“Imposition of penalty under Section 77 and 78 of the Finance Act, 1994 when penalty under Section 76 thereof was waived off”

Dear Professional Colleague,

“Imposition of penalty under Section 77 and 78 of the Finance Act, 1994 when penalty under Section 76 thereof was waived off”

We are sharing with you an important judgment of Hon’ble CESTAT, Mumbai, in the case of Garodia Special Steels Ltd Vs. Commissioner of Central Excise, Raigad [2015 (1) TMI 385 - CESTAT MUMBAI]on following issue:

Issue:

Whether the imposition of penalty under Section 77 and 78 of the Finance Act, 1994 is justified, when penalty under Section 76 was waived on the ground of reasonable cause?

Facts and background:

In the instant case, Garodia Special Steels Ltd. (“the Appellant”) paid Service tax under the category of 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 the Appellant had not paid the due Service tax during the periods 2007-2008 and April 2008 to December 2009. The Appellant paid the entire amount of Service tax before the issuance of Show Cause Notice.

Nonetheless proceedings were initiated and apart from upholding the Service tax demand, penalties were imposed under Section 77 and 78 of the Finance Act, 1994 along with interest. On appeal being filed to the Commissioner (Appeals) against imposition of penalty, the same was rejected. Being aggrieved, the Appellant filed an appeal before the Hon’ble CESTAT, Mumbai.

Held:

The Hon’ble CESTAT, Mumbai while setting aside the penalties imposed under Section 77 and 78 of the Finance Act held as under:

• Detection of non-payment of Service tax from the books of accounts maintained by the Appellant, indicates that the Appellant could not have any mala fide intention to evade payment of Service tax;
• The Adjudicating Authority waived penalty under Section 76 of the Finance Act by taking cover of Section 80 thereof. Having found reasonable cause for waiving penalty under Section 76 of the Finance Act, there is no justification for imposing penalty under Section 77 and Section 78 thereof.

Therefore it was found that there were substantial grounds for taking lenient view as it indicates that Appellate could not have any mala fide intention to evade payment of Service tax and even Adjudicating Authority waived the penalty under Section 76 by taking cover Section 80 of the Finance Act as tax had been paid prior to issue of show cause notice and that the unit is registered under BIFR.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

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