2011 (2) TMI 744 - AT - Service Tax

Gujarat High Court overturns Tribunal decision on Finance Act penalties, penalties cannot be reduced below minimum limit.

The Gujarat High Court set aside the Tribunal's decision in a case involving penalties under Sections 76 and 80 of the Finance Act, 1994. The High Court ... Demand - Business Auxiliary Services - A show cause notice was issued on 25.4.2008 which culminated into adjudicating order dated 28.11.2008 resulting in imposition of penalty of Rs.88,800/- under Section 76 of the finance Act, 1994 for late payment of service tax and penalty of Rs.1000/- under Section 77 of Finance Act, 1994 for late filing of ST-3 returns - In this case, the penalty was reduced from Rs.88,800/- to Rs.25,000/- but as per Section 76 of Finance Act, 1994, penalty has to be either Rs.88,800/- or Nil, if it is considered that Mehta had shown reasonable cause and therefore, discretion to waive penalty could be exercised - since there is no appeal by M/s. S.J. Mehta and the appellant Revenue cannot be put in a worse situation than the one as per the Commissioner (Appeals) order - Decided against the assessee Issues:1. Penalty under Section 76 of the Finance Act, 1994 for late payment of service tax.2. Penalty under Section 77 of the Finance Act, 1994 for late filing of ST-3 returns.3. Interpretation of Sections 76 and 80 of the Finance Act, 1994 regarding the authority to reduce penalties below the minimum prescribed limit.Analysis:1. The case involved M/s. S.J Mehta & Co. providing Business Auxiliary Services with delayed payment of service tax and late filing of ST-3 returns. A show cause notice led to penalties imposed by the adjudicating authority, reduced by the Commissioner (Appeals) invoking Section 80 of the Finance Act, 1994. The Commissioner of Central Excise Rajkot appealed to the Tribunal, which rejected the appeal. Subsequently, the Revenue filed a tax appeal before the Gujarat High Court, challenging the Tribunal's decision.2. The High Court set aside the Tribunal's order, emphasizing that there is no discretion to reduce penalties below the minimum prescribed limit under Sections 76 and 80 of the Act. The Tribunal, upon reconsideration, noted that the High Court clarified that penalties under Section 80 can be waived or imposed as per law but not reduced. As the penalty was reduced from Rs.88,800 to Rs.25,000, the Tribunal found that penalties under Section 76 should either be Rs.88,800 or Nil if reasonable cause is shown. Since only the Revenue appealed and Mehta did not, the Tribunal could not consider reducing the penalty to nil. Consequently, the Tribunal allowed the Revenue's appeal, restoring the penalties imposed by the original adjudicating authority and setting aside the Commissioner (Appeals) order.3. The Tribunal's decision was based on the interpretation of the law as clarified by the High Court, emphasizing that penalties under Section 76 should either be the prescribed amount or nil, with no provision for reduction. The absence of an appeal from Mehta limited the Tribunal's discretion to consider reducing the penalty further. Therefore, the Tribunal upheld the penalties imposed by the adjudicating authority, aligning with the legal provisions outlined in the Finance Act, 1994.