Imposition of Penalty under Section 78

PJ/Case Laws/2010-11/1071

Case: Commissioner of C. Ex., Mangalore v/s K. Vijaya C. Rai

Citation: 2011 (21) STR 224 (Kar.)

Issue:- Whether Penalty under Section 78 regarding willful suppression and evasion of tax can be waived if interest and penalty are paid?

Brief Facts: - Respondent-assessee was providing Rent-a-cab services to M/s New Mangalore Port Trust for 3 years i.e. 01.04.2000 to 30.09.2003 without payment of service Tax. Assessee has not obtained service tax registration & also not intimated the Department regarding the receipt of rentals. On a survey conducted by the department the same was found out. Thereafter, assessee took registration on 15.09.2003 and for the period from 01.04.2000 to 30.09.2003, filed “Nil” return on 30.12.2003.

The Department issued the show cause notice demanding the amount of service tax, interest on that amount and proposed to impose equal penalty under Section 78. The assessee paid service with interest and Rs. 500/- as penalty and filed the required ST-3 Return.

The Adjudicating Authority took note of payment of service tax by assessee but imposed equal penalty of Rs. 24581/- under Section 78 of the Finance Act, 1994.

In appeal, the Commissioner (Appeals) affirmed the order of the Adjudicating Authority.

In further appeal, the Tribunal took into consideration the fact that the service was exempted from payment of service tax from 01.03.1999 as per Notification no. 03/99-ST dated 01.03.199 which was reintroduced from 01.04.2000, which was not known to the assessee who is a household lady; that she had held a bonafide belief that there was no service tax payable on the taxi services. The port trust which was her client also did not inform her about the re-introduction of service tax w.e.f. 01.04.2000. Immediately on the receipt of notice the assessee had paid the tax. Therefore, the Tribunal took a lenient view and held that there is no willful evasion of duty. Accordingly, penalty imposed was set aside.

Against the order of the Tribunal, Department was filed appeal before the High Court.

Appellant’s Contention:- Department submitted that after obtaining registration, assessee had filed a false return showing that no tax is payable. Assessee has paid the Service Tax+Interest+Penalty only after receiving SCN. So it cannot be said that it is not a case of willful evasion of duty.

Respondent’s Contention:- Assessee submitted that she is being a lady and a house wife, has omitted to pay tax which is bona fide act on her part and therefore, when the Tribunal has taken a view in its discretion, such an order need not be interfered with. It was also submitted that immediately after she received the show cause notice, she has not only paid the tax but also paid interest and penalty.

Reasoning of Judgment:- The High Court held that the assessee had not paid the Service Tax on the rent-a-cab services provided by her for a period of 3 years after the re-introduction of service tax. When a survey was conducted, it came to Department’s notice as well as to the notice of the assessee. When once she got herself registered, any reasonable enquiry would have disclosed that she was liable to pay tax and that she has not paid the tax and minimum that expected of her was to file a return, pay tax with interest and request for a waiver insofar as penalty is concerned.

The High Court further observed that in such circumstances, it was open to the authorities having regard to assessee’s bona fide conduct, waive imposition of penalty. When once she filed a NIL return and after service of show cause notice, she realised her mistake and paid tax with interest and penalty, that by itself did not constitute sufficient reason to give her exemption from payment of penalty under Section 73.

The High Court noted that this aspect has been completely missed by the Tribunal which was unduly influenced by the fact that the assessee was a lady. The Tribunal failed to notice that people who want to indulge in such malpractices, would purchase properties or carry on business in the names of housewives as their front and carry on the activities. Therefore authorities need not unduly worry about persons in whose names the vehicles stand, but they have to look at the substance of the case and find out if it is a case of willful evasion or bona fide error.

The High Court was satisfied that this was not a bona fide omission on the part of a housewife- a lady who willfully evaded service tax and suppression of fact. The Tribunal’s order is illegal and therefore set aside. Orders of the Adjudicating Authority and Commissioner (Appeal) imposing penalty under Section 78 upheld.

Reference answered in favour of Department and against the assessee.

Decision:- Appeal allowed.

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