2004 (10) TMI 1 - AT - Service Tax

Statutory penalty under s.76 set at Rs100-200 per day; s.80 relief led to waiver of ss.76 and 77 penalties

CESTAT held the statutory penalty under s.76 must be imposed at not less than Rs.100 per day (up to Rs.200 per day) for continuous failure, answering the ... Service Tax - imposition of penalty under Section 76 of the Finance Act 1994 for failure to collect or pay service tax - manufacture and installation of air conditioning systems - Application of Section 80 for waiver of penalties if reasonable cause for failure is proven - HELD THAT:- We find that in Section 76, there is no comma after one hundred rupees. Therefore, the word, 'for everyday during which such failure continues', qualify the words 'not less than one hundred rupees, but which may extend to two hundred rupees.' If the intention of the legislature was to impose a penalty of only Rs. 100/- then there would have been a comma after the word, 'rupees one hundred'. There is a comma after the word, 'one hundred rupees'. Therefore, the intention of legislature is quite clear that penalty of Rs. 100/- per day was required to be imposed in case of failure to pay the tax for everyday after the due date. Therefore, we are of the view that the correct interpretation is that the penalty shall not be less than 100/- per day but which may extend to Rs. 200/- for every day during which such failure continues. Therefore, the reference is answered in favour of Revenue. Since this appeal itself has been referred to the Larger Bench and we have heard the ld. Advocate for the appellants as well as ld. SDR for Revenue on merit, for imposition of penalty, we are deciding the issue of imposition of penalty under Sections 76 and 77 also. There is a provision for not imposing any penalty if the assessee proves that there was a reasonable cause for the said failure. We find that the appellants, in this case, are manufacturer of Air-conditioning System. The charge is that central excise officers on scrutiny of the various documents relating to job work orders undertaken by the appellants found that they provided assistance and review in basic design criteria, including design loads for all project components including engineering calculations, estimates of main equipment capacities and sizes to M/s. GCHPL and charged fees from the client. The lower authorities have held that the appellants have rendered drawing, design, technical, consultancy services and are covered by the scope of consulting engineer and accordingly, demanded service tax. The appellants have not contested the levy of service tax. They have cooperated with the Investigating officers. Since they were under the bona fide doubt regarding their activity whether covered by service tax or not, therefore, there was a reasonable cause on their part in not depositing the service tax in time. Therefore, we are of the view that notwithstanding anything contained in Sections 76 and 77 of the Finance Act, 1994, the appellants are entitled for the benefit of Section 80 of the Finance Act and accordingly, we hold that no penalty should be imposed on the appellants. Accordingly, we set aside the penalties imposed under Sections 76 and 77 and allow their appeal to this extent. Issues:1. Conflict in views on the imposition of penalty under Section 76 of the Finance Act 1994 for failure to collect or pay service tax.2. Interpretation of penalty provisions under Sections 76 and 77 of the Finance Act 1994.3. Application of Section 80 for waiver of penalties if reasonable cause for failure is proven.Detailed Analysis:Issue 1:The case was referred to the Larger Bench to resolve the conflict in views on the imposition of penalty under Section 76 of the Finance Act 1994. The appellants were engaged in providing services as Consulting Engineers but had not registered with the Department or paid service tax. The original authority confirmed the tax demand and imposed penalties under Sections 76 and 77. The appeal against the order of the Commissioner (Appeals) raised the question of whether the penalty should be Rs. 100/- per day in absolute terms or per day.Issue 2:The interpretation of penalty provisions under Sections 76 and 77 was a key point of contention. The appellant argued that Section 76 prescribed a minimum penalty of Rs. 100/- only, subject to a maximum of Rs. 200/- per day, based on previous Tribunal decisions and proposed amendments. However, the Revenue contended that Section 76 mandated a penalty not less than Rs. 100/- but which could extend to Rs. 200/- for each day of failure to pay service tax. The Tribunal analyzed the punctuation and legislative intent to determine the correct interpretation, ultimately deciding that the penalty under Section 76 should be not less than Rs. 100/- per day but could extend to Rs. 200/- per day.Issue 3:The application of Section 80 for waiver of penalties based on reasonable cause was crucial. The appellants, being manufacturers of Air Conditioning Systems, had cooperated with the investigation and paid the service tax but had doubts about the applicability of service tax to their activities as Consulting Engineers. The Tribunal found that there was a reasonable cause for their failure to deposit the service tax in time. Therefore, despite the provisions of Sections 76 and 77, the appellants were entitled to the benefit of Section 80, leading to the setting aside of the penalties imposed under Sections 76 and 77.In conclusion, the Tribunal resolved the conflict in views on penalty imposition under Section 76, clarified the interpretation of penalty provisions under Sections 76 and 77, and applied Section 80 to waive penalties due to a reasonable cause for failure to pay service tax.