2014 (4) TMI 596 - HC - Service Tax

Karnataka High Court affirms Tribunal decision on penalty limit under Section 78, grants authority's discretion.

Commissioner Versus VS. Patil

The High Court of Karnataka upheld the Tribunal's decision to limit the penalty to 25% of the service tax amount under Section 78 of the Act. The Court ... Penalty u/s 78 - Tribunal without exercising jurisdiction u/s 80 reduced penalty to 25% - Held that:- When the duty and penalty is paid even before an order passed by the adjudicating authority the second proviso applies and the penalty payable is only 25%. Therefore, the contention of the Revenue that the authority has no jurisdiction to reduce the penalty to 25% is ex facie illegal and contrary to the statutory provision. In that view of the matter, there is no merit in this appeal - Decided against Revenue. Issues:Challenge to the order limiting penalty under Section 78 of the Act.Analysis:The High Court of Karnataka heard a Revenue's appeal against a Tribunal's decision that restricted the penalty payable to 25% of the service tax amount under Section 78 of the Act. The Revenue contended that once the adjudicating authority chose to impose a penalty without exercising discretion under Section 80 of the Act, it could not impose a 25% penalty, deeming it impossible under the law. The Revenue sought to set aside the Tribunal's order based on this argument.The facts of the case were undisputed. The assessee had paid the duty with interest after receiving the show cause notice but before the adjudicating authority's order. The key issue was determining the penalty payable if the authority found no reasonable cause for the delayed payment. The Court noted that the authority had the discretion to waive the entire penalty but chose to impose it, triggering the Second proviso to Section 78. This proviso stipulates that if the duty and penalty are paid before the authority's order, the penalty is limited to 25%. Therefore, the Court found the Revenue's argument that reducing the penalty to 25% was beyond the authority's jurisdiction to be illegal and contrary to the statutory provision. Consequently, the Court ruled in favor of the assessee, holding that there was no merit in the Revenue's appeal.In conclusion, the High Court of Karnataka upheld the Tribunal's decision to limit the penalty to 25% of the service tax amount under Section 78 of the Act, emphasizing that the authority had the discretion to reduce the penalty in such circumstances as per the statutory provisions.