Whether penalty imposed under Section 77 & 78 can be waived by invoking Section 80 when the appellant was not evading service tax, but short payment was due to bona fide mistake?

PJ/Case Laws/2010-11/1170

Case: - DIXIT SECURITY V/S INVESTIGATION P. LTD.

Citation:-2011 (22) S.T.R. 448 (TRI.-AHMD.)

Issue: - Whether penalty imposed under Section 77 & 78 can be waived by invoking Section 80 when the appellant was not evading service tax, but short payment was due to bona fide mistake?

Brief Fact: -Appellants were providing the taxable service ‘Security Services” and other services.

Department noticed that the value of service provided by the appellants as shown in ST-3 returns was less than the value shown in P&L A/c. After verification of the relevant records, it was alleged that there was difference in value in ST-3 and Balance sheet and it was also alleged that there was short payment of Service tax for the period April 2004 to March 2005.

Appellants paid the amount of service tax with interest and informed the department of the said fact. There after, show cause notice was issued and order was passed imposing penalty u/s 77 and u/s 78 of the Finance Act, 1994. Appellant are in appeal against the imposition of penalty.

Appellant’s Contentions: -It was submitted that they are not contesting the levy of Service tax but submitted that the difference in value of service tax has arisen because the appellant had not included the reimbursement received from their customers. Appellant also submits that they are not disputing inclusion of reimbursed amount in value of service provided, but submits that they had a reasonable belief that the service tax paid by them was correct.

The plea of bona fide belief was not raised either before the Original Adjudicating Authority or before the Appellate Authority but is raised before the Tribunal. Appellant also agreed fairly that the application for producing additional evidence should have been made by them and they would not like to press the point since the appellant is not interested in continuing the litigation.

It was submitted that the appellant had paid service tax along with interest as soon as they came to know about the value shown in P&L Account. The very fact that the appellant submitted the P&L A/C within a week and thereafter within 5 months made detailed calculation found out service tax payable and paid the same duly certified by the Chartered Accountant, shows that the appellant was not interested in evading service tax, but was a bona fide mistake. The fact that even before show cause notice was issued and even before department made calculation, the appellant made the payment with interest, would show that this is a fit case for waiver of penalty by invoking Section 80.

Appellant relies upon the decision in case of M/s Bangalore Vihara Kendra v. CCE, Bangalore [2010-TIOL-663-CESTET-BANG] wherein the assessee had paid duty only after visit by the Central Excise officers to the premises of the appellant and the offence case has been registered but in this case, only on the basis of letter written, the appellant had paid the service tax with interest.

Respondent’s Contention: -Revenue submits that on finding discrepancy between P&L A/C and ST-3 Return, a letter was written by the department to the appellant calling for documents. It was submitted that the P&L A/C and Balance Sheet was called for to obtain authenticated copy of P&L A/C and B/S. It was submitted that the appellant deliberately suppressed the value of service tax with intention to evade service tax and therefore, penalty has been rightly imposed. Further, it was submitted that the submission relating to reimbursement cannot be taken into account in the absence of an order by Tribunal allowing submission of additional evidence.

Reasoning of Judgment: - Tribunal held that the very fact that the P&L A/C reflected full amount and there was a difference between ST-3 Return and P&L A/C, would go in favour of the appellant as far as reasonable cause is concerned. This is further strengthened by the fact that the appellant did not challenge the demand for service tax and interest and wanted to end the litigation by paying the tax with interest. It was held that it was obvious that the appellant felt that in view of the provisions of Section 73 of Finance Act 1994, which provides that once the Service Tax with interest is paid in full, no show cause notice shall be issued and hence there would be no further proceedings. It was also noticed that the appellant on their own calculated differential Service Tax, got it verified by the Chartered Accountant and submitted the same to department It would once again go in favour of the appellant. The Tribunal also held that the case of M/s Bangalore Vihara Kendra v. CCE, Bangalore is also relevant to consider applicability of Section 80. Accordingly, it was held that it is a fit case for invoking provision of Section 80 of Finance Act, 1994, which provides that if a reasonable cause is shown, penalties U/S 77 & 78 of Finance Act, 1994 can be waived. Impugned order to the extent of imposing penalties set aside.

Decision: -Appeal allowed.

Comment:- Landmark decision. There is distinction between the evasion and bonafide belief. But the Government has proposed the penalty when the transactions are recorded in the books of accounts but service tax is not paid. In light of above, it is to be seen whether this decision will be applicable after the amended provisions.

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PJ/Case Laws/2010-11/1170

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