Mens-rea is essential for imposing penalty under section 78.

PJ/Case Law/2014-15/2351

Case:-M/s MOHAN PODDAR Vs COMMISSIONER OF CENTRAL EXCISE, RAIPUR

Citation:-2014-TIOL-1746-CESTAT-DEL

Brief facts:-The appellants entered into an agreement with Chhattisgarh Housing Board for executing the work of construction of various categories of houses. During investigation by the DGCEI, it was observed that the appellants provided the service of/in relation to construction of various residential houses to their client, which falls under the taxable category of Construction of complex service. They had also received a total amount of Rs.16, 49, 20,743/- from their client during the period from 02.07.2005 to 16.08.2007 on which they were liable to pay service tax amounting to Rs.62, 46,844/- after allowing abatement of 67% from the gross value of taxable service recovered by them and they had evaded the said Service Tax by indulging in suppression of facts.
Appellant’s contention:- They were not aware of the service tax liability as it was introduced in the month of June 2005. On being pointed out by DGCEI, they took service tax registration and also took up the matter with the Chhattisgarh Housing Board to recover the service tax so that the same could be deposited with the government. Even so they discharged service tax liability of Rs.40,99,354/- till 25.03.2008 while the Show Cause Notice was issued on 05.06.2008. Service Tax amounting to Rs.35,24,663 was further deposited by 22.8.2008. Thus in totality they have deposited service tax amounting to Rs.76,24,017 in relation to the impugned demand.

Show Cause Notice has included the amount received by them prior to 16.06.2005, the date on which the construction of complex service was introduced. Thus the service tax amounting to Rs.48,701/- on the amount of Rs.14, 46,843/- received prior to 16.06.2005 is not leviable. The details of the deposit challan show the total deposited service tax amounting to Rs.76,24,017/- which is claimed to be more than the total impugned demand and the interest leviable thereon and they can satisfy the jurisdictional authorities in the regard. They said that they were not contesting the levy but only stressing that they had no mala fide intention and there was no willful suppression on mis-statement of their part. So they are not liable to penalties and are eligible for the benefit of Section 80 of Finance Act, 1994 also.

Respondent’s contention:-The Ld. AR conceded that there is no evidence of any mala fide on the part of the appellants.

Reasoning of judgment:-We have considered the submissions. It is seen that the appellants have not contested the demand and on being pointed out, they took immediate steps to deposit the impugned service tax by contacting the Chhattisgarh Housing Board for reimbursement of the service tax. It is also a fact that as the client was Chhattisgarh Housing Board, it was not a case where the appellants could have indulged in black money transactions with regard to the service rendered. The appellants have stressed that that the amount paid by them more then covers the impugned demand and interest and they can documentarily establish it to the jurisdictional officers satisfaction. It was found that in the discussion-and-finding portion of the impugned Order-in-Original there is no finding at all regarding the sustainability of the allegation of suppression of facts; indeed in the entire discussion-and-finding portion of the Order-in-Original only the following Para has a reference thereto:

On perusal of the case papers, I find that out of total tax demand of Rs.62,46,844/-, the noticee had paid Rs.40,98,454/- only till the date of issuance of the notice. Now they claim to have paid entire amount of service tax but no evidence in this regard has been produced so far. Thus, in absence of any such evidence on record, I am left with better option than to hold that the outstanding service tax of Rs.21,48,390/- has not been paid as yet. They had also assured payment of interest within a week from the date of hearing (25.09.2008) but till date they have not produced any evidence in this regard. I, therefore, cannot grant them immunity from payment of penalty. The case of non-payment of service tax by the reason of suppression of facts with intent to evade payment of tax has been proved against the noticee for which penalty under Section 78 of the Act is imposable on them. They had also failed to file periodical returns prescribed under section 70 of the Act; hence, penalty under Section 77 is also imposable.

Thus, it is evident that there is no discussion/analysis with regard to the allegation of suppression and the adjudicating authority merely jumps to the conclusion that there is suppression of facts. Obviously this is not sufficient to sustain the allegation of suppression of facts. Indeed in para 8.2 of the Order-in-Original, It was found that the Commissioner has stated as under:

8.2. Nevertheless, the penalties under section 76 and 78 are not impossible simultaneously in view of decision of CESTAT in the case of The Financers v. CCE, Jaipur -2007 (8) STR 7 and Opus Media & Entertainment v. CCE, Jaipur 2007 (8) STR 368. I, therefore, waiver the penalty prescribed in section 76, in terms of section 80 of the Act.

When section 80 of the Finance Act, 1994 has been found to be invocable for waiving penalty under Section 76, it is not possible to argue that the same (i.e. Section 80) will not be invocable mutatis mutandis for waiving penalty under Section 78 ibid. Further as has been fairly conceded by the Ld. AR, there is absence of mala fide in the present case. In such a situation, even otherwise penalty under Section 78 ibid cannot be imposed in as much as penalty under that section requires means rea.

In view of the forgoing, the impugned order is set aside to the extent it relates to the imposition of penalty under Sections 77 & 78 of the Finance Act, 1994.

Decision:-Appeal allowed.

Comment:-The essence of this case is that when section 80 of the Finance Act, 1994 has been found to be invocable for waiving penalty under Section 76, it is not possible to argue that the same Section 80 will not be invocable for waiving penalty under Section 78 ibid. Moreover, penalty under section 78 is imposable only when there is intention to evade payment of duty as penalty under this section requires mens-rea. Accordingly, penalties imposed under Sections 77 & 78 of the Finance Act, 1994 were set aside.

Prepared by:-Lovina Surana

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PJ/Case Law/2014-15/2351

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