• Nov
  • 23
  • 2012

Service Tax – Penalty u/s. 76 and 78 cannot be levied simultaneously

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CESTAT, AHMEDABAD BENCH

Jivant Enterprise

Versus

Commissioner of Service Tax, Ahmedabad

ORDER NO. A/935/WZB/AHD OF 2012

APPEAL NO. ST/664 OF 2010

JUNE 29, 2012

ORDER

1. This appeal is directed against the Order-in-Appeal No. 286/2010(STC)/MM/Commr(A)/Ahd dt. 15.9.2010

2. On careful consideration of the submission made by both sides and perusal of appeal papers. I find that in this appeal the appellant is charged with non-payment of service tax liability under the category of Management, Maintenance and Repair Services, for the material period 1-4-2004 to 31-3-2007. The demand is raised on the basis of inspection of documents which were called for from the assessee. The appellant before issuance of show-cause notice has paid the entire amount of service tax liability, interest and 25% of the penalty imposed under section 78 of the Finance Act, 1994, within 30 days of the issuance of the adjudication order. Assessee was aggrieved by the adjudication order for imposition of penalty under section 76 and hence took the matter in appeal. The first appellate authority also, did not agree with the contentions raised by the appellant for imposition of penalty under section 76 and confirmed the order of the adjudicating authority and hence, this appeal.

3. Learned Chartered Accountant’s entire submission is that the provisions of section 78 was amended from 10.05.2008, wherein an amendment is brought in indicating that, where penalties payable under section 78, no penalty under the provisions of section 76 shall be attracted. It is his submission that the show cause notice to the appellant was issued on 18.6.2008 i.e. almost after a month of the amendment carried out to section 78. It is his submission that by virtue of this amendment, if the show cause notice is issued post-amendment and as per the statute, no penalty is payable under section 76. He would rely upon the judgment of the Hon’ble High Court of Karnataka in the case of CST v. Motor World [2012] 22 taxmann.com 35/36 STT 48 and also in the case of CCE v. First Flight Courier Ltd. [STA No. 48 of 2010, dated 28-1-2011] and again in the case of United Communication, Udupi v. CCE, CEC [2011] 16 taxmann.com 360/[2012] 34 STT 284 (Kar.) for this proposition. It is also his submission that the Tribunal decision in the case of West Minister International (P.) Ltd. v. CCE [2007] 11 STT 157 (New Delhi – CEGAT) would indicate that penalty can be imposed only under the provisions, which are in existence at the time of issuance of show-cause notice.

4. Learned SDR on the other hand would submit that the judgment of the Hon’ble High Court of Delhi in the case of Bajaj Travels Ltd. v. CST [2011] 15 taxmann.com 12/33 STT 346 would be applicable wherein their Lordships have held that, simultaneous penalties can be imposed under sections 76 and 78 of the Finance Act, 1994. He would specifically draw my attention to paragraphs 16 and 17 of the said judgment in the case of Bajaj Travels Ltd. (supra).

5. I have considered the submissions made by both sides and perused the record.

6. The appeal in this case is only towards the penalty imposed on the appellant under section 76 of the Finance Act, 1994. The appellant has undisputedly accepted the service tax liability, interest thereon and penalty under section 78 and has discharged the entire liability within 30 days of issuance of adjudication order. It is also undisputed that the show cause notice was issued on 18.06.2008.

7. On this factual matrix, I find that the amendment carried out to section 78 on 10.5.2008, specifically talks about non-imposition of penalty under section 76, if a penalty under section 78 is imposed. The Hon’ble High Court of Karnataka in the case of Motor World (supra) has specifically considered the judgment of the Kerala High Court in the case of Asstt. CCE v. Krishna Poduval [2006] 3 STT 96 and has laid down the following ratio:-

“21. When once the ingredients of section 78 are established and there is no reasonable cause for failure, section 80 is not attracted. Then the authority has to impose a minimum penalty of the amount of service tax sought to be evaded and the maximum is double the said amount. Here there is no discretion, which is vested with the authority. The discretion is only confined to impose a penalty above the minimum and less than the maximum provided for under the Act. It is in that context, in the light of the scheme of this provision that sections 76 and 78 operate in a mutually exclusive area. For the same reason the question of imposing penalty both under section 76 and 78 would not arise. The penalty is to be imposed either under section 78 or under Section 76 and certainly not under both the provisions. !n this connection in the case of Asstt. CCE v. Krishna Poduval 2009-TIOL-77-HC-Kerala-ST at Para 11, it held as under:-

“11. The penalty imposable under section 76 to is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of section 68 and the rules made thereunder, whereas section 78 relates to penalty for suppression of the value of taxable service. Of course, these two offense may arise in the course of the same transaction or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the personal liable to pay service tax fails to pay. Therefore penalty can certainly be imposed on erring persons under both the above sections, especially since the ingredients of the two offences are distinct and separate. Perhaps invoking powers under section 80 of the Finance Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said section also. In any event we arc not satisfied that an assessee who is guilty of suppression deserves such sympathy. As such we are of opinion that the learned Single Judge was not correct in directing the 1st appellant to modify the withdrawing penalty under section 76. Therefore, the judgment of the learned Single Judge to the extent it directs the first appellant to modify Ext. PI by withdrawing penalty levied under section 76 is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs.”

22. With due respect, we are of the view that said judgment runs cornier to the express provisions contained in sections 76 and 78 in fact, in support of our contentions, we would like to point out that by Finance Act, 2008 (18 of 2008) which came into force from 10.5.2008, the Parliament has made the legal position clear by introducing a proviso to section 78. It reads as under:-

“Provided also that if the penalty is payable under this section the provision of section 76 shall not he attracted.”

23. While imposing penalty under section 75, the question of imposing penalty under section 78 also will not arise because section 76 applies to a case where the person has not either registered himself under the Act or having registered himself has not filed the return and not paid tax for the activity which he is carrying on. In such circumstances the question of service or suppressing or concealment of the value of the taxable service would not arise. The amendment brought about is only clarificatory in nature. That was position even before the amendment. It is clear from ‘he express provisions of sections 76 and 78.”

8. The abovesaid ratio squarely covers the issue in favour of the assessee in this case.

9. As regards the judgment relied upon by the learned SDR in the case of Bajaj Travels Ltd. (supra) I find that the issue involved in the: case was the issue therein the show cause notices were issued prior to 10.05.2008, i.e. on 17.10.2005 invoking the provisions of sections 76 and 78 of the Finance Act, 1994 for imposition of penalty. Undoubtedly, during the relevant period, in that case the provisions allow the Revenue authorities to seek and impose penalties under both the sections i.e. section 76 and 78 of the Finance Act. The facts of the current case before me are totally different inasmuch as, the show cause notice is issued to the appellant on 18.6.2008 and whereas the amendment to section 78 was carried out on 10.05.2008.

10. Accordingly, in my view, the judgment of the Hon’ble High Court of Karnataka in the case of Motor World (supra) would be applicable in this case. Respectfully following the law as laid down by the Hon’ble High Court, I find that the impugned order is not sustainable and liable to be set aside and I do so. The impugned order is set aside and appeal is allowed.


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