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Bombay High Court: Financial Difficulties No Ground for Defence if Assessee Failed to Pay Service Tax [Read Order]

Author – Neha Agarwal (Banasthali Vidyapith, Rajasthan)

Bombay High Court (BHC) in case of  M/s. Dilip Chhabria Design Pvt. Ltd. v.The commissioner of Central Excise Pune -I, has held that the defence of financial difficulties cannot be invoked by the Assessee when the Assessee failed to remit the service tax amount collected from the customers to the Government exchequer.

In the present case, The appellant is engaged in providing taxable services such as Interior Decorator Services, Design Services, servicing of Motor Vehicle and Management Consultancy Services.

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On a surprise visit by the Officers of Revenue on 3rd December 2012, it was found that the appellant had not paid service tax from December 2011 onwards. Thus, the Show Cause Notice dated 25th February 2014 was issued demanding service tax along with interest and also imposing penalty. In the meantime, the respondent had deposited the service tax payable by them from the period December 2011 to March 2013 for which the Show Cause Notice was issued. In its reply to the above notice, the appellant pointed out that they are not contesting the demand of service tax which has now been paid. However, non­payment of service tax was only because of  its  financial difficulty. Thus, by an order dated 1st September 2014 confirmed the service tax  demand of Rs.1,93,17,035/­ as well as imposing penalty of Rs.96,58,517/­ under the provisions of Section 78(1) of the Finance Act,1994.

Being aggrieved by the order dated  1st  September 2014, the appellant filed an appeal to the Tribunal. The Tribunal, confirming the penalty proceedings, had observed that since the appellant was aware of his liabilities in the law as he was filing his returns indicating the tax liability and was wilfully not depositing the tax collected, his conduct is not of simple ignorance but of willful default to hold the tax money for personal gains.

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Being aggrieved by the order appellant further filed an  appeal  under  Section  83  of  the  Finance  Act,  1994 read with Section 35G of the  Central  Excise  Act,  1944 challenges the order dated 24th July 2018 passed by the Customs, Excise and Service Tax Appellate Tribunal, Mumbai(Tribunal).

The division bench of the Bombay High court headed by Justices M S Sanklecha and M S Sonak noted that in this the admitted position is, that the extended period of limitation invoked for the purposes of service tax is not subject matter of challenge since the appellant had accepted its service tax liability. Concurring with the findings of the Tribunal, the bench held that

In this case, it cannot be disputed that the appellant after having recovered the service tax from its customer had not paid over the amount to the State. Thus, undeniably they have contravened the Finance Act, 1994 and Rules made thereunder, which obliges the assessee to make over the payment to the Government before the specified date. This non-payment was certainly with intent to evade the service tax as there was no justification for keeping the amounts recovered from the customer with itself and not passing it over to the Government on whose behalf it is collected. The financial difficulties faced by the appellant can never justify the non-payment of tax to the Government. The above fact coupled with misrepresentation to its customers that the amount collected from them will be paid over to the Government, would clearly point to mala fide conduct on the part of the appellant. Therefore, we see no reason to interfere with the impugned order of the Tribunal.

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Hence, the question as proposed does not give any rise to substantial question of law and thus not entertained. Accordingly, the appeal dismissed by the court.

To Read Order: Click Here!

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