MALA FIDE INTENTION TO AVOID PAYMENT OF SERVICE TAX

[Mr. M. GOVINDARAJAN]

Sec. 68 of the Finance Act, 1994 ('Act' for short) provides that every person providing taxable service to any person shall pay service tax at the rate specified in Sec. 66 in such manner and within such period as may be prescribed.    Sec. 73 of the Act empowers the Central Excise Officer to recover within one year from the relevant date the service tax not levied or paid or short levied or short paid or erroneously refunded.  The period of one year is extended to five years for the same by reason of fraud or collusion or willful mis-statement or suppression of facts or contravention of any of the provisions of the provisions of service tax or rules with intent to evade payment of service tax.  Sec. 76 of the Act provides penalty for failure to pay service tax, a penalty.  This article is to discuss the mala fide intention of the service provider not the bona fide to avoid payment of service tax and the effect of the same with the decided case laws.

The tribunals in many a case held that if there is no mala fide intention on the part of the service provider no penalty shall be liable for non payment of service tax. In some cases the penalty imposed are reduced.   The decided case laws in respect of the said points are as follows:

1. Desk to Desk Courier & Cargo Ltd., V. Commissioner of Central Excise & Customs, Nasik - 2007 (7) STR 518 (Tri. Mumbai)

                        The Commissioner in exercise of revisionary power under Sec. 84 of the Finance Act, 1994 enhanced the penalty to Rs.2,38,486/- from Rs.5,000/- imposed by Asst. Commissioner.   As there appears no mala fide intention or delayed tactics on the part of the appellants the tribunal found this is not a case where the penalty is to be enhanced.

2. Environment Protection training & Research Institute V. Commissioner of Central Excise, Hyderabad - 2008 (10) STR 116 (Tri. Bang) 

                        The appellant is a State Government Undertaking carrying on specialized activity.   The training given by them is not a commercial purpose.   Prima facie not having any mala fide intention to avoid payment of service tax, the plea of the appellants for waiver of deposit, penalty is accepted.

3. Vipul Motors (P) Ltd., V. Commissioner of Central Excise, Jaipur - I - 2008 -TMI - 2794 - CESTAT, NEW DELHI                     

It cannot be said that there was any mala fide on the part of the appellant not to pay the same.   The appellant had deposited the service tax along with interest amount as soon as it was pointed out by the Revenue.   Exercise of discretion by Assistant Commissioner in not imposing penalty under Sec.80 of the Finance Act, 1994 is sustainable. 

4. S-MAC Security Services Private Ltd., V. Commissioner of Service Tax, Bangalore - 2007 (6) STR 348 (Tri. Bang) 

                        Order-in-original passed by Assistant Commissioner did not propose to impose penalty as part duty has been paid with interest before issue of show cause notice.   Assistant Commissioner has given reason for not imposing the penalty and a categorical finding has been given that there was no mala fide intention to evade payment of service tax.   The appellant have strong case for waiver of pre deposit of the penalty amount.

5. Universal Cables Ltd., V. Commissioner of Central Excise, Bhopal - 2007 -TMI - 1737 - CESTAT,NEW DELHI 

                        The penalty imposed on the appellant it is seen that the issues involved were a question of interpretation of the provisions.   Since there could have been two possible interpretations the appellant cannot be visited with a penalty as there was no mala fide intention to avail the ineligible Cenvat credit on these two services.   Hence the penalty imposed on the appellant is set aside. 

6. Siyaram Silk Mills Ltd., V. Commissioner of Central Excise, Mumbai - II - 2006 (195) ELT 284 (Tri. Mumbai) 

The appellants received various capital goods as components/parts and availed full credit i.e., 100% of the duty paid on capital goods.   In terms of the provisions of Cenvat Credit Rules the Cenvat Credit in respect of capital goods received in a factory at any point of time in a given financial year shall be taken only for an amount not exceeding 50% of the Cenvat Credit only.   The appellants made a distinction between the capital goods and components, spares and accessories.   In the present case the capital goods were in the shape of components and spares they were entitled to full credit of 100%.  The tribunal held that the credit was taken on record and duly intimated to the officers.   Taking of 100% credit can be on the basis of misinterpretation of provisions of law and would not be attributed to any mala fide on the part of the appellants.   As such imposition of penalty upon them is not justified and the same is set aside. 

7. Velji P. & Sons (Agencies) Private Ltd., V. Commissioner of Central Excise, Bhavnagar - 2007 -TMI - 2031 - CESTAT, AHMEDABAD

All the factors show that there was confusion on the part of the officers also as regards the correct scope of the services being provided by the appellants with the introduction of new service, the activities undertaken by the appellant were examined, notices issued but not pursued.   As such the tribunal is of the view that the short levy, if any, is not on account of a mala fide intention on the part of the appellant. 

8. Kikabhai Enterprises V. Commissioner of Central Excise & Customs, Nasik - 2006 (4) STR 129 (Tri. Mumbai) 

The appellants had no mala fide intention in evading the service tax but for want of awareness.   The penalty imposed is reduced.

The tribunals show consideration on Public Sector Undertakings.   In 'BSNL V. Commissioner of Service Tax, Bangalore 2008 -TMI - 3444 - CESTAT, BANGALORE and in 'Surat Municipal Corporation V. Commissioner of Central Excise, Surat - 2006 -TMI - 622 - CESTAT, NEW DELHI the tribunals held that the appellant being a statutory body, there cannot be any mala fide intention to evade the payment of service tax and held that no penalty is leviable.

Merely because the appellant did not apply for registration and did not pay the service tax is no ground to come to the conclusion that the same was done with a mala fide intention.   This was confirmed in 'Dalveer Singh V. Commissioner of Central Excise, Jaipur - 2008 -TMI - 3441 - CESTAT, NEW DELHI.

In 'Super Security Service V. Commissioner of Central Excise, Trichy - 2006 (3) STR 118 (Tri. Chennai), the tribunal held that the department is to prove the intention on the part of the assessee to evade the payment of service tax.  

In 'M.R. Bhagat & Associates V. Commissioner of Central Excise & Customs, Nasik - 2007 (8) STR 531 (Tri. Mumbai)  it was held that the existence of non existence of the mala fide intention can be decided by culling out of the facts and circumstances of the case. 

In 'Baba Motors V. Commissioner of Central Excise, Chandigarh - 2008 -TMI - 3447 - CESTAT, NEW DELHI the tribunal held that there was no reason for the appellant to give wrong figures instead of disclosing the exact and correct amount.   This fact is clearly indicative of the appellant mala fides.  The penalty to the extent to 100% stands rightly imposed by the lower authorities in terms of the provisions of Sec. 76 of the Finance Act, 1994.

In Re New Mangalore Port Trust - 2006 (3) STR 33 (Commissioner, Appeal) it was held that the extended period is available for making the recovery of tax even if no mala fide is alleged or established. 

If there is no mala fide intention to avoid payment of service tax then there would be no penalty imposable under the provisions of service tax but it is to be proved.