We are sharing with you an important judgment of the Hon’ble Allahabad High Court in the case of H.M. Singh & Co. Vs. Commissioner of Central Excise, Customs & Service Tax [2014 (49) taxmann.com 417(Allahabad)] on the following issue:

Issue:

Whether penalty could be levied under Section 77 and 78 of the Finance Act, 1994 (the Finance Act) despite the fact that the entire tax liability as well as interest was deposited before passing of adjudicating order and there was mass unawareness about taxability of impugned service?

Facts and background:

H.M. Singh & Co. (“the Appellant”) was served a Show Cause Notice dated September 29, 2010 by the Department demanding Service tax on the ground that during the period from April 2005 to March 2010, the Appellant had received Provident Funds payments relating to manpower supplied by it to the Hindalco Industries Limited, Renukoot (“Service recipient”) and had not included the same in the assessable value for the purpose of calculation of Service tax.

The Appellant made payment of Service tax along with interest during June 2011 to October 2011. Thereafter, the Department passed an adjudicating order dated November 24, 2011 and levied penalty under Sections 77 and 78 of the Finance Act (with option to pay 25% penalty within 30 days) which was further upheld by the Ld. Commissioner (Appeals) and the Hon’ble Tribunal.

Being aggrieved, the Appellant preferred an appeal before the Hon’ble High Court of Allahabad contesting the amount of penalty on the following grounds:

  • There was no case of fraud, collusion, wilful misstatement or suppression of facts within the meaning of Section 78 of the Finance Act or of a contravention with intent to evade payment of Service tax.
  • The Appellant’s bona fide intentions are well established from the fact that the alleged amount of Service tax with interest was deposited without waiting for an order of adjudication.
  • Nearly two-hundred notices had been issued by the division and Commissionerates at Allahabad on same issue which indicates that there was mass unawareness among the service providers in the stated area which was also noted in an order of the Joint Commissioner (Adjudication), Central Excise, Allahabad dated June 16, 2011.

Held:

The Hon’ble High Court of Allahabad relied upon following judgments:

  • Anand Nishikawa Co. Ltd. Vs. CCE [(2005) 2 STT 226 (SC)];
  • Padmini Products Vs. Collector of Central Excise [1989 taxmann.com 629 (SC)]

and held that the Appellant’s conduct in paying Service tax even prior to adjudication was relevant factor depicting bona fide intentions of the Appellant.

Further, since there was mass unawareness on the issue involved, as even noted by Department itself, there was no case of fraud, collusion, willful misstatement or suppression of facts within the meaning of Section 78 of the Finance Act or of a contravention with intent to evade payment of Service tax. Hence, penalty could not be levied.

 (Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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