Once reasonable cause is established, no penalty is imposable – Section 80 of the Finance Act, 1994 does not provide for imposition of reduced quantum of penalty
V.M. Engg. Works (the Assessee) made late payment of Service tax, consequent to which a Show Cause Notice was issued to the Assessee proposing to impose penalty for late payment of Service tax under Section 76 of the Finance Act, 1994 (the Finance Act). The Show Cause Notice was adjudicated whereby the Adjudicating Authority imposed a penalty of Rs. 22,200/- under Section 76 of the Finance Act for late payment of Service tax. Later on, the Ld. Commissioner (Appeals) reduced the amount of penalty of Rs. 22,200/- imposed under Section 76 of the Finance Act to Rs. 8,000/- by invoking Section 80 of the Finance Act.
Being aggrieved, the Revenue preferred an appeal before the Hon’ble CESTAT arguing that penalty cannot be reduced below the minimum specified under Section 76 of the Finance Act but did not succeed. Thereafter, the Revenue filed an appeal before the Hon’ble High Court of Gujarat. The Assessee argued that since Section 80 of the Finance Act was held applicable, entire penalty was liable to be set aside.
The Hon’ble High Court of Gujarat relying upon its decision in the case of CCE & C Vs. Port Officer [Tax Appeal No. 1367 of 2009 dated July 8, 2010] (“Port Officer case”) held that Section 80 of the Finance Act overrides Section 76 thereof and provides that no penalty shall be imposable, if Assessee proves that there was reasonable cause for failure to pay Service tax. Whether a reasonable cause exists or not is primarily a question of fact and onus thereof is on the Assessee but once reasonable cause is established, no penalty is imposable.
The Hon’ble High Court further held that Section 80 of the Finance Act does not provide that even upon establishment of reasonable cause, a reduced quantum of penalty is imposable. Hence, matter was remanded back to the Tribunal for fresh disposal in view of the decision held in the Port Officer case.