ST - Although non-compliance with s.78 does not per se invalidate penalty, given that option was not granted, and appellant had deposited substantial amount at adjudication stage, limited relief is justified: HC
By TIOL News Service
NEW DELHI, JAN 04, 2017: THE assessee provides business auxiliary services and became liable to file service tax returns and deposit amounts towards that levy, with effect from 10.09.2004. It, however, claimed ignorance of its duties in that regard and eventually in 2009 it registered itself as a service tax assessee and started filing returns.
The proceedings culminated in a SCN asking the appellant to show cause why assessments for the years that it had not filed returns (by invoking the extended period) should not be completed. During the course of these proceedings, the assessee admitted its liability and, of the demand for Rs.44,04,621/-, deposited Rs.28 lakhs.
The petitioner contested the liability u/s 78 of the FA, 1994, which enjoined a mandatory penalty of 100% of the tax demanded.
It, however, did not succeed on this score as the Commissioner (Service Tax) and the CESTAT ruled against the appellant.
Before the High Court, the appellant submitted that the controlling expression applicable - and found in both Section 78 of the Act and second proviso to Section 11A is "fraud", "collusion", "wilful mis-statement", "suppression of facts" or "contravention of any of the provisions...with intent to evade payment..." Inasmuch as for mere omission to register and pay duty, which is otherwise payable, the extended period of limitation cannot be invoked. Reliance is placed on HMM Limited - 2002-TIOL-120-SC-CX; Padmini Products - 2002-TIOL-289-SC-CX and Uniworth Textiles Ltd. - 2013-TIOL-13-SC-CUS. It was alternatively suggested that in the event the Court is not persuaded with this interpretation, the possibility of invoking third proviso to Section 78(1) may be also considered.
The second, third and fourth proviso to section 78(1) of FA, 1994 reads -
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Provided further that where such service tax and the interest payable thereon is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be twenty-five per cent of such service tax;
Provided also that the benefit of reduced penalty under the second proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso.
Provided also that in case of a service provider whose value of taxable services does not exceed sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of thirty days shall be extended to ninety days.
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The Counsel for the Revenue argued that under the proviso to Section 78(1), the assessee has limited option of paying up the amount demanded with interest levied, within 30 days resulting in reduction of penalty to 25%; that in default of such compliance, the assessee would have to suffer 100% penalty; that once the period is over, the authorities are powerless to waive the amount or reduce it. Decisions cited are Exotic Associates - 2010-TIOL-59-HC-AHM-CX; K.P. Pouches (P) Ltd. - 2008-TIOL-240-HC-DEL-CX; Commissioner of Central Excise, Raigad vs. Castrol India Ltd. - 2012-TIOL-464-HC-MUM-CX; Sri Sai Enterprises & Anr. - 2012-TIOL-151-HC-DEL-CX, Top Security - 2015-TIOL-2751-HC-DEL-ST.
The High Court observed -
Limitation:
++ The court is of the opinion that there is some substance and merit in the argument; in Uniworth - 2013-TIOL-13-SC-CUS. there is an elaborate discussion about what constitutes "fraud" or willful suppression or misrepresentation in regard to short payment or non-payment of duty. The assessee in this case registered itself with the service tax authorities in 2009, i.e. about 3 years before the issuance of the notice. Its defense regarding no knowledge about the inclusion of its business activity in the statute is quite probable; in any event there is no material pointing to deliberate inaction.
++ In all the decisions cited by the revenue, the assessees were aware of their liability; they were called to book for not disclosing the true figures or production in most cases, unlike in the present case, where the appellant claims not to have been aware of its liability before its registration, in 2009. However, at the same time, having regard to the phraseology of Sections 76 and 77 of the Finance Act, this court is unable to disturb the findings of the authorities below on this aspect.
Penalty u/s 78 of FA, 1994:
++ The limited relief that can be granted is through the fourth proviso to Section 78(1) of the Finance Act. In K.P. Pouches (supra) this court had directed all adjudicating officers to expressly state in their orders, the option available under Section 11AC of the Central Excise Act (which is in pari materia to Section 78 of the Finance Act). However, there is one significant difference: the period of 90 days is to be given in the order in respect of service tax, given that the fourth proviso to Section 78 (1) requires that period to be given. In the present case, however, the adjudicating officer did not grant that time, although the amount demanded (Rs. 44 lakhs) fell within the limit indicated by proviso to Section 78 (1)…
++ Although the non-compliance with Section 78 of the Act does not per se invalidate the penalty, at the same time, given that the option was not granted, and also that the appellant had deposited a substantial amount at the stage of adjudication and did not contend that it was not liable, we are of the opinion that limited relief in terms of that provision is justified in the peculiar circumstances of the case.
Conclusion:
The CESTAT's impugned order is modified. The assessee/appellant has the option to deposit the balance service tax together with accumulated interest and penalty of 25% of the entire tax due, within the period indicated in the third proviso to Section 78(1). It goes without saying that in the event of default of balance, the order of the service tax authorities as upheld by the CESTAT can be executed. The impugned order is modified to the above extent.
The appeal was allowed in the above terms.
(See 2017-TIOL-22-HC-DEL-ST)
