2018 (1) TMI 996 - HC - Service Tax

High Court reduces penalty under Central Excise Act due to unique circumstances

The High Court reduced the penalty imposed on the Appellant under Section 35G of the Central Excise Act, 1944, from 50% to 25% due to the unique ... Whether the imposition of 50% penalty is just and reasonable on the totality of the facts and circumstances of the cases in hand as the substantial question of law arising for decision in these appeals? Held that: - it had been the consistent case of the Appellant before the authorities that the non-payment of the service tax was on account of payment of entire service tax by the service provider - the penalty component ought to have been reduced from what it is now paid to 50%, on the peculiar facts and in circumstances of the case in hand, particularly when the CENVAT Credit availed was reversed. Reasonably, the amount of penalty can be pegged at 25%, that is to say half of the penalty imposed by the authorities below. The penalty will stand reduced to be 25% - appeal allowed in part. Issues:1. Imposition of 50% penalty on the Appellant under Section 35G of the Central Excise Act, 1944.2. Validity of the imposition of interest by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).3. Consideration of reducing the penalty amount based on the circumstances of the case.Analysis:1. The High Court heard arguments from both the Appellant and the Revenue regarding the imposition of a 50% penalty under Section 35G of the Central Excise Act, 1944. The Appellant, a service receiver, had not paid the service tax component as the service provider had already paid 100% of the tax. The Tribunal upheld the penalty, but the High Court considered reducing it to 25% based on the peculiar facts of the case. The Appellant was directed to pay the reduced penalty within two weeks to avoid dismissal of the appeals.2. The Tribunal had imposed interest as a statutory liability, which the High Court found no grounds to interfere with. The High Court upheld the Tribunal's decision regarding the interest component, indicating that the Appellant must comply with the payment of interest along with the reduced penalty within the specified timeframe.3. The High Court acknowledged the Appellant's consistent argument that the non-payment of service tax was due to the service provider's full payment. Considering the circumstances, the High Court decided to reduce the penalty to 25%, half of the original amount imposed by the lower authorities. The High Court emphasized that the Appellant must remit the reduced penalty and interest within two weeks to avoid dismissal of the appeals.In conclusion, the High Court allowed the appeals, modifying the orders to reduce the penalty to 25% based on the specific circumstances of the case. The Appellant was given a two-week deadline to pay the reduced penalty and outstanding interest to the Revenue, failing which the judgment would be recalled, and the appeals dismissed automatically.