Imposition of simultaneous penalty under Section 76 and Section 78 of Finance Act, 1994

PJ/Case Laws/2010-11/1047

Case: Commissioner of Central Excise, Chandigarh-I v/s M/s Cool Tech Corporation, Chandigarh

Citation: 2011-TIOL-23-HC-P&H-ST

Issue:- Whether penalty under Section 76 and under Section 78 was imposable simultaneously before amendment of Section 78 making the sections mutually exclusive w.e.f. 16.05.2008?

Brief Facts:- Show cause notice was issued to the respondent alleging non payment of service tax from July, 2003 to September, 2003 in time. The Adjudicating Authority vide Order dated 2.7.2008 demanded service tax with interest after adjusting the amount already deposited and also imposed penalty under Sections 76 and 78 of the Finance Act.

On appeal, the Commissioner (Appeal) set aside the levy of penalty under Section 76 but upheld the penalty imposed under Section 78. It was held that penalty under Sections 76 & 78 are mutually exclusive and could not be imposed simultaneously.

On further appeal, the Tribunal dismissed the appeal following order of this Court in the case of CCEChandigarh v/s CityMotors [Service Tax Appeal No.15 of 2010 decided on 18.2.2010]. Hence, Revenue is in appeal before the High Court. The substantial question of law raised was:

Whether the Tribunal was right in not imposing penalty under Section 76 for the period prior to 16.5.2008 holding that penalty under Section 76 & 78 of the Act is not imposable simultaneously, both section being mutually exclusive, particularly when these Sections became mutually exclusive only from 16.5.2008 after amendment of Section 78 of the Finance Act, 1994?

Reasoning of the Judgment:- The High Court relied upon the order given in Commissioner of Central Excise v/s M/s Pannu Property Dealers, Ludhiana (Order dated 12.07.2010 in STA No. 13 of 2010). In this case, reliance was placed on judgment of Kerala High Court in Assistant Commissioner of Central Excise v/s Krishna Poduval [2006 (1) STR 185] wherein it was held that “even if technically scope of Sections 76 and 78 may be different…… the fact that penalty has been levied under Section 78 could be taken into account for levying or not levying penalty under Section 76. In such situation, even if reasoning given by the Appellate Authority that if penalty under Section 78 of the Act was imposed, penalty under Section 76 could never be imposed may not be correct, the Appellate Authority was within its jurisdiction not to levy penalty under Section 76 having regard to the fact that penalty equal to service tax had already been imposed under Section 78 of the Act.”

In view of this judgment, the High Court held that no substantial question of law arises.

Decision:- Appeal dismissed.

Comment:- This is also important decision to see whether the penalty under Section 76 and Section 78 are mutually exclusive. Although it is academic discussion after amendment in Section 78 from budget 2008 yet the appeals are being filed by the department on this issue also.

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