2024 (3) TMI 1289 - AT - Service Tax

Service tax penalties under sections 76 and 78 cannot be imposed simultaneously for same violation

The CESTAT Ahmedabad held that penalties under sections 76 and 78 of the Finance Act, 1994 cannot be imposed simultaneously for service tax recovery on ... Imposition of penalty u/s 76 and 78 of the Finance Act, 1994 - Recovery of service tax - business auxiliary services - payments made by the Appellants to foreign commission agents - period from 2003–04 to 31.12.2007 - HELD THAT:- There is no dispute as regards the fact that the Appellant have paid service tax along with interest upon intimation by the Department. It is the claim of the Appellant that they were under bonafide belief as regards their liability to pay tax and when they were intimated about their obligation, they have discharged the tax liability along with interest there upon. It is found that it is settled legal position as enumerated by the Hon’ble Gujarat High Court in the case of M/S RAVAL TRADING COMPANY VERSUS COMMISSIONER OF SERVICE TAX [2016 (2) TMI 172 - GUJARAT HIGH COURT] that penalty under section 76 and 78 cannot be imposed simultaneously. Similar view has been upheld by this Tribunal in the case of MD ENGINEERS VERSUS C.C.E. & S.T. -VADODARA-I [2023 (8) TMI 903 - CESTAT AHMEDABAD] wherein it was held that the appellant have been imposed penalty under section 76 and 78 simultaneously. The penalty under Section 76 and 78 cannot be imposed simultaneously. Accordingly, penalty under section 76 should not be imposed on the Appellant when they have paid the service tax along with interest whereas penalty under section 78 and other penalties is upheld. The impugned order is modified to the above extent. The appeal is partly allowed. Issues Involved: 1. Imposition of penalties u/s 76 and 78 of the Finance Act, 1994.2. Payment of service tax along with interest by the Appellant.Issue 1: Imposition of Penalties u/s 76 and 78 of the Finance Act, 1994The Department sought to recover service tax for payments made by the Appellant to foreign commission agents for the period from 2003-04 to 31.12.2007. The Appellant challenged the levy of penalties imposed u/s 76 and 78 of the Finance Act, 1994. The Appellant argued that both penalties cannot be imposed simultaneously, citing a settled legal position by the Hon'ble Gujarat High Court in the case of Raval Trading Company - 2016 (42) STR 210 (Guj). The Tribunal observed that there is no dispute regarding the payment of service tax along with interest by the Appellant upon intimation by the Department. The Tribunal referred to the legal position that penalties u/s 76 and 78 cannot be imposed simultaneously, as elucidated by the Gujarat High Court. The relevant paragraph states, 'if the penalties is payable under this section, the provisions of Section 76 shall not apply.' This was further supported by judgments from other High Courts, including Punjab and Haryana High Court and Karnataka High Court, which held that simultaneous penalties under both sections are not justified.Issue 2: Payment of Service Tax along with Interest by the AppellantThe Appellant claimed that they were under a bonafide belief regarding their tax liability and paid the service tax along with interest immediately upon being informed by the Department. The Tribunal acknowledged this claim and noted that the Appellant did not have any guilty intention or mens rea to avoid payment of tax. The Tribunal found that the Appellant's action of paying the tax along with interest during the investigation stage demonstrated their compliance once the obligation was clarified.In conclusion, the Tribunal held that penalties u/s 76 and 78 cannot be imposed simultaneously. Therefore, the penalty u/s 76 should not be imposed on the Appellant, while the penalty u/s 78 and other penalties were upheld. The impugned order was modified to this extent, and the appeal was partly allowed.(Pronounced in the open court on 28.03.2024)