2015 (1) TMI 385 - AT - Service Tax

Tribunal Waives Penalties for Finance Act Violation

The Tribunal allowed the appeal, setting aside the penalties imposed under Sections 77 & 78 of the Finance Act, 1994. The appellant's financial ... Waiver of penalty u/s 80 - Imposition of penalty u/s 76, 77 & 78 - Goods Transport Agency - reverse charge mechanism - Held that:- Firstly, the non-payment of service tax was detected from the books of accounts maintained by the appellant. This indicates that they could not have any mala fide intention to evade payment of service tax. The second mitigating factor is that the adjudicating authority waived penalty under Section 76 by taking cover of Section 80. The reason stated by the adjudicating authority for waiving the penalty under Section 76 is that the tax had been paid prior to issue of show cause notice and that the unit is registered under BIFR. Section 80(1) of the Finance Act states 'Notwithstanding anything contained in the provisions of Section 76, Section 77 or [first proviso to sub-section (1) of Section 78], no penalty shall be imposable on the assesee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure'. Therefore it is apparent that the adjudicating authority found reasonable cause for waiving penalty under Section 76. Having found reasonable cause for waiving penalty under Section 76. I see no justification for imposing penalty under Section 78 of the Act. Reliance is also placed on the CESTAT judgment in the case of Ramanasekar Steels Ltd. Vs. Commissioner of C.Ex., Chennai [2007 (10) TMI 28 - CESTAT, CHENNAI] affirmed by the Mad. High Court [2015 (1) TMI 38 - MADRAS HIGH COURT]. The High Court upheld the decision that declaration of a unit as sick company under Sick Industrial Companies Act, 1985, is a 'reasonable cause' for waving penalty under Section 80 of the Act. In these circumstances, the order for imposition of penalties is set aside. - Decided in favour of assesse. Issues:- Appeal against the demand of Service Tax, interest recovery, and penalties under Sections 77 & 78 of the Finance Act, 1994.Analysis:1. Service Tax Demand and Penalties:The appellant, engaged in manufacturing castings, had paid service tax under the Goods Transport Agency category on a reverse charge basis. However, discrepancies were found during an audit, revealing non-payment of due service tax for specific periods. Although the entire amount was paid before the issuance of a show cause notice, penalties were imposed under Sections 77 & 78 of the Finance Act, 1994. The appellant contested these penalties in the appeal.2. Arguments and Considerations:The appellant's representative highlighted financial stress due to the unit being declared sick and registered under the BIFR. The Adjudicating Authority had waived the penalty under Section 76, citing reasonable cause as the tax was paid before the show cause notice. The appellant argued that this waiver under Section 76 should also apply to the penalties under Section 78. The appellant's case was supported by the CESTAT judgment in the case of Ramanasekar Steels Ltd. Vs. Commissioner of C.Ex., Chennai, where the High Court upheld that a unit's declaration as a sick company under the Sick Industrial Companies Act, 1985, constituted a reasonable cause for waiving penalties under Section 80 of the Act.3. Decision and Rationale:The Tribunal found substantial grounds to take a lenient view, considering that the non-payment of service tax was not intentional, as it was detected from the appellant's own accounts. The waiver of penalty under Section 76 by the Adjudicating Authority was based on reasonable cause, as the tax was paid before the show cause notice and the unit's sick status. Citing Section 80(1) of the Finance Act, the Tribunal concluded that since there was a reasonable cause for waiving penalty under Section 76, there was no justification for imposing penalties under Section 78. Therefore, relying on the precedent set by the CESTAT judgment and the High Court decision, the Tribunal set aside the order for imposing penalties, allowing the appeal in favor of the appellant.This detailed analysis of the judgment showcases the issues involved, the arguments presented, and the rationale behind the Tribunal's decision, providing a comprehensive understanding of the legal proceedings and outcomes.