2009 (11) TMI 162 - AT - Service Tax

Court rules penalties under sections 76 and 78 of Finance Act are mutually exclusive

Safe Test Enterprises Versus Commissioner of Central Excise, Salem

The appeal challenged penalties under sections 76 and 78 of the Finance Act, 1994 for suppressing taxable service receipts. The adjudicating authority ... Penalty- suppression- Penalties have been imposed on the ground that the assessees suppressed receipt of taxable service and did not pay tax with intention to evade payment thereof. Held that- The assessees have paid the tax together with interest prior to the issue of the show-cause notice. Therefore, the proviso to section 78 will be applicable. In the light of the proviso, set aside the penalty imposed under section 76 and reduce the penalty under section 78 to 25 per cent of the tax amount. The appeal is thus partly allowed. Issues:Challenge to imposition of penalties under sections 76 and 78 of Chapter V of the Finance Act, 1994.Analysis:The appellants contested the penalties imposed on the grounds of suppressing receipt of taxable service with the intention to evade payment. The adjudicating authority confirmed the charges of suppression beyond the normal limitation period, which was not challenged by the assessees. Therefore, the penalty was deemed sustainable. However, the appellants argued that penalties under sections 76 and 78 cannot both be imposed simultaneously, as these provisions are mutually exclusive. They further contended that the penalty should be limited to 25% of the service tax amount, citing the first proviso to section 78. This proviso states that if the service tax and interest are paid within 30 days of the order determining the tax, the penalty shall be 25% of the tax amount. Since the assessees had paid the tax and interest before the show-cause notice, this proviso was deemed applicable. Consequently, the penalty under section 76 was set aside, and the penalty under section 78 was reduced to 25% of the tax amount.The judgment partially allowed the appeal, concluding that the penalties imposed under sections 76 and 78 could not both be upheld simultaneously. The reduction of the penalty under section 78 to 25% of the tax amount was based on the assessees' timely payment of the tax and interest before the issuance of the show-cause notice. This decision was in line with the first proviso to section 78, which restricted the penalty amount under such circumstances.