2010 (10) TMI 438 - AT - Service Tax

Appellate Court Overturns Penalties Under Finance Act, Emphasizes Need for Reasonable Cause

The appellate court set aside the revisional authority's order imposing penalties under Sections 77 and 78 of the Finance Act, 1994, as it failed to ... Demand - Revision - Penalty - since both the authorities below having not exercised their powers in relation to the aspect of penalty, both the orders cannot be sustained and are liable to be set aside and the matter be remanded to the original authority to deal with the matter separately in accordance with the provisions of law and after hearing the parties - the issue in relation to the penalty aspect is kept open for appropriate decision in this regard by the adjudicating authority - Decided in the favour of the assessee by way of remand Issues:Challenge to the order-in-revision regarding imposition of penalty under Sections 77 and 78 of the Finance Act, 1994.Analysis:The appeal arose from an Order-in-Revision passed by the Commissioner of Customs, Central Excise, and Service Tax, Tirupati, setting aside the order passed by the adjudicating authority that refrained from imposing a penalty. The Commissioner imposed a penalty of Rs. 13,69,226 under Section 78 of the Finance Act, 1994, and Rs. 5,000 under Section 77 of the same Act. The challenge to the impugned order was based on the argument that the revisional authority ignored the fact that the adjudicating authority refrained from imposing a penalty due to the department's failure to substantiate allegations of willful suppression or intentional evasion. The appellants contended that the revisional authority acted in contravention of the law by setting aside the penalty without finding the lower authority's actions arbitrary or improper.Upon review, it was found that the original authority refrained from imposing the penalty as the department failed to prove willful suppression or intentional evasion. The original authority's discretion in this matter was evident in the order passed by the Additional Commissioner. Section 80 of the Finance Act, 1994, was highlighted, indicating that the imposition of penalties under Sections 76, 77, and 78 required the authority to ascertain if the assessee had a reasonable cause for the failure. This provision introduced discretion not present in the Central Excise Act, 1944, or the Customs Act, 1962. The judgment emphasized that the decision in UOI v. Dharamendra Textile Processors should be applied considering Section 80 of the Finance Act, 1994.The Commissioner (Appeals) in the impugned order failed to consider the discretion provided by Section 80 and referenced cases related to the Central Excise Act, 1944, without accounting for the unique provisions of the Finance Act, 1994. Consequently, the impugned order passed by the revisional authority was deemed unsustainable. The judgment concluded that since both lower authorities did not exercise their powers regarding the penalty, both orders were set aside, and the matter was remanded to the original authority for proper consideration in accordance with the law. The issue of penalty was left open for appropriate decision by the adjudicating authority, emphasizing the need to consider the observations made in the judgment.