No Penalty in absence of mens rea

We are sharing with you an important judgment of Hon’ble CESTAT, DELHI in the case of Mohan Poddar Vs. CCE, Raipur [2014 (9) TMI 782 – CESTAT NEW DELHI] on the following issue:

Issue:

Whether the penalty Under Section 78 of the Finance Act, 1994 can be invoked in the absence of mens rea?

Facts and background:

In the instant case, Mohan Poddar (Assessee) was executing the works of construction of various categories of houses for Chhattisgarh Housing Board. The DGCEI conducted an investigation of the Assessee and it was observed that the services rendered by the Assessee were covered under the taxable category of Construction of Complex service. Further, during the period from July 2, 2005 to August 16, 2007, the Assessee was liable to pay Service tax amounting to Rs. 62,46,844/- after obtaining the benefit of abatement.

On being pointed out by the DGCEI, the Assessee took Service tax registration and discharged Service tax liability of Rs.40,99,354/- and Rs.35,24,663/- till March 25,2008 and August 22, 2008 respectively. The Department issued Show Cause Notice on June 5, 2008.

The Adjudicating Authority found that payment of Rs. 40,98,454/- only was made till the date of issuance of the Show Cause Notice as against the total demand of Rs. 62,46,844/-. Thus, an Order in Original (OIO) dated October 30,2008 was passed confirming balance Service tax demand along with interest and imposition of penalty under Section 77 and Section 78 of the Finance Act, 1994 (Finance Act).

Aggrieved by the OIO, the Assessee filed an appeal before the Hon’ble Tribunal. The Assessee contended that there was no discussion/analysis with regard to the allegation of suppression in the Show cause notice.

Held:

The Hon’ble Tribunal in absence of any discussion with regard to malafide intention and mens rea set aside the OIO to the extent it related to imposition of penalty under Section 78 of the Finance Act.