Quantum of Penalty u/s 76 - whether can be reduced below prescribed limits?

PJ/Case Laws/2010-11/1169

Case: - Commissioner of Central Excise & Customs V/S Port Officer

Citation: - 2010 (257) E.L.T. 37 (Guj.)

Issue:- Whether quantum of penalty levied u/s 76 of Finance Act, 1994 can be reduced below the prescribed Limits?

Brief Facts:- The Adjudicating Authority confirmed the demand towards short paid service tax and imposed penalty of Rs. 20, 000/- under Section 76 and Rs. 95, 000/- under Section 78 on the Respondent-assessee. In appeal, the Commissioner (Appeals) deleted the entire penalty u/s 76 on the footing that penalty had been also levied u/s 78 of the Act and thereafter also reduced the penalty imposed under Section 78 to Rs. 94, 000/-.

In further appeal, the Tribunal remanded the matter back to the Adjudicating Authority. In second round of litigation, the Adjudicating Authority imposed penalty equal to the amount of service demanded u/s 78 as well as u/s 76.

In appeal, the Commissioner (Appeal) held that in the first round the penalty imposed on the assessee under Section 76 was only Rs. 20, 000 which was increased to equal amount of service tax in the second round of litigation without existence of any additional ground. It was noted that appellant had deposited Rs. 21, 962/- for delay payment of differential service tax. It was also noted that the delay in payment of service tax was on account of change in the rate w.e.f. 10.09.2004. It was held that this was not a case wherein assessee had failed to pay their service tax on monthly/quarterly basis and there was justification for delay in payment of service tax. The Commissioner (Appeal) took lenient view and reduced the penalty under Section 76 to Rs. 10, 000/-. Penalty under Section 78 was set aside in exercise of power under Section 80.

In appeal, the Tribunal held that in view of judgments relied upon by the assessee, penalty can be reduced in exercise of power u/s 80 and rejected the appeal of Revenue.

Hence, Revenue is before the High Court.

Petitioner’s Contention:- Petitioner-Revenue contended that the Penalty under section 80 of the Act read with section 76 does not allow reducing the amount of penalty below the statutory minimum and maximum limit prescribed under the Act. Section 80 refers only to the waiving of the service tax if the assessee provides a reasonable cause for the failure.

Respondent’s Contentions:- Respondent submitted that under Section 76 of the Finance Act, 1994 (the Act) the authority is empowered to levy penalty but has discretion in so far as the quantum of penalty is concerned. When read with Section 80 of the Act the said discretion empowers the authority to reduce the penalty to an amount below the limit stipulated in Section 76 of the said Act because once there is a discretion to delete the entire penalty such discretion can also extend to reducing the penalty partially, if the facts so warrant.

Reliance was placed on various judgments given in Union of India v. Dial and Travels {[2007] 7 STT 372 (Raj.)}; Commissioner of Central Excise & Customs, Nasik v. D.R. Gade, [2008 (9) S.T.R. 348 (Bom.)]; Commissioner of C. Ex. & Customs, Nashik v. Vinay Bele & Associates, [2008 (9) S.T.R. 350 (Bom.)]; Commissioner of Service Tax, Mumbai v. S.R. Enterprises, [2008 (9) S.T.R. 123 (Bom.)]; Commissioner of Central Excise & Service Tax, Jalandhar v. R.K. Associates, [2009 (16) S.T.R. 135 (P & H)]; Commissioner of Central Excise Commissionerate, Jalandhar v. Darmania Telecom, [2009 (14) S.T.R. 145 (P & H)]; Commissioner of Central Excise, Mangalore v. Vishwanatha Karkera, [2009 (14) S.T.R. 9 (Kar.)]; Commissioner of Central Excise v. Madhuri Travels, [2009 (15) S.T.R. 241 (Bom.)]; Commissioner of Central Excise, Jalandhar v. Batala Citi Cable (P.) Ltd, [2009 (16) S.T.R. 19 (P & H)] and Commissioner of Central Excise, Jalandhar v Steel Craft (India), [2010 (17) S.T.R. 8 (P & H)].

It was further submitted that the Finance Act, 1994, which imposes service tax, is an All India Statute and this High Court should normally not deviate from the view expressed by the other High Courts in the country. Lastly, it was submitted that if the Court was of the opinion that the impugned order of Tribunal was a non-speaking order, the matter could be restored to file of the Tribunal, leaving it open to the assessee to plead applicability of Section 80 of the Act.

Reasoning of Judgment:- The High Court perused the order of the Tribunal and found that in entire order one does not find as to how and in what manner either Section 76 or Section 80 of the Act vests a discretion in the authority to levy penalty below the minimum prescribed.

The High Court perused the provisions of the Sections 76 and 80 held that a person who is liable to pay service tax and has failed to pay such tax is liable to pay penalty for such failure. The Quantum of penalty has been specified in the provisions of the Act by laying minimum and maximum limits for the same.

It was held that Section 76 clearly doesn’t give any discretion to the authority to reduce penalty below the minimum prescribed amount. In respect of Section 80, it overrides the provisions of Sections 76, 77, 78 and 79 of the Act. Under this section the onus of establishing a reasonable cause lies in the hands of the assessee and if is established then there will be no penalty imposable. The Provision doesn’t say that a reduced amount of penalty is imposable. In this case however, the reason for which section 80 has been applied has not been given by the assessee.

Hence, even if the provision of Section 76 is read with Section 80 of the Act it is not possible to impose penalty below the Minimum limit prescribed. Hence, impugned order set aside. Matter remanded to the Tribunal.

Decision:- Appeal disposed off accordingly.

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