.

5. The contention of ld. A.R. Shri K.P. Singh is that penalty has been proposed in the show-cause notice under Section 78 therefore the appellant is liable to pay equal amount of penalty. He has heavily placed reliance on sub-section 78(l)(d)(e) and contended that they have not paid the Service Tax and they paid the Service Tax only on being pointed out. Had it not been pointed out the appellant would have evaded the Service Tax? They have not filed ST-C return therefore they cannot say that they have disclosed the facts to the department. He also placed reliance on Hon'ble Supreme Court's decision in the case of Union of India v. Rajasthan Spg. & Wvg. Mills [2009] 180 Taxman 609/20 STT 481.

6. Undisputedly the Service Tax and interest involved is not the issue in this case. The only issue involved in this case is imposition of equal amount of penalty under Section 78. The allegation of the department is that the appellant deposited the Service Tax after being pointed out by the department and thus they intentionally suppressed the facts, thus liable for the penalty. I agree with the contention of the applicant that show-cause notice nowhere states that the escaped Service Tax was result of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of Service Tax. The appellant could not pay Service Tax only on the bona fidebelief that they have to pay Service Tax after completion of the entire service not on the basis of account payment received in several lots. The department could not bring out any suppression or wilful misstatement or any intention to evade duty on the part of the appellant. Hon'ble Supreme Court judgment in the case of Rajasthan Spinning Mills (supra) would apply in cases where ingredients of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of Service Tax are present. In view of the above the impugned order-in-appeal is not sustainable, hence set aside. The appeal is allowed. Stay petition also gets disposed of.