By TIOL News Service

MUMBAI, JAN 02, 2013: THE appellant was issued a SCN dated 14/02/2008 by the Assistant Director, DGCEI, Nashik, inter alia demanding service tax amounting to Rs. 4,64,524/- in respect of "Franchisee service" and "Business Auxiliary service" provided by them from 26/07/2006 to 15/03/2007.

The Asst. Commr. of Service Tax, Division -III, Mumbai vide order dated 26/08/2008 imposed an equivalent penalty u/s 78 and Rs. 1,000/- u/s 77 of the FA, 1994. [Demand confirmation??]

The order was challenged before the Commissioner (Appeals), Pune, on two grounds - one, that cum-tax benefits should have been granted and if that is done service tax liability would come down to Rs. 4,16,775/- and secondly on the ground that the appellant had discharged the service tax liability along with the interest thereon before issue of show-cause notice and, therefore, penalty should not have been imposed.

The Commissioner (Appeals) vide O-in-A dt. 9/12/2010 set aside the penalties imposed under Section 77 & 78 of the Finance Act, 1994. However, the said order was silent as regards the appellants request for considering the consideration received as cum tax and allowing deduction towards service tax amount. But the appellant did not challenge this aspect.

In the meanwhile a SCN dated 08/12/2009 was issued to the appellant by the Commissioner of Service Tax Mumbai, proposing to review the order passed by the lower adjudicating authority on the ground that the order dated 26/08/2008 passed by the lower authority did not confirm the demand for service tax along with interest thereon and also that no penalty has been imposed on the appellant under Section 76 of the Finance Act, 1994 as there was a failure to pay service tax in time on the part of the appellant.

This notice was adjudicated by the Commissioner of Service Tax, Mumbai vide order dated 08.07.2010 - he confirmed the service tax demand of Rs. 4,64,524/- along with interest thereon and also imposed a minimum penalty prescribed under Section 76 of the Finance Act, 1994.

Against this order, the appellant is before the CESTAT.

It is submitted that as per the provisions of Section 84(4) of the Finance Act, 1994, the Commissioner is barred from adjudging the matter in revision when the dispute was pending with the Commissioner (Appeals). Reliance is placed on the decisions in Capital Color Lab (2009-TIOL-479-CESTAT-MAD) and Mani Engineering Works (2008-TIOL-1813-CESTAT-MAD). It is also submitted that since the Commissioner (Appeals) has dropped the penalties under Section 77 & 78 of the Finance Act, imposition of penalty under Section 76 is quite harsh, especially when there is no intention to evade service tax on the part of the appellant.

The Revenue representative reiterated the finding of adjudicating authority and pleaded for upholding the same.

The Bench observed -

"5.1. As regards the first issue, i.e., regarding treating the consideration received for the services rendered as cum tax and allowing deduction towards the service tax liability there is merit in the appellant's case. Inasmuch as the appellant has not collected service tax from the recipient of the services, the entire consideration received has to be treated as cum tax and the amount received should be apportioned between the assessable value and the service tax liability. If this is done, then the tax liability would come down to Rs. 4,16,775/-. Therefore, the amount of service ax liability to the paid by the appellant is only Rs. 4,16,775/- and not Rs. 4,64,524/- as confirmed in the impugned order. Thus, the appellant is entitled for the consequential relief in this regard.

5.2 As regards the imposition of penalty under Section 76 of the Finance Act, this issue was not before the Commissioner (Appeals) at all, inasmuch as the original adjudicating authority had confirmed the penalties under Sections 77 & 78 only. Since the issue was not before the Commissioner (Appeals), there is no bar in the reviewing authority i.e. the Commissioner of Service Tax to take up the matter in review for imposition of penalty under Section 76. The reliance placed by the appellant on the Mani Engineering Works and Capital Color Lab case cited supra dealt with a different situation wherein the service tax liability itself was under challenge in those cases. Since the penal liability would depend upon the tax liability, it was held that no review proceedings could have been initiated under Section 76 of the Act, by the reviewing authority when the tax liability itself was challenged before the Commissioner (Appeals). In the case before me, there is no such challenge to the tax liability. The challenge is limited to only penal liability. That being the position, the ratio of these judgments cannot be applied to the facts of the present case.

5.3 On the other hand, the decision of the Hon'ble High Court of Kerala in the case of Asst. Commissioner of Central Excise Vs. Krishna Poduval reported in = (2006-TIOL-77-HC-KER-ST) would apply. In the said case, the Hon'ble High Court held as follows:

"x x x"

5.4 The ratio of the above judgment, in my view, applies to the facts of the present case and for failure to pay service tax in time the appellant is liable to penalty under Section 76 of the Finance Act, 1994. Accordingly, the penalty imposed under Section 76 of the Finance Act, 1994 is upheld subject to the limits on such penalties prescribed under the said section."

The appeal was disposed of in the above terms.

Reference: Sub-section 4 of Section 84 of the Act as it then existed read as follows:

"4) No order under this section shall be passed by the Collector of Central Excise in respect of any issue if an appeal against such issue is pending before the Collector of Central Excise (Appeals)."

(See 2013-TIOL-09-CESTAT-MUM)