Lenient view to be taken for penalty if tax and interest paid.

PJ/CASE LAW/2014-15/2513

Case:-SHRI MAHESH VAKTAWARMAL RATHOD Vs COMMISSIONER OF CENTRAL EXCISE, PUNE-III

Citation:-2015-TIOL-178-CESTAT-MUM

Brief facts:-The appellant is in appeal against the impugned Order-in-Appeal No. P-III/RP/141/2013 dated 15/5/2013 passed by the Commissioner of Central Excise (Appeals), Pune-III, in which penalty was imposed under Section 76 of the Finance Act, 1994. The facts are that the appellant had rented out their premises to M/s Loot India Pvt. Ltd. Renting of immovable property was brought under the Service Tax net under Section 65(105) (zzzz) w.e.f. 1.6.2007. The levy was challenged by M/s Retailers Association of India in the Hon'ble Bombay High Court. Later, because the levy was struck down by the Hon'ble Bombay High Court, Government amended the Section making the levy retrospectively valid from 1.6.2007. The Retailers Association went in appeal to the Supreme Court, who stayed the operation of the levy on 14.10.2011 = 2011-TIOL-104-SC-ST subject to following of certain conditions, such as payment of portion of the Service Tax in instalments. However, the order was applicable only to Service Tax liability from 1.6.2007 to 30.9.2011 in respect of the applicants. In the present case, the recipient of service being a party to the association of Retailer's Association of India did not fulfil the condition of the Supreme Court. The service provider in this case did not challenge the levy and was not a party in the case before the Hon'ble Supreme Court. However, they paid the Service Tax on 10.12.2012 with interest and also filed the Service Tax returns.

Appellant’s contention:-The learned C.A. pleads that since the issue was in dispute upto the level of Hon'ble Supreme Court and the matter of levy of Service Tax on renting of immovable property has still not attained finality, there is reasonable cause for invoking Section 80 of the Finance Act, 1994 and waiving the penalty under Section 76. He relied on the judgment of the Tribunal in the case of The Agricultural Produce Market Committee vs. Commissioner or Central Excise, Ahmedabad - III - 2014-TIOL-1242-CESTAT-AHMD and the decision of Hon'ble High Court of Karnataka in the case of Commissioner of Service Tax, Bangalore vs. Motor World - 2012 (27) STR 225 (Kar) = 2012-TIOL- 418-HC-KAR-STto justify that penalty can be waived in case reasonable cause is shown under Section 80. According to him, what is reasonable cause is shown, under Section 80. According to him, what is reasonable cause, has been explained by the Hon'ble High Court in the case of Motor World (supra) as "Reasonable cause' means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonable lead any ordinarily prudent and cautious man, to come to the conclusion that the same was the right thing to do." The learned Counsel also states that they were entitled to waiver of penalty under VCES Scheme introduced in 2013. He relied on the decision of Hon'ble High Court of Karnataka in the case of Vinayaka Securities and Detective Agency vs. Commissioner of Central Excise - 2014-TIOL-1242-HC-KAR-ST.

Respondent’s contention:-The learned AR reiterates the findings of the Commissioner and drew attention to Section 80 (2) in which penalty under Section 76 was waived subject to the condition that the amount of Service Tax along with interest is paid in full within a period of six months on which the Finance Bill was passed i.e. before 26.11.2012.

Reasoning of judgment:-The Hon’ble court have considered the rival contentions. Penalty under Section 76 is imposable for failure to pay Service Tax, Section 80 (1) grants waiver from the payment of penalty if the assessee proves that there was reasonable cause for the said failure. In the present case, no doubt there was confusion regarding leviability of Service Tax on the renting of immovable property service due to various court decisions. The matter has still not attained finality in view of the decision pending in the Hon'ble Supreme Court in the case of Retailers Association of India. However, at the same time, the Hon'ble Supreme Court did not grant stay unconditionally. It only granted the conditional stay. As the recipient in this case did not observe conditions of the stay, the interim order of the Hon'ble Supreme Court does not help the appellant who is the service provider in this case. Further, Government gave the benefit of waiver of penalty under Section 76 if the tax was deposited before 26.11.2012 under Section 80(2) of the Finance Act, 1994. The appellant paid the Service Tax on 10.12.2012 i.e after two weeks from the expiry of the period specified under Section 80(2). Clearly the waiver of penalty cannot be extended to the appellant in view of Section 80(2) because the Government had given enough opportunity to the appellant to deposit the tax before the date specified under Section 80(2).
At the same time, the case needs examination under the VCES scheme. The question arises whether the appellants are eligible to the benefit under the VCES scheme. The learned C.A. refers to Circular No.174/9/2013-ST dated 25.11.2013 which classifies the question whether scheme would be applicable in case where the tax and interest have been paid before the introduction of the scheme as follows:-

"As no "tax dues" is pending in such case, declaration cannot be filed under VCES. However, there may be a case for taking a lenient view on the issue of penalties under the provision of the Finance Act, 1994. In this regard attention is invited to section 73(3) and Section 80 of the Finance Act, 1994."

From the above, it is clear that normally the scheme is not applicable when the tax had already been paid before the introduction of the scheme. At the same time, Government has left a window open for taking a lenient view in some circumstances under Section 80 of the Finance Act, 1994.

As discussed above, the matter was pending in Courts and has still not attained finality in the case of Retailers Association of India, which is pending in the Hon'ble Supreme Court. Reliance is also placed by the learned Counsel on the Hon'ble Karnataka High Court's judgment in the case of M/s. Vinayaka Securities (supra) to justify that as the entire tax and interest had already been paid, benefit of scheme should be given. In view of the Circular and High Court's judgment, they hold that the appellant deserves a lenient view in the matter.

In view of the above, the penalty under Section 76 of the Finance Act, 1994 is waived. The impugned order is set aside and the appeal is allowed, with consequential benefit, if any.

Decision:-Appeal allowed.

Comment:- The analogy of the case is that in case of levy of penalties, lenient view is to be taken when the non-payment of tax was due to reasonable confusion. Moreover, as the service tax along with interest was also paid, the penalty under section 76 was set aside.

Prepared by:- Monika Tak

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PJ/CASE LAW/2014-15/2513

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