2009 (6) TMI 83 - AT - Service Tax

Tribunal Upholds Firm's Appeal, Emphasizes Reasonable Cause to Avoid Penalties

COMMISSIONER OF C. EX., KANPUR Versus PRADEEP ENTERPRISES

The Tribunal upheld the decision of the Commissioner (Appeals) to set aside penalties imposed under Sections 76 and 78 of the Finance Act, 1994, on a ... Penalty for late payment of service tax filing of service tax return delayed – section 76, 77 and 78 – Waiver u/s 80 – Management Consultancy Services – held that - Section 80 of the Finance Act, 1994 provides that, “notwithstanding anything contained in the provisions of Section 76, Section 77 or Section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure.” - They have maintained proper records of the transactions. It appears that M/s. Goodlass Nerolac Paints Ltd (client of the assessee). had not guided the respondent’s Proprietorship firm. It further appears that the Proprietor of the respondent firm in response to the summons immediately appeared and disclosed the entire transactions as recorded in the Bill Book, Bank Statement, etc. They have also paid the tax with interest – reasonable cause proved – penalty waived. Issues:- Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.- Applicability of penalty under Section 76 for failure to deposit tax and file returns within the stipulated period.- Interpretation of Section 80 of the Finance Act, 1994 regarding the imposition of penalties.Analysis:1. The case involved the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994, on a proprietorship firm providing maintenance and repair services to a company. The firm had accepted tax liability and deposited the amount along with interest on specific dates in response to a show cause notice issued by the Original Authority. The penalties were confirmed by the Original Authority, but the Commissioner (Appeals) set them aside, leading to the Revenue filing an appeal.2. The Revenue argued that the penalties were justified as the firm had not deposited the tax and filed returns within the stipulated period, invoking Section 76 of the Act. The Revenue contended that mens rea was not essential for imposing penalties and ignorance of the law could not be an excuse. However, the Tribunal noted that Section 80 of the Finance Act, 1994, provides an exception to the imposition of penalties if the assessee proves reasonable cause for the failure, regardless of Sections 76, 77, or 78.3. Upon examination, the Tribunal found that the firm had maintained proper records, promptly responded to the summons, disclosed all transactions, and paid the tax with interest. It was observed that the company receiving the services had not provided guidance to the firm, indicating a lack of intentional wrongdoing. Considering the facts and circumstances, the Tribunal concluded that the firm had proven a reasonable cause for the failure to deposit tax and file returns within the stipulated period, in accordance with Section 80 of the Act.4. Consequently, the Tribunal upheld the decision of the Commissioner (Appeals) to set aside the penalties imposed by the Original Authority. The Tribunal emphasized that the firm had demonstrated a reasonable cause for the failure, leading to the rejection of the Revenue's appeal. The judgment was delivered on 3-6-2009, affirming the position that penalties should not be imposed when reasonable cause is established, as per the provisions of the Finance Act, 1994.