If there is a bonafide mistake in calculation of service tax and same is made good by the Assessee, then penalty can not be imposed U/s. 75 and 78
Bajaj Travels Ltd Vs. Commissioner of Service Tax (Delhi HC)- The appellant submitted a detailed written reply dated 17th November, 2005. The defence was that it was paying service tax as per its bona fide understanding that the service tax was to be paid on the commission retained by the appellant. It was pleaded that the matter of calculation was not clear to it. Therefore, it had been filing its service tax returns on the basis of the commission retained by it and the correct method of computing the service tax was pointed out by the visiting team of the department. Therefore, the allegation of suppression, mis-statement were wrongly attributed to it. The learned Senior Counsel for the appellant also referred to series of orders passed by the various Benches of CESTAT where such penalties were set aside holding that when the service tax/short-service tax was paid before the show cause notice, it was a bona fide error.
The appellant cannot contend that once penalty is imposed under section 78, there should not have been any penalty under Section 76 of the Finance Act. The aforesaid amendment to Section 78 by Finance Act, 2008 shall operate prospectively.
The appellant has been able to prove its bona fides. Explanation of the appellant for short-payment was, as already pointed out above, that it was paying the service tax as per its bona fide understanding that it was required to pay the same on the commission retained by it and that the method of calculation was not clear to the appellant. This explanation gains momentum from the conduct depicted by the appellant after the visiting team of the Department had pointed out the correct method of computing the service tax. The said team of the Department visited the office of the appellant on 5th September, 2005 and pointed out the irregularity committed by the appellant. Once this mistake was realised, without even waiting for the show cause notice, which was issued on 17th October, 2005, short-fall was made good on 6th September, 2005 i.e. on the very next day after the search. Thus not only the entire tax was paid within two days, so much so, even the interest on the delayed payment was made good. This has further to be seen under the surrounding circumstances prevailing at that time. The service tax was a new tax imposed on the Air Travel Agent Services. There were many misgivings and confusion which led to committal of defaults by many such persons. In fact, the Department itself issued Circular accepting the fact that there was confusion and on that basis penalties in all such cases were waived in respect of those who had paid the service tax in response of the said Scheme. The learned Senior Counsel for the appellant also referred to series of orders passed by the various Benches of CESTAT where such penalties were set aside holding that when the service tax/short-service tax was paid before the show cause notice, it was a bona fide error.
It was not a case of imposition of penalty upon the appellant. penalties imposed upon the appellant under Section 76 and 78 of the Finance Act are hereby set aside.
IN THE HIGH COURT OF DELHI AT NEW DELHI
CEAC- 06 OF 2009
CEAC- 07 OF 2009
JUDGEMENT RESERVED ON: 26.05.2011
JUDGEMENT DELIVERED ON: 03.08.2011
(1) CEAC- 06 OF 2009
M/s Bajaj Travels Ltd
Versus
Commissioner of Service Tax
(2) CEAC- 07 OF 2009
M/s Bajaj Travels Ltd.
Versus
Commissioner of Service Tax
J U D G M E N T
A.K. SIKRI,J.
1. The appellant in both these appeals, filed under Section 35G (3) of the Central Excise Act,1944 read with Section 83 of the Finance Act,1994, is the same company. The challenge is also to the singular judgement dated 19th June, 2006 passed by Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as the Tribunal) whereby two appeals of the appellant herein have been decided. Primary, nay, sole grievance of the appellant is against the imposition of penalties. These penalties were the result of two orders dated 19th June, 2009 and 31st January, 2006 passed by the Commissioner of Tax, New Delhi on identical grounds, albeit for varying periods, resulting into two proceedings giving rise to two appeals. Otherwise issues are common in both the appeals which are admitted on the following substantial questions of law:-
1. Whether the Tribunal erred while upholding the penalty under Section 76 and reducing the penalty to 25% of the Service Tax demand under Section 78 of the Finance Act, 1994 when in the backdrop of the facts of the matter, the present case is fully covered within the ambit of the provisions of Section 80 of the Finance Act, 1994?
2. Whether the Tribunal miserably failed to appreciate the fact that in both the cases, the service tax was immediately paid upon issuance of show cause notice and before passing the adjudication order with heavy interest of Rs. 29.00 lacs and Rs. 18.00 lacs respectively showing the bonafide of the appellant herein?
3. Whether the Amendment in Section 78 by the Finance Act, 2008 operate retrospectively being a beneficial peace of legislation which provides that in case where penalty for suppressing the value of taxable service under Section 78 is imposed, penalty for failure to pay service tax under Section 76 shall not apply, therefore, in another words, simultaneous penalties under both Sections 76 and 78 could not have been imposed by the authorities below? Whether the benefit of this Amendment in Section 78 should also be applied to the present case as there should not be two separate penalties for the same alleged offences?
Before we delve into the depth of these questions to find answers thereto, it would be appropriate to trace the history of the proceedings giving rise to these.
2. The appellant is engaged in the Air Travel Agent Services having its registered office in Chandigarh and branch offices in Chandigarh and Delhi. The establishment of the appellant is exigible to service tax. The appellant has also been submitting the service tax return and depositing the service tax from time to time.
3. On 5th September, 2005, the Head Quarter Preventive Staff of the respondent Department visited the office of the appellant at Chandigarh and scrutinised the record pertaining to ticket booking in relation to air travel. It was found that, prima facie, the value of services declared in ST-3 return was far below the value appearing in the appellant‟s records. The Department resumed documents/records as per “Resumption Memo” dated 5th September, 2005 and a panchnama to that effect was drawn on the spot. The officials also visited the branch office of the appellant at Chandigarh and seized the documents from that office as well. Statements of Sh. Prakash Negi, Sales Executive, Sh. Harminder Singh, Sales Manager, Sh. Kuldeep Singh, Manager (Accounts) and Sh. Mohinder Singh Bajaj Director of the appellant were recorded. Thereafter, show cause dated 17th October, 2005 was issued by the respondent stating that the appellant had rendered air travel agent services to the tune of Rs. 2,58,62,84,429/- but had declared to the department in the ST-3 returns only a taxable value of Rs. 1,30,77,36,056 thereby suppressing a taxable value to the tune of Rs. 1,27,85,48,373/- involving short payment of Service Tax amounting to Rs. 86,02,849/- and Education Cess Rs. 64,029/- for the period April, 2000 to March, 2005 for Branch Office, New Delhi. It was further alleged that the appellant did not depict the exact basic fare figures of tickets sold in their ST-3 returns submitted to the department during the period referred above and that there had been under valuation of the taxable services. On this basis, in the show cause notice, the appellant was asked to show as to why:-
(i) the service tax amounting to Rs. 86,02,849/- and Education Cess amounting to Rs. 64,029/- payable for the period April, 2000 to March, 2005 should not be recovered from them under Section 68 and Section 73 of the Chapter V of the Finance Act, 1994 read with Section 11-D of the Central Excise Act, 1944.
(ii) Interest at the applicable rates on the service tax and education cess recoverable should not be recovered from them under Section 75 of the Act.
(iii) Penalty should not be imposed upon them for suppression of the taxable value for payment of service tax under Section 78 for failure to pay service tax under Section 76 and for filing of prescribed ST-3 returns improperly and with incorrect details under Section 77 of the Act.
4. The appellant submitted a detailed written reply dated 17th November, 2005. The defence was that it was paying service tax as per its bona fide understanding that the service tax was to be paid on the commission retained by the appellant. It was pleaded that the matter of calculation was not clear to it. Therefore, it had been filing its service tax returns on the basis of the commission retained by it and the correct method of computing the service tax was pointed out by the visiting team of the department. Therefore, the allegation of suppression, mis-statement were wrongly attributed to it. It was claimed that the appellant is a reputed organization discharging its tax liability diligently and was filing statutory returns with the department regularly. Therefore, in view of the above submissions, the allegation of suppression, mis-statement etc. was not sustainable in the eyes of law. As a law abiding assessee, it had started depositing the differential service tax and have cleared all the dues including the interest of Rs. 29,00,000/- as a law-abiding assessee on the full amount despite the fact that they had deposited a sum of ` 35 lacs even before the issuance of the show cause notice. The amount of Rs. 35 lacs was paid before the issuance of show cause notice. Therefore, no interest was chargeable for the amount deposited prior to the issuance of the show cause notice still entire interest was paid. Relying upon the judgement of the Larger Bench of the CESTAT rendered in the case of CCE, Delhi-III Vs. Machino Mon tell (I) Ltd. reported at 2004 (168) ELT 466 (Tri-LAB), it was submitted that since the appellant had discharged its full duty and interest liability, that itself showed its bona fide. Therefore, the case fell within the parameters of Section 80 of the Finance Act, which provides non-imposition of penalty. However, the Commissioner of Service Tax, Delhi did not agree with the contentions of the appellant. He, therefore, passed the orders dated 31st January, 2006 and confirmed the demand of Service Tax amounting to Rs. 86,02,849/- (which was already paid by the appellant) and also ordered for an Education Cess of Rs. 64,029/- interest as per provisions of Section 75 of the Act. The amount of Rs. 29,00,000/- already paid by the appellant as interest was accepted by the Commissioner of Service Tax. He has also imposed penalty of Rs. 100/- for every day of default under Section 76 and Rs. 86,66,878/- under Section 78 and also imposed penalty of Rs. 1000/- under Section 77 of the Act on the appellant. To the same effect orders were passed for other period.
5. Being aggrieved by the orders passed by the Commissioner of Central Excise, the appellant preferred two appeals before the Tribunal.
The Tribunal decided these appeals vide impugned orders dated 19th June, 2006. It was found by the Tribunal that the appellant was actually paying the service tax at the prevailing rate under Section 66 on the net commission instead of on the gross commission. That had resulted in short payment of tax. While doing so, in the ST-3 returns, instead of showing the gross and net commission and calculation of service tax on that basis, the tax payment shown was as if it was on the “basic fare‟ shown in the ST-3 returns was not the actual “basic fare‟. Those were much lower amount which was being determined by the back calculation so that the tax on the same at the rate mentioned in Rule 6 (7) matches the service tax paid by the appellant on the net commission at the normal rate. The difference between the basic fare declared and the actual basic fare on which the tax was to be paid at the rate prescribed under Rule 6 (7) was to the tune of about Rs. 213 crores in aggregate. Since in the ST-3 returns, the tax payment was being done on basic fare basis under Rule 6 (7), though no formal declaration of option in this regard had been made, the Commissioner had rightly held that the appellant had opted to pay tax on the “basic fare” and having done so, it should pay the tax on the actual “basic fare” instead of tax on much lower amount declared in the returns. There was thus, short payment of service tax whether calculated on basic fare basis under Rule 6 (7) at the rate prescribed there under or calculated at the normal rate on the gross commission. The Tribunal thus confirmed the tax demand as per the orders of the Commissioner.
6. We may hasten to add that there is no dispute in this behalf and the appellant has accepted the position that tax as adjudicated and demanded was payable. The dispute, in fact, is about the penalty imposed upon the appellant under Section 76,77,78 of the Finance Act.
7. Insofar as imposition of penalty under Section 77 of the Act is concerned, since it can be levied only on non-filing of the return and in the present case, the appellant had been admittedly filing the returns, the penalty under Section 77 has been set aside by the Tribunal.
8. Insofar imposition of penalty under Section 76 of the Act is concerned, the Tribunal has taken the view that as the appellant failed to discharge service tax liability by due date resulting in huge short payment and provisions of this Section stand attracted. While holding so, the Tribunal rejected the contention of the appellant that penalty under Section 76 and 78 of the Act cannot be imposed at the same time when the offence is the same. Since the two Sections are distinct and separate and even those offences are committed in the course of same transactions or arise out of the same act, penalty would be imposable both under Section 76 as well as Section 78 of the Act. However, the penalty under Section 76 is reduced to Rs. 1000 per day in one of these appeals.
9. In so far as penalty under Section 78 of the Act is concerned, the Tribunal took note of the fact that it is attracted wherever any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by the reason of fraud, suppression of facts, wilful misstatement or contravention of any provisions of Finance Act or of the rules made there under with intent to evade the payment of service tax. According to the Tribunal the ingredients of this provision have been satisfied in the instant case as there was deliberate mis-declaration in the ST-3 returns by the appellant with the intention to suppression of measure of levy. However, going by that fact that service tax as determined under Section 73 (2) of the Act along with interest and penalty was paid within 30 days from the date of the communication of the order, having regard to the first and second proviso to Section 78 of the Act, the penalty would be 25% of the service tax. Thus, while upholding the penalty under Section 78 of the Act, the Tribunal has reduced the same to 25% of the service tax. The position is summed up by the Tribunal in para 18 of its order which reads as under:-
“18). On the basis of our above observations and findings, we, therefore, hold as under:-
(i) The service tax demand along with interest in both the cases is upheld.
(ii) while the penalty under Section 77 of the Act is set aside, imposition of penalty under Section 76 of the Act is upheld.
(iv) In appeal case No. ST/440/06, the penalty under Section 76 of the Act is reduced from Rs. 200/- per day to Rs. 100/- per day while in the appeal case No. ST/111/06, the imposition of penalty at Rs. 100/- under Section 76 of the Act per day is upheld.
(v) As regards penalty under Section 78 while holding that the penalty under this section is attracted in both the appeal cases, the benefit of first proviso to Section 78 would be available to the appellant in accordance with the ratio laid down by Honourable Delhi High Court in the case of K.P. Pouches P. Ltd. (supra), since the appellant in both the cases has paid entire service tax along with interest even prior to the issue of adjudication order, and accordingly the penalty in both the appeals is reduced to 25% of the service tax demand.”
10. It is clear from the above that the case of the department is that the appellant who is registered as “Travel Agent” and had been providing air travel agent services had suppressed the taxable value while evading the payment of service tax. The appellant contended that due to misunderstanding and confusion of the methodology of calculation of service tax the short fall occurred in discharging payment of the service tax. However, it was submitted that whatever amount of service tax was received from the customers the same was paid to the department thus not retaining a single penny with them. Further the appellant paid almost the entire amount before the issuance of the show cause notice. The appellant further averred that there was no mala fide intention, reasons of fraud, suppression of material facts or any intention on the part of the appellant at any stage to evade service tax. Thus, the defence of the appellant is that it was at best a case of shortfall of service tax on account of bona fide reason and under Section 80 of the Act, the appellant ought not to have been penalized for the same. According to the appellant the Tribunal has miserably failed to appreciate this plea of the appellant based on cogent and material facts available on record as well as various judgments holding that in such circumstances there is a reasonable cause in not depositing the service tax and the penalty should not have been imposed.
11. It is also contented by the appellant that Section 78 has been amended by the Finance Act, 2008 categorically providing that in case where penalty for suppressing the value of tax under Section 78 is imposed, penalty for failure to deposit the service tax under Section 76 of the Act shall not apply and, therefore, simultaneous penalties both under Section 76 and 78 of the Act cannot be imposed.
12. Mr. Mukesh Anand, learned counsel appearing for the Department countered the aforesaid submissions of Mr. Patwalia. His thrust was that it was not a case of bona fide error on the part of the appellant who had in fact collected the service tax from the customers but did not deposit the same. He highlighted the facts that as per the scrutiny, following position emerged in respect of the appellant’s Branch Office at New Delhi:
