SPECIAL FX Vs. COMMISSIONER OF SERVICE TAX

JUDGEMENT

(1.) IN this application, the Appellant seeks waiver of pre -deposit and stay of recovery in respect of penalties imposed on them, a penalty of Rs. 80 lakhs under Section 78 of the Finance Act, 1994, another penalty of Rs. 1000 under Section 77 of the Finance Act, 1994 and yet another penalty under Section 76 of the Act. The Commissioner of Service Tax, in adjudication of a show -cause notice, confirmed demand of service tax amounting to Rs. 78,88,616/ - for the period from April 2005 to September 2007 against the Appellant. The said amount of service tax and interest of Rs. 10,02,084/ - thereon had been paid by the Appellant in October 2007 before issuance of the show -cause notice. Hence these payments were appropriated by the Commissioner towards the above demand. Tax liability is not in dispute. The Appellant has, in their appeal, prayed for setting aside the penalties only. In the present application, they seek waiver and stay in respect of penalties.

(2.) THE consultant for the Appellant appears, though without proper authorization. We have heard him, upon his undertaking to file proper authorization during the course of the day. He submits that one Mr. Ravi Bhatia, Accountant of the Appellant, was entrusted with the job of paying service tax for the aforesaid period but he ran away with the cheques issued by the Appellant, with -out depositing the same with the department. It is submitted that, as soon as the Appellant came to know that the tax had not been paid, they voluntarily paid it up with interest in October 2007. It is submitted that the fraud played by Mr. Ravi Bhatia was noticed during the course of an internal audit held in October 2007. In these circumstances, it is submitted that the Appellant did not have any intent to evade payment of service tax and, therefore, they have no penal liability. The consultant, however, has not produced any internal audit report to substantiate his case. He has also argued that the Appellant should get the benefit of Sub -section (3) of Section 73 of the Finance Act, 1994 inasmuch as they voluntarily paid the service tax with interest.

(3.) AFTER considering the submissions, we have not found prima facie case for the Appellant. The circumstances stated by the consultant have not been substantiated inasmuch as no internal audit report is produced. On the other hand, the circumstances stated by the learned Jt CDR are borne on record. Prima facie, the Appellant's conduct was with intent to evade payment of service tax inasmuch as they collected service tax from the customers and retained the money with them and paid the amount only when investigations were launched by DGCEI. As such, payment of service tax with interest cannot be considered to be 'voluntary payment' for purpose of Section 73(3) of the Finance Act. Moreover, the Appellant cannot claim exoneration from penal liability solely on the basis that they paid service tax with interest prior to issue of show -cause notice. The decisions cited by the learned Jt. CDR lend support to this view. Prima facie, the Appellant has no case against the penalties imposed on them. The main penalty on them is under Section 78 of the Finance Act and the same amounts to Rs. 80 lakhs. In a reasonable approach, we direct the Appellant to pre -deposit a sum of Rs. Twenty lakhs within four weeks and report compliance on 8 -4 -2011.