Waiver of penalty under Section 80 can be given when there is bonafide belief for non payment of tax.

PJ/Case Laws/2012-13/1184

CASE:COMMISSIONER OF SERVICE TAX, KOLKATA Vs M/s GUJRAL DISTRIBUTORS

CITATION:2012-TIOL-919-CESTAT-KOL

ISSUE:Waiver of penalty under Section 80 can be given when there is bonafide belief for non payment of tax.

BRIEF FACTS:The facts of the case are that the respondent are providing the service of Rent- A-Cab scheme to another operator of rent-a-cab during the period 2002-03 to 2005-06. They did not discharge service tax under the bonafide belief that Service Tax is not applicable to them as they were providing services of rent-a-cab operator to another rent-a-cab operator and not to clients directly as per circular of CBEC bearing F.No B 43/7/97-TRU dated 11.7.97. During the course of audit of their records, on being asked, they could not produce evidence that the rent-a-cab operator, to whom they were providing service, had paid the service tax during the said period. Consequently, on the objection of the audit, they paid the service tax for the said period. The interest on the said service tax, however was paid over a period of time but before completion of adjudication proceeding. Subsequently, they were issued with a show cause notice on 17th October, 2007 proposing penalty and appropriation of the service tax amount already paid.
The Ld. Adjudicating authority confirmed and appropriated service tax amount, and imposed a penalty of Rs. 2,78,754/- under Section 78 of the Finance Act, 1994 even though the service tax amount involved in the case was Rs. 11,11,853/- and education cess Rs. 3,180/-.
Aggrieved, the respondent filed an appeal before the Commissioner (Appeal) who observed that theirs is a fit case for invoking of Section 80 of the Finance Act, 1994 and accordingly set aside the imposition of penalty under Section 78 of the Finance Act and allowed their appeal to that extent. Hence the Revenue is in appeal.

APPELLANT’S CONTENTION:The Appellant has submitted that the Ld. Commissioner (Appeal) has erred in invoking Section 80 of the Finance Act. It is his submission that even though the amount was paid prior to issuance of show cause notice and interest during the course of adjudication proceeding, Penalty under Section 78 of the Finance Act, 1994 is imposable in view of the judgments of the Hon'ble Supreme Court in the case of Dharmendra Textile Processors-2008(231) ELT 3 (S.C.) = (2008-TIOL-192-SC-CX-LB) and Rajasthan Spinning & Weaving Mills-2009 (238) ELT 3 (S.C.) = (2009-TIOL-63-SC-CX). However, he could not satisfactorily explain as to how the adjudicating authority has imposed penalty of Rs. 2,78,754/- under Section 78 of Finance Act when the service tax involved is Rs. 11,15,033/-.

RESPONDENT’S CONTENTION:The Ld. advocate appearing for the Respondent has submitted that due to their bonafide impression that the service of rent-a-cab provided to another rent-a-cab operator who ultimately rendered the said service in turn to their clients must have paid the service tax, they have failed to discharge service tax during the relevant period. Further, he submitted that when it was pointed out by the audit party, they immediately paid the entire service tax as they could not produce sufficient evidence of payment of service tax by the other rent-a-cab scheme operator. Their approach all along have been bonafide and hence no penalty is imposable on them and Ld. Commr.(Appeal) has rightly invoked section 80 of the Finance Act, 1994.

REASONING OF JUDGEMENT:. The Tribunal found that the respondent had paid the service tax on being pointed out by the audit after scrutiny of their records. The Respondent have also advanced sufficient reason for nonpayment of service tax, that is, they were being under the impression that they were covered under para 3.5 of the said circular issued by the Board hence not require to pay the tax. The Ld. Comm. (Appeal) has analyzed the facts and circumstances and recorded detailed finding on the bonafide of the respondent at para 4 of the impugned order as below:-

“4 According to Para-3.5 of the said notification-"However service tax will not be payable in cases where a bill has been raised on a Rent a Cab Scheme operator, by another rent-a-cab scheme operator who has sub-let the motor cab to the latter operator provided who pays service tax on the amount billed to his client for renting out the motor cab so obtained by him.” The Addl. Commr did not extend benefit of this notification to the appellant because they did not produce segregation of amounts received supported by documents such as bills raised, to arrive at such figure which relates to the subject of Para-3.5 of the said notification. Although they did not segregate the amount received to get the benefit of exemption. The Additional Commissioner's denial of benefit on the ground of non-segregation of amount fortifies the reason of their bonafide belief that their service was not taxable. The Additional Commissioner did not show any reason why the appellant's appeal and grounds for invocation of section 80'could not be given any cognizance to. He also did not discuss why the ratio of the judgments cited by the appellant was not applicable in the facts and circumstances of the case. I find that although the appellant did not dispute the tax liability in the personal hearing, their reason of formation of bonafide belief cannot be turned down. I also find that they paid the tax and interest when non-applicability of the said notification was pointed out to them without going into any dispute. This bona fide conduct as also argument of the appellant showing sufficient and reasonable cause for the failure certainly calls for invocation of section 80 of the Act.

The revenue in their appeal before this Tribunal stated that merely because the respondent has paid the entire amount before issuance of show cause notice, the same cannot be a ground of invoking section 80 of the Finance Act. Tribunal do not found the Ld. Comm. (Appeal) has invoked section 80 of the Finance Act, 1994 only on the said grounds as mentioned by the revenue. The revenue has also availed the order Ld. Comm. (Appeal) citing the ratio of Supreme Court in Dhamendra Textile & Rajasthan Shipping case. The adjudication authority has not followed the principle laid down by the Hon’ble Supreme Court in Dhamendra Textile case by imposing equivalent penalty once presence of the ingredients of section 78 of the Finance Act is recorded by him. In these circumstances the Ld. Comm. (Appeal) has rightly invoked section 80 of the Finance Act. Accordingly the appeal filled by the revenue is devoid of merit and hence the same is dismissed.

DECISION:Appeal is rejected.

Comment:-This is very important decision which clearly says that the benefit of Section 80 cannot be extended only on the ground that the service provider has paid the service tax along with interest before issue of show cause notice. But it can be extended when it is proved that there was bonafide belief on the part of service provider for non-payment of service tax.

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PJ/Case Laws/2012-13/1184

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