The Bombay High Court has recently ruled that the defense 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.

The CESTAT had earlier held that the appellant was aware of his responsibility for payment of service tax and in fact, he was collecting the same from his clients but the same was kept with himself on the pretext that he was going through financial hardships.

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.

On further appeal, the division bench of the High court comprising Justices M S Sanklecha and M S Sonak noted that it is an 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 nonpayment 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 nonpayment 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.”