Whether declaration as a sick company by BIFR is sufficient cause for wavier of penalties imposed under Section 76?

PJ/Case Law/2013-14/1835

Case:- COMMISSIONER OF SERVICE TAX, CHENNAI Vs M/s RAMANASEKAR STEELS LTD.

Citation: - 2013-TIOL-662-HC-MAD-CX

Brief Facts:- The brief facts of this case are that Revenue filed appeal as against the order of the Customs, Excise and Service Tax Appellate Tribunal, Chennai Bench (2007-TIOL-2138-CESTAT-MAD) that extended the benefit of section 80 of the Finance Act, 1994 as the assessee was a sick company declared by BIFR under SICA and hence waived the penalties imposed on the assessee under section 76 of the Finance Act for failure to pay service tax.

Appellant contentions: - The Revenue is on appeal as against the order of the Customs, Excise and Service Tax Appellate Tribunal, Chennai Bench (2007-TIOL-2138-CESTAT-MAD)raising the following questions of law:-
"1. Whether the declaration of the first respondent as a sick industry with effect from 31.12.2000 by the BIFR could be construed as "reasonable cause" for the purposes of invoking Section 80 of the Finance Act, 1994?
2. Whether the Tribunal was right in setting aside the penalty in full solely on the ground that the first respondent was declared as a sick industry with effect from 31.12.2000?"

Reasoning of Judgment: - It is seen from the order of the CESTAT that on the non-filing of the return, levy of penalty under Section 77 was confirmed. However, as regards the non-payment of tax, it pointed out to the sickness of the company, which ultimately, ended up on filing of petition before BIFR (Board for Industrial and Financial Companies) in the year 2001 declaring as sick company under Section 3 (1) (o) of the Sick Industrial companies (Special provisions) Act, 1985. Based on these facts, the CESTAT held that the assessee had shown 'reasonable cause' on the failure referred to in Section 76; penalty levied could not be sustained. It is no doubt true that the default is with reference to the period from October 1999 to March 2003. It is also a matter of record that the assessee had paid service tax for the period from April 2002 to March 2003.
Considering the financial constraint that the assessee had undergone and on satisfaction that sufficient cause shown by the assessee for not having been able to pay service in the time, the CESTAT had deleted the Penalty. Accordingly, the High Court found no infirmity in the order of the CESTAT and consequently dismissed the appeal filed by the revenue on being devoid of any merits.

Decision:- Appeal dismissed.

Comment:- The essence of this case is that the registration of the assessee as sick company by BIFR can also be one of the reasons for waiver of penalty under section 76 for non payment of service tax by invoking the provisions of section 80 of the Finance Act.

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PJ/Case Law/2013-14/1835

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