By TIOL News Service

MUMBAI, DEC 30, 2014: THE appellant paid service tax under the category Goods Transport Agency on reverse charge basis. However, during the audit of their unit, the reconciliation of ledger accounts with the service returns revealed that they had not paid the due service tax during the periods 2007-2008 and April 2008 to December 2009.

Upon being pointed out, the entire amount of service tax was paid later but before the issue of show cause notice.

Nonetheless proceedings were initiated and apart from upholding the ST demand, penalties were imposed under Sections 77 & 78 of the Finance Act, 1994 along with interest.

Since their appeal was rejected by Commissioner (Appeals) the appellant is before the CESTAT primarily against imposition of penalties.

The appellant submitted that penalty u/s 76 was waived by the adjudicating authority; that the unit has been declared sick and is registered under BIFR.

The AR submitted that since service tax had not been paid by due dates the penalties must be imposed.

The Bench observed -

"I find that there are substantial grounds for taking a lenient view in this matter. Firstly, the non-payment of service tax was detected from the books of accounts maintained by the appellant. This indicates that they could not have any mala fide intention to evade payment of service tax. The second mitigating factor is that the adjudicating authority waived penalty under Section 76 by taking cover of Section 80. The reason stated by the adjudicating authority for waiving the penalty under Section 76 is that the tax had been paid prior to issue of show cause notice and that the unit is registered under BIFR. Section 80(1) of the Finance Act states “Notwithstanding anything contained in the provisions of Section 76, Section 77 or [first proviso to sub-section (1) of Section 78], no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure". Therefore it is apparent that the adjudicating authority found reasonable cause for waiving penalty under Section 76. Having found reasonable cause for waiving penalty under Section 76, I see no justification for imposing penalty under Section 78 of the Act. Reliance is also placed on the CESTAT judgment in the case of Ramanasekar Steels Ltd. Vs. Commissioner of C.Ex., Chennai - 2007-TIOL-2138-CESTAT-MAD affirmed by the Mad. High Court - 2013-TIOL-662-HC-MAD-ST. The High Court upheld the decision that declaration of a unit as sick company under Sick Industrial Companies Act, 1985, is a 'reasonable cause' for waving penalty under Section 80 of the Act. In these circumstances, the order for imposition of penalties is set aside…."

The appeal was allowed.

(See 2014-TIOL-2638-CESTAT-MUM)