Financial difficulties is not an excuse for non payment of Service tax already collected from customers

Makrand Joshi, Adv. for the Appellant. B. Kumar Iyer, Superintendent (AR) for the Respondent.

ORDER

C.J. Mathew, Technical Member – M/s Mohtamaan Industries, registered as a provider of “business auxiliary services” is in the business of machining the forged parts in CNC machines for M/s Magnum Forge Pvt Ltd, M/s Magna Casting Pvt Ltd and M/s Worldwide Oilfield Machine Pvt Ltd and had been paying service tax on such “job work” charges till June 2007, but stopped discharging their liability even though they continued to bill their principals for service tax. Thereafter, they deposited Rs. 3,03,698/-, relating to dues for the period upto September 2007, on 18th June 2008 with no further payment till issue of notice on

2. M/s Mohtamaan Industries was served notice for tax liability of Rs. 19,89,174/- on service valued at Rs. 99,01,258/- for the period from July 2007 to June 2008. The sole defence of M/s Mohtamaan Industries was the financial difficulties faced by them. The original authority vide order dated 5th March 2010 confirmed the demand with interest and imposed penalty under sections 77 and 78 after acknowledging additional payment of tax on 26th August 2009 and 20th January 2010 totalling Rs. 3,00,000. Commissioner of Central Excise (Appeals), Pune I, by order-in-appeal no V2PI/139/STC/2010 dated 14th October 2010 concurred with the original authority. Aggrieved by this order, M/s Mohtamaan Industries is before the Tribunal challenging the classification and seeking the setting aside of penalties.

3. The appellant claims that their activity is manufacture and hence not liable to be taxed as “business auxiliary service”, that they were eligible for exemption under notification no. 8/2005-ST dated 01/03/2005, that they would have paid service tax had not financial difficulties intervened, that the extended period could not have been invoked for the period prior to one year dating back from the issue of show cause notice and that circumstances of financial hardship warranted waiver of penalty. A further payment of Rs. 4, 85,475/- was as due and to be recovered. The interest charge of Rs. 2,14,000 was also remitted on 24th August 2015.

4. The learned Counsel for appellant furnished the death certificate of Shri RK Bhagwat, partner in appellant firm, issued by Pimpri-Chinchwad Municipal Corporation and reiterated the financial crisis that prevented the appellant from depositing of tax. Learned Authorized Representative drew attention to the decision of this Tribunal in Ketan Engg. Services (P.) Ltd. v.CCE & ST [Final Order No. A/11103/2014-WZB/AHD, dated 16-6-2014].

5. Admittedly, the appellant does machining of forged components of CNC machines and had been paying tax for a time on the consideration received from their principals. We find from the records that the appellant had applied for registration as provider of ”business auxiliary services”; rendering of job-work is one of the activities within its ambit. At no stage have they contended that this was a classification decided upon by tax authorities. Having registered themselves as a service provider and paid taxes as provider of “business auxiliary service” for a certain period, they are bereft of any ground to claim error in classification. In the event of a doubt regarding the taxability, the proper course open to appellant would have been to file a refund claim instead of using the second stage of appeal as a platform to seek a decision on non-leviability. This Tribunal in Malabar Management Services (P.) Ltd. v. CST [2008] 14 STT 107 (Chennai) has foreclosed the option of challenging the classification by this route thus:

“We have also noted that the appellants got themselves registered with the department as providers of Business Auxiliary Service and were paying service tax in that category from July 2003. They have been doing so voluntarily and not under protest . . . . . . . . . They are precluded from contending that the service rendered by them to ICICI Bank upto March 2005 was something different from Business Auxiliary Service. . . . . . . . . ”

In the absence of any justification, procedurally or substantively, to seek a revisit of classification of the service rendered by the appellant, there is no legal provision to do so. The plea of taxability and any exemption from service tax is irrelevant in the context of the inclusion of service tax in the amounts billed to their principals as job-work charges.

6. It is seen that the appellant has collected service tax along with consideration from its principals for service rendered but failed to deposit the same in the government account. By this act of omission, the plea of leniency in the matter of penalties will not evoke a sympathetic response. Neither can appellant claim ignorance of tax liability on “job-work”. The claim of financial distress is no ground for any condonation of breach of responsibility to deposit taxes collected from recipient of service. We are ever mindful of the decision of the Tribunal in Ketan Engg. Services (P.) Ltd.’s case (supra).

“5. It is observed from the facts available on record that the entire service tax payable was recovered by the appellant from the service recipients. Appellant was a registered unit and was well aware of their liability to pay service tax to the Revenue. Even if there was any financial difficulty, appellant was required to file the periodical returns indicating therein the correct service tax liability. Had the appellant filed such returns showing correct duty liability, which he had already recovered, may be appellant’s bona fides could have been accepted. In the present case, appellant recovered the entire service tax from their customers and also did not file periodical prescribed returns with the Revenue. Non-filing of returns and non-payment of service tax, in spite of collecting the same from the customers, clearly convey mala fideon the part of the appellant making them liable to penalty under Section 78 of the Finance Act, 1994. The case laws relied upon by the appellant does not pertain to a situation when service tax was recovered by the appellant and deliberately not paid to the Revenue. The facts of the relied upon case laws are different than the facts of the present proceedings and are not applicable.”

7. For the above reasons, appeal is rejected.