Penalty leviable on non-payment of service tax liability citing financial difficulties: Bombay HC

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M/s. Dilip Chhabria Design Pvt. Ltd. (“the appellant”) is engaged in providing taxable service of Interior Decorator Services, Design Services, servicing of Motor Vehicle and Management Consultancy Services. The appellant was issued a Show Cause Notice (“SCN”) for non-payment of service tax along with interest and penalty. In the meantime, the appellant deposited the amount of service tax and contended before the CESTAT that, the non-payment of service-tax was only because of financial difficulty, as no suppression is made in Form-ST 3 as they had always declared the quantum of the service tax payable, but not paid.

The CESTAT observed that this was not a case of any bona fide belief or even ignorance on the part of the assessee, but deliberate defiance of law and thus penalty order was upheld.

Aggrieved with the decision of CESTAT, the appellant filed an appeal before the Hon’ble Bombay High Court.

Issue Involved:

Whether the facts and circumstances of the case and in law, the Tribunal was correct in holding the proviso to Section 78(1) of the Finance Act, 1994 is applicable in the facts of the present case for the purposes of imposing penalty?


The Hon’ble Bombay High Court vide Appeal No. 46 of 2019 dated June 11, 2019, observed that the assessee was aware of its service tax liability and had collected it from its customers but had not paid the same to Service Tax Department. Further HC opined that the non-payment of service tax was certainly with intent to evade the service tax, as no proper 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.

It was further held by the HC that financial difficulties faced by the assessee can never justify the non-payment of tax to the Government. The HC stated that said 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 Assessee’s part.

Citation: [TS-432-HC-2019(BOM)-ST]