Commissioner of GST & Central Excise Vs Artemis HR Services Cbe (P) Ltd. (Madras High Court)
Summary: The Madras High Court dismissed C.M.A.Nos.3329 and 3333 of 2019 filed by the Commissioner of GST & Central Excise against M/s. Artemis HR Services Cbe (P) Ltd., thereby upholding the CESTAT’s decision to waive penalties imposed under Sections 76 and 78 of the Finance Act, 1994 by invoking Section 80. The supplied judgment was pronounced on 27 July 2026.
The appeals arose from Final Order No.40055-40058/2019 dated 14 January 2019 passed by the CESTAT, South Zonal Bench, Chennai. The Tribunal had allowed the assessee’s appeals to the extent of penalties under Sections 76 and 78, while leaving the service tax and interest demand undisturbed. The Tribunal had also interfered with the adjudication and appellate orders only in relation to the penalties under Sections 76 and 78, with the penalty under Section 77 remaining undisturbed.
The dispute concerned short-payment of service tax under the category “Business Support Service”. The departmental officers had inspected the respondent’s premises on various dates between 12 March 2009 and 30 April 2009 and found short-payment of service tax. The assessee explained that the short-payment was not due to any wilful intention but resulted from financial incapacity caused by substantial outstanding dues from its clients, particularly M/s. Rank Investments and Credits (India) Ltd. The Tribunal accepted this explanation and reversed the findings of the Assessing Officer and Appellate Authority concerning the penalties.
The Department challenged the Tribunal’s decision before the High Court. The appeals remained pending for about seven years, and the Department was unable to serve notice on the respondent. During the pendency, when the matter was taken up on 2 March 2020, it was reported that the respondent had approached the Revenue Department to avail the benefit of the “Sabka Vishwas Scheme” (Amnesty Scheme) and had sought time to obtain instructions regarding whether the appeal should be pursued on merits.
The Court was subsequently informed that the respondent company had gone into liquidation. The Department’s Learned Standing Counsel was granted time to verify the position. Certain documents were thereafter produced, but the Court found on verification that the Form SVLDRS-3 documents did not relate to the relevant assessment year. On 6 July 2026, the Department stated that the respondent had paid the penalty amount under the “Samadhaan Scheme”. When the matter was ultimately taken up, however, the Department submitted that verification showed that although the respondent had submitted an application under the Amnesty Scheme, the agreed penalties had not been paid and the whereabouts of the respondent were not known.
In these circumstances, the High Court proceeded to examine the impugned Tribunal order on the basis of the material before it.
In C.M.A.No.3329 of 2019, the High Court had framed substantial questions of law concerning whether the Tribunal had committed a substantial error in law by invoking Section 80 to waive penalty of Rs.2,59,20,009/- without discussing evidence regarding reasonable cause for failure to discharge the service tax liability, particularly in view of the Department’s contention that the respondent had reported profits for the financial years 2008-09 and 2009-10. Another question concerned whether the Tribunal was justified in waiving penalties under Sections 76 and 78 by invoking Section 80 on allegedly irrelevant considerations.
In C.M.A.No.3333 of 2019, the Court framed questions concerning the Tribunal’s invocation of Section 80, its consideration of the quantum of penalty with reference to the date of payment of service tax, the alleged absence of evidence regarding reasonable cause, the respondent’s reported profits, the reliance upon case laws which the Department claimed were not factually identical, and whether the Tribunal had erred in interpreting case law concerning waiver of penalties on the ground of financial crunch.
The Department contended that the power under Section 80 to waive penalties could not be exercised indiscriminately. According to the Department, there had to be sound reasons and evidence demonstrating the assessee’s inability to pay the penalty, together with the circumstance that the short-payment of service tax was not wilful. The Department argued that merely relying upon the assessee’s assertion of inability to pay tax, without discussing evidence regarding reasonable cause, was insufficient to justify waiver. During the arguments, the Department also produced Form-23ACA under the Companies Act, 1956 to contend that the respondent-company had declared profits before the Registrar of Companies for the relevant period.
The High Court, however, expressed its concern that the Department, while contesting the tax dispute, had produced records during the second appeal stage. The Court deprecated this practice. The Court further observed that the financial incapacity of the assessee/respondent recorded by the Tribunal, together with the subsequent events during the preceding seven years, fortified the Tribunal’s reasoning concerning the respondent’s financial incapacity.
The High Court consequently held that the Tribunal was right in waiving the penalties under Sections 76 and 78 of the Finance Act, 1994 by virtue of Section 80 of the Finance Act. The Court accordingly dismissed both Civil Miscellaneous Appeals, made no order as to costs and closed the connected Miscellaneous Petition.
The judgment therefore upholds the Tribunal’s exercise of Section 80 in the circumstances recorded in the supplied judgment. The service tax and interest demand had not been disturbed by the Tribunal, and the High Court’s operative order was confined to dismissal of the Department’s appeals against the Tribunal’s treatment of the penalties.
For background on the statutory framework discussed in the judgment, TaxGuru’s verified material on Section 35G of the Central Excise Act, 1944 explains appeals to the High Court involving substantial questions of law. TaxGuru’s verified service-tax material also discusses the penalty provisions under Sections 76, 77, 78 and the reasonable-cause waiver under Section 80.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
1. These two Civil Miscellaneous Appeals been filed by the Department, pertaining to different periods. Being aggrieved by the orders passed by the Tribunal in allowing the appeals of the assessee, holding that the penalty imposed on the assessee under Sections 76 & 78 of the Finance Act, cannot sustain and requires to be set aside.
2. The Tribunal interfered with the orders of the Assessing Authority and the Appellate Authority only to the extent of imposing penalties under Section 77 of the Finance Act, leaving undisturbed the demand of service tax or interest.
3. The facts of the case is that the report of the Officers who inspected the respondent premises on various dates between 12.03.2009 to 30.04.2009 and found short-payment of service tax under the category “Business Support Service.” Though the explanation of the assessee that whatever short-payment on service tax alleged was not due to wilful intention but due to the financial incapacity arising out of huge outstanding dues from their clients, particularly M/s.Rank Investments and Credits (India) Ltd. The explanation of the assessee been accepted by the Tribunal, which has led to reversing the findings of the Assessing Officer and the Appellate Authority.
4. At this juncture, it is pertinent to record that the common order of the Tribunal dated 14.01.2019 was challenged by the Department immediately and the appeals are pending for the past 7 years. The Department was unable to serve notice to the respondent. Meanwhile, it was reported before this Court that when the matter was taken up for hearing on 02.03.2020, the respondent has approached the Revenue Department for availing the benefit under the “Sabka Vishwas Scheme” (Amnesty Scheme) and sought time to get instructions from the Department whether to proceed with the appeal on merits or not.
5. On behalf of the respondent, Learned Counsel on record submitted that the respondent company had gone under liquidation. In response, the Learned Standing Counsel for the Department, Mr.K.S.Ramaswamy, took time to verify the position and report. Thereafter, certain documents were produced to this Court during the subsequent hearings but Court on verification of those documents found that the Form SVLDRS-3 are not for the relevant assessment year. Thereafter, on 06.07.2026, the Learned Standing Counsel appearing for the appellant/department has stated that the respondent has paid the penalty amount under “Samadhaan Scheme.”
6. Today, when the matter taken up for consideration, the Learned Standing Counsel submitted that, on verification, it was found that though the respondent has submitted for the Amnesty Scheme, he has not paid the agreed penalties and his whereabouts were also not known. In the said circumstances, we are constrained to examine the order of the Tribunal, which is impugned in these appeals, with the aid of the material placed before us.
7. This Court, while admitting the Civil Miscellaneous Appeal No.3329 of 2019, the following substantial questions of law was framed.
“1. Whether in the facts and circumstances of the case, the Hon’ble CESTAT, South Zonal Bench, Chennai has committed substantial error in law through perversion of facts by holding that this is a fit case to invoke Section 80 for waiver of penalty of Rs.2,59,20,009/- without discussing any evidences on reasonable cause for the failure to discharge the service tax liability primarily on the ground of-financial distress especially when Respondent has reported profits for the financial years 2008-09 and 2009-10 and by relying on case laws that are not on identical facts?
2. Whether the Tribunal is right in waiving penalty under Section 76 & 78 respectively of the Finance Act, 1944 by virtue of section 80 on irrelevant considerations and overlooking the relevant factual ones?”
Subsequently, in the Civil Miscellaneous Appeal No.3333 of 2019, the following substantial questions of law were framed.
1. Whether in the facts and circumstances of the case, the Hon’ble CESTAT, South Zonal Bench, Chennai has committed substantial error in law through perversion of facts by holding that this is a fit case to invoke Section 80 for waiver of penalty, by stating that the quantum of penalty depended on the date of payment of service tax, without discussing any evidences on reasonable cause for the failure to discharge the service tax liability primarily on the ground of financial distress especially when Respondent has reported profits for the financial years 2008-09 and 2009-10 and by relying on case laws that are not on identical facts?
2. Whether the Tribunal is right in waiving penalty u/s 76 & 78 respectively of the Finance Act; 1944 by virtue of section 80 on irrelevant considerations and overlooking the relevant factual ones?
3. Whether under the facts and circumstances of the case the tribunal erred in interpreting the case laws which imparts waiver of penalty on financial crunch which is absent in the immediate case?
8. The contention of the Department is that, though the statute under Section 80 of Finance Act provides for waiver of penalty, such wavier cannot be granted indiscriminately. There must be sound reasons and evidence to show the inability of the assessee to pay the penalty, coupled with the fact that the shortpayment of tax was not wilful. According to the Learned Counsel, without discussing any evidence on the reasonable cause for the failure to discharge the service tax liability, merely on the submission of the assessee stating inability to pay the tax will not enure the benefit of waiver. In the course of arguments, the Learned Standing Counsel also produced Form-23ACA under the Companies Act, 1956, to show that the respondent-company has declared profits before the Registrar of Companies for the relevant period.
9. At the outset, we are distressed to note that the appellant/Department, while contesting the tax dispute in a casual manner, produce records in the course of hearing at the Second Appeal stage, a practice which has to be deprecated. That apart, the financial incapacity of the assessee/respondent, as recorded by the Tribunal and the subsequent events for the past 7 years, fortifies the reasoning given by the Tribunal about the financial incapacity of the assessee.
10. Therefore, we hold that the Tribunal was right in waiving the penalities under Sections 76 & 78 of Finance Act, 1994, by virtue of Section 80 of the Finance Act.
11. Accordingly, these Civil Miscellaneous Appeals stands dismissed.
There shall be no order as to costs. Consequently, connected Miscellaneous Petition is closed.
