Whether ignorance of law can be reasonable ground for waiving penalty?

PJ/CASE LAW/2015-16/2875

Case:-BELLARY CITY CABLE VERSUS COMMISSIONER OF C. EX., CUS. & S.T., BELGAUM

Citation:-2015 (39) S.T.R. 687 (Tri. - Bang.)

Brief facts:- Appellant is a Multi System Operator (MSO) service provider and this service was brought under purview of Service Tax levy w.e.f. 10-9-2004. The appellant who is an individual proprietor did not pay Service Tax and when the authorities paid a visit to the appellant, the accountant of the appellant in his statement dated 17-2-2007 stated that the appellant was not aware of the introduction of levy of Service Tax on MSO service provider and advertising agency service and therefore, they had not paid the tax. It was also submitted by the accountant that they had not issued proper bills on receipt of the amount from the cable operators and they got certificate from the Chartered Accountant and maintained ledgers and returns were filed on the basis of ledgers maintained. He submitted that Service Tax which was not paid, would be paid by them. Subsequently before issue of show cause notice, the entire amount of tax was paid and before issue of adjudication order, interest was also paid. The challenge is only against imposition of penalty under Sections 76, 77 and 78 of Finance Act, 1994.

Appellant’s contention:- The learned Counsel submits that appellant had no intention to evade Service Tax and they had not collected the same and as soon as it was pointed out, they had paid the tax. It is his submission that under the circumstances, penalties imposed under various sections can be waived by invoking Section 80 of the Finance Act. Further he also submits that the observations of the original adjudicating authority that they had collected Service Tax is not based on any documentary evidence or oral evidence collected by the Department and it is not known on what basis this conclusion has been reached. Commissioner (Appeals) also has not recorded any evidence to support his observation that the appellant was collecting the tax and he has relied upon the observations of the adjudicating authority. In the light of the fact that immediately and even before issue of show cause notice, the accountant has clearly submitted that they were not collecting Service Tax, the observations made by the lower authorities have no basis. Reliance was placed on the decision in the case of Ice Network Pvt. Ltd.v. CST, Bangalore [2010 (20)S.T.R.59 (Tri.-Bang.)] to submit that in cases like this, it can be said that there was a reasonable cause for non-payment of tax and penalties can be waived by invoking provisions of Section 80 of Finance Act, 1994.

Respondent’s contention:- The learned AR would submit that in this case extended period has been rightly invoked and appellant was providing two services and ignorance of law cannot be an excuse for non-payment of tax.

Reasoning of judgment:- From the facts of the case and the statement recorded from the accountant, what emerges is the fact that the appellant was not aware of the provisions of law and as a result, continued to operate as they were operating earlier. The fact is that both the Revenue as well as the assessee are relying upon the balance sheet and the Profit & Loss account for arriving at the quantum of service charges received and no other documents are admittedly available either with the assessee or with the Department. There is no dispute about the total liability or the total service amount received. The accountant also promptly stated that they have made a mistake and they would pay the tax and interest. The intention behind introduction of provisions of Section 80 is precisely to ensure that assessees who did not pay the tax can make the payment with interest and lenient view can be taken as regards penalty in cases where there is lack of knowledge and reasonable cause. The very fact that the section continues to be in existence for a long time shows that the intention of the Government is to provide relief where there is a reasonable cause for failure to make payment and Hon’ble High Court of Allahabad in the case of CCEv. Muniruddin [2013 (31)S.T.R.136 (All.)]has taken a view that even ignorance of law can be one of the reasons, though cannot be sole ground for invoking Section 80. In the case of Ice Network Pvt. Ltd. (supra), this Tribunal had extended relief from payment of penalty by invoking provisions of Section 80 under somewhat similar circumstances except for the fact that the period involved was up to January, 2005. However, in both the cases, the amount was paid after detection by the Revenue. Under the circumstances, they consider that the appellant has made out a case for waiver of penalty by invoking Section 80 of Finance Act. Accordingly, penalties imposed under various sections of Finance Act, 1994 are waived and demand for Service Tax and interest are upheld as not contested.

Decision:-Appeal disposed of.

Comment:- The crux of the case is that non payment of service tax due to lack of knowledge is also treated as reasonable cause for setting aside penalty under section 80 of the Finance Act. Assessee admitted their mistake of non-payment of Service Tax as they were unaware of its leviability and undertook to pay tax with interest. Assessee had no intention to evade service tax and paid total tax before issue of show cause notice along with interest. Intention behind introduction of provisions of Section 80 of Finance Act, 1994 is to ensure that assessee failing to pay tax to make payment with interest and lenient view can be taken as regards penalty in cases of lack of knowledge and reasonable cause. Accordingly penalty was waived.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2875

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