By TIOL News Service

NEW DELHI , MAR 14, 2013: THIS is a Revenue appeal. And the service tax involved is a princely amount of Rs.86,198/-, an equivalent amount of penalty u/s 78 and another Rs.2000/- of penalty u/s 77 of FA, 1994, all of which were dropped by the Commissioner(Appeals) way back in the year 2008.

Over to the facts - M/s Jas Enterprises is engaged in providing catering services to various customers. On investigation conducted by the Revenue, it came to light that they provided outdoor catering services to Madhav Institute of Technology & Science, Gwalior and a total payment of Rs.7,75,540/- was received by the respondents during the period September, 2005 to October, 2006 on account of catering services.

A demand notice was issued on 19.06.07 and the same was contested on merits as also on limitation. The original adjudicating authority confirmed the ST demand of Rs.86,198/- and imposed penalties.

However, the Commissioner(Appeals) held in favour of the respondents on the ground that for the period June, 2005 to March, 2006, benefit of Notification No.21/04-ST dated 10.09.04 is available to the respondents and for the subsequent period from April, 2006 to October, 2006 the benefit of SSI Notification No.6/05-ST is available.

The Revenue in their appeal have submitted that the benefit of notfn. 21/2004-ST has been incorrectly extended inasmuch as the respondents were not located in the same premises to whom the outdoor catering services were provided. Consequent thereto the benefit of SSI Notification No.6/05-ST would also not be available for the subsequent financial year as the value of services during the preceding financial year exceeded Rs.4 lakhs is what the Revenue submits.

The respondent fairly agreed to the submissions made by the Revenue that the demand of ST confirmed against the respondents by original adjudicating authority to the extent of Rs.86,198/- is proper. And so the question that was left was of penalty as the Bench held that the Service Tax is required to be confirmed along with interest.

On the question of penalty, the Member (Judicial) took the following view -

"7. As regards penalty, we find that the respondents are admittedly a small scale person engaged in providing catering services to an academic institution. From the order of Deputy Commissioner, we find that no positive act of suppression or misstatement with an intent to evade payment of duty stands attributed to him. It stands simply recorded by the original adjudicating authority that as the assessee has not complied with the statutory formalities and has not filed the returns, the demand is to be confirmed against them along with imposition of penalties.

8. The said order of the original adjudicating authority stands set aside by Commissioner(Appeals). As such we are of the view that the issue involved is capable of two different interpretations. There could be a bonafide belief on the part of the assessee that in as much as he is providing the outdoor catering services to an academic institution, he is entitled to exemption. The complexity of the Notification which has already resulted in passing of a favourable order by Commissioner (Appeals) cannot be understood by a common person not very well conversant with the legal interpretations. Commissioner(Appeals) being an appellate authority has interpreted the Notification in favour of the assessee. We are of the view that when an expert officer himself interprets the Notification in such a manner so as to extend the benefit to the assessee, no faults can be found on the part of the assessee to understand the law in that particular manner. In the absence of any specific allegation of malafide and any evidence to that effect produced by Revenue on record, we are of the view that penalty should not be imposed upon the respondents.

9. In view of the foregoing discussion, we allow the Revenue's appeal to the extent of confirmation of demand of duty and interest against the respondents and restore that part of the order of the original adjudicating authority vide which he has confirmed the demand and interest. Appeal is disposed of in above manner."

However, the Member (Technical) was not in agreement with the above view taken by the Member (Judicial) and recorded separate findings in the matter thus -

"10. … This is a Notification with the simple condition clearly stating that for claiming the exemption the catering establishment should be located within the premises of an academic institution. Even though this condition was not satisfied, the appellant contend that he had interpreted it and had a bonafide belief that he was eligible for the exemption and he did not comply with the basic requirement of getting registered under the Service Tax Rules and did not file the returns in spite of being asked to do so by the Excise officers by letter dated 12.12.2006. The issue involved is not even about the scope of the taxable entry but the scope of exemption where the onus is on the person claiming such exemption to be sure that he satisfies the condition of notification. The appellant interpreted the notification on his own and chose not to furnish information to the department by not taking registration and filing returns in spite of letter addressed to him. This in my view is an act of suppression.

11. …

12. …

13. Further in the matter of penalty under section 77 of Finance Act, 1994 is a statutory penalty not linked to intention to evade. So I do not see any reason to waive penalty under section 77 at all.

14. Now the next issue to be decided is whether an error made by the Commissioner (Appeal) will result in damage to the rights of the government. As seen from the order in appeal, this error is not in interpreting the scope of the notification No. 21/2004-ST in as much as the order does not record the fact that the catering establishment was outside the premises of the Institute. The error was in noticing the fact whether the catering establishment was within the institute or not which position was clearly known to the appellant and may not have been known to the Commissioner (Appeal) or he may have lost sight of this fact. I am of the view that an error of this type of the Commissioner (Appeal) cannot make a difference to the issue whether there was suppression on the part of the appellant. The matter has to be decided with reference to the appellant's actions and not with reference to the actions of the Commissioner (Appeal). In this case, the Revenue has come up in appeal for the reason that Commissioner (Appeals) has made a mistake of fact resulting in wrong decision and that mistake cannot be a reason from setting aside the penalty imposed on the appellant.

15. However, in respect of the penalty under section 78 imposed, I am of the view that the assesse should be given an option to pay 25% of that tax involved as per the provisions of the section 78 of the Finance Act, 1994 which has not been given in this case. Therefore following the decision of the Delhi High Court in K.P. Pouches (P) Ltd Vs UOI (2008-TIOL-240-HC-DEL-CX), it is proper to give an option to pay 25% of tax amount within 30 days of communication of final order in this case. The penalty under Section 77 is also payable. Thus, I do not agree with the order dictated by Member (Judicial) in the matter of waving of penalties."

Upon going through the findings recorded by the Member(Technical), the Member (J) found it prudent to make a mention of the following -

"16. … First of all, I would like to make it clear that ld. Advocate appearing for the respondents have not contested the demand on the point of limitation as such no finding on the point limitation are required to be given.

17. As regards penalty, without making any general comments, I would like to restrict myself to the facts of the present case. The question to be decided is whether the Notification No.21/04 has a simple language or not on the basis of which my ld. brother has observed that the fact of non-obtaining of Registration by the respondent amounts to suppression? If it is a simple language not capable of two different interpretations, I really fail to understand as to why officer of department of the level of Commissioner(Appeals) has interpreted the facts in a manner other than the one adopted by us. What may be simple for one may not be simple for the other. We have to keep in mind that the respondents is a caterer and not a legal expert in which case, he cannot be held to have committed the offence of interpreting the law in a manner to have suited to him and not having paid the service tax.

18. Further, non-compliance with the regulations or rules in taking the registration and non-filing of returns etc. cannot be made basis for imposition of penalties. In as much as in each and every case of evasion of duty, such basic contravention of non-filing of returns and non-availment of the decision would be available. We have to keep in mind that imposition of penalty is closely associated with intent to evade payment of duty. Such information is definitely to be gathered from the available circumstances and evidences on record. The same would be dependent upon the reasonable bonafide belief which an assessee may or may not entertain. Such findings of bonafide belief have to be made on the basis of facts available in each case. In my views, a simplicitor fact of non-registration with the department and non-filing of returns and non-payment of service tax cannot be made the sole basis for attributing mens rea to an assessee so as to either invoke the longer period of limitation or to impose penalty upon him.

19. Further it may be observed that the findings of Commissioner (Appeals) cannot be held to be an error on the part of the officer. The same is a conscious decision taken by him. Merely because the same has not found favour by us is no reason to address the final decision as an "error" on the part of the officer. I find myself in affirmation with my view that no penalties are required to be imposed upon the respondent and Revenue's appeal is required to be allowed only in respect of tax amount."

The matter, therefore, came to be referred to the third Member.

An extract of the finding of the third Member(T) on reference is as below –

"27. In this case the respondent's agreement with Madhav Institute of Technology & Science mentions Sh. Sanjeev Singhal, as the proprietor of JAS Enterprises and "BH-139, Deen Dayal Nagar, Gwalior (M.P.)" is mentioned as the residential address of Sh. Sanjeev Singhal. In terms of this agreement, the Respondent firm was to pay monthly rent of Rs. 5000/- per month to the Institute for the space rented by Respondent for providing the catering service. The dispute is as to whether in this factual back ground, the Respondent for the purpose of exemption Notification No. 21/04-ST, can be treated as located within the premises of an academic institution. The very fact that on the issue of eligibility for exemption under this notification, the Commissioner of Central Excise (Appeals) has held that the Respondent is located within a academic Institutions and the Tribunal has taken a contrary view on the same issue, shows that on this issue, two views were possible. In this factual background, I am of the view that just because the Respondent has not interpreted the Notification in accordance with the Revenue's interpretation of the notification and the Respondent as per his understanding of the exemption notification was not paying service tax and had not obtained service tax registration, his conduct cannot be treated as deliberate violation of the provisions of the Finance Act, 1994 and of the Rules made there under. Therefore while the penal provisions of section 78 are not attracted, the penalty imposable under section 77 is liable to be waived under section 80. I, therefore, agree with the view of learned Member (Judicial) that in the circumstances of the case, penalty on the Respondent under section 77 & 78 of the Finance Act, 1994 is not warranted."

In fine, the majority decision reads –

"Revenue's appeal is allowed in respect of service tax and interest and part of the impugned order of Commissioner (Appeals) setting aside the penalty imposed upon the respondents is upheld, in view of the majority order."

In passing : Mountain and a molehill story!

(See 2013-TIOL-440-CESTAT-DEL)