Intention To Evade Payment Of Service Tax

M. Govindarajan

1. Section 68 of the Finance Act, 1994 provides that the every person providing taxable service to any person shall pay service tax at the rate specified in section 66 of the Act in such manner and within such period as may be prescribed. Thus, section 68 fixes the responsibility for the payment of service tax by the service provider. Section 69 of the Act requires the service provider to be registered with the Central Excise Department. Section 70 of the Act imposes an obligation on the service provider to file returns periodically as prescribed. Section 73 of the Act empowers the Central Excise Officers to issue show-cause notice in case of recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. Thus, the Finance Act, 1997 has taken every step to protect the interest of the exchequer for the proper payment of service tax by the service providers.

2. Hereinbelow two case laws have been discussed in which the service providers defended the case and proved their cases. The said case laws are as follows :

1-S.R. Agency v. CCE [2008] 16 STT 260 (CESTAT - Chennai)

2-Om Sai Professional Detective & Security Services (P.) Ltd. v. CCE [2008] 16 STT 336 (CESTAT - Bang.)

In S.R. Agency’s case (supra), the appellants had rendered ‘clearing and forwarding agent’s service’ to their clients, viz., ACC Ltd. during 2002 and 2003 but had not paid service tax. After investigation, the department issued a show-cause notice dated 29-3-2004 demanding service tax of Rs. 6,68,833 from them under section 73(1)(a) of the Finance Act, 1994 and proposing penalties on them under sections 75A, 76, 77 and 78 of the Finance Act, 1994. The notice also proposed to appropriate towards the above said demand against the amount of Rs. 5,86,084 already paid by the party. The allegation in the show-cause notice was regarding the contravention of the provisions of the Finance Act, 1994 and rules made thereunder with the intent to evade payment of service tax.

The original authority confirmed the demand and appropriated the amount already paid by the party towards the demand. Further, it imposed penalties of Rs. 500, Rs. 100 per day, Rs. 1,000 and Rs. 6,68,833 under sections 75A, 76, 77 and 78, respectively.

The assessee filed an appeal before the Commissioner (Appeals) after paying the balance amount of service tax. The contest before the authority was against the penalties only. The Commissioner (Appeals) reduced section 78 penalty to Rs. 80,000 and maintained the rest of the penalties. Still aggrieved, the party was before the Tribunal.

The appellant contended the following :

1-The allegations contained in the show-cause notice were upheld by lower authorities without any justification.

2-There was not even allegation of fraud, collusion, wilful mis-statement or suppression of facts in the show-cause notice.

3-None of the ingredients specified under section 78 for the penalty were established in the case.

4-Section 75A was omitted on September 10, 2004 well before order-in-original was passed by the Commissioner.

5-Referring to a letter dated January 31, 2004 ACC Ltd., addressed to S.R. Agencies, Madurai, the appellants had duly acted upon their client’s advice given in the letter and paid-up the entire amount of the tax. The client had expressly offered reimbursement of the tax and, therefore, there was no intention to evade payment to the Government.

6-The department’s allegation that the appellants had contravened legal provisions by committing default of payment of service tax with intent to evade the liability was unfounded.

The Tribunal held that it had found a valid point in the submissions made by the appellants with reference to the letter dated January 31, 2004 of the appellants’ client, viz., ACC Ltd. This letter manifested the concern of ACC Ltd. (Service recipient) over the non-payment of service tax by the appellants. This letter urged them that an amount of Rs. 5,86,804 be paid towards service tax on or before January 28, 2004 and a copy of the relevant challan be forwarded for reimbursement. The hope of reimbursement directly emanated from this letter for the appellants to entertain a bona fide belief that whatever service tax might be paid by them would be reimbursed by the client. Therefore, the Tribunal held that there was no justification for the authority to have found that the appellants had any intention to evade payment of service tax. The penalty imposed under section 78 stood vacated while the other penalties remained.

In Om Sai Professional Detective & Security Services (P.) Ltd.’s case (supra), the appellant filed an appeal against the order passed by the Commissioner of Central Excise, Guntur confirming service tax by invoking larger period on the assessee and on the allegation of suppression of facts with intention to evade the payment of service tax. The appellant contended the following before the Tribunal :

There was no suppression of facts.

1-The show-cause notice was issued on 17-2-2006 for the services rendered from April 1, 1999 to March 31, 2003.

2-They had assessed service tax and paid the same from January 2005 onwards.

3-They were under a bona fide belief that the method of assessment followed by them was correct.

4-The balance sheets and income-tax returns had reflected the correct incomes which were not in dispute.

5-There was no intention to evade payment of tax as there were no ingredients of fraud, collusion or wilful mis-statement or suppression of facts or contravention of rules with intent to evade tax on their part.

6-The Commissioner (Appeals), in similar proceedings initiated against them by the department, had accepted the plea in Order-in-Appeal 09/2007(G) ST, dated December 3, 2007 in which he noted-

The department contended that merely information being provided to the department was not sufficient to absolve the assessee from the liability. It ought to have paid the service tax earlier. Therefore, the suppression of facts by the assessee could be alleged against him to confirm the demand.

The Tribunal held that the appellant had assessed the service tax on their own and voluntarily paid the same from January, 2005 onwards. The department was aware that the assessee was voluntarily paying service tax. The assessee did not have any intention to evade payment of tax as it followed the procedure laid down in the income-tax returns. This plea had been accepted by the Commissioner. The demand was time barred and impugned order was set aside.

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