Whether the penalty u/s 78 be waived if the assessee is defrauded by consultants?

PJ/Case Law /2016-17/3288

Case:-COMMISSIONER OF CENTRAL EXCISE, PUNE-I VERSUSK.B. DABHADE

Citation:- 2016 (41) S.T.R. 77 (Tri. - Mumbai)

Brief Facts-This Revenue’s appeal is against Order-in-Appeal No. PUN-EXCUS-001-APP-0514-15, dated 22-4-2014 passed by the Commissioner (Appeals), Central Excise, Pune-1, wherein, ld. Commissioner (Appeals) dropped the penalty imposed under Section 78 and reduced penalty from 15,000/- to Rs. 500/- imposed under Section 77. Revenue has filed this appeal for restoration of penalty under Section 78 and against reduction of penalty under Section 77.
Appelants Contention-Shri. A.B. Kulgod, Asstt. Commissioner (AR) appearing on behalf of the Revenue submits that respondent have charged and recovered service tax from M/s. Cadbury India Ltd. and have not deposited the service tax at the relevant time therefore they have defaulted the government, therefore the penalty under Section 78 by ld. Commissioner should not have been dropped and the penalty under Section 77 should not have been reduced from 15,000/- to Rs. 500/-.
Respondents Contention-On the other hand, Shri Sadashiv Hawaldar, ld. Counsel for the respondent submits that respondent had no mala fide intention to evade service tax. From the entire proceedings, the fact which emerged clearly shows that respondent have been paying amount in cash to the consultant. As per the representation given by the consultant, he submits that it is consultant, who has done fraud with the respondent and not deposited service tax in time with the department. It is his submission that to the effect of this fraud committed by the consultant, department also initiated the criminal proceedings and filed FIR with the police. This undisputed facts clearly shows that appellant did not have any mala fide intention or intention to evade service tax. Non-payment of service tax has occurred only due to the fraud committed by the consultant. Therefore penalty should not have been imposed under Section 78 as reasonable cause has been shown. By invoking Section 80 of the Finance Act, penalty under Section 78 was correctly dropped by the Commissioner (Appeals). As regard the reduction of penalty under Section 77, he submits that entire records was with the consultant and appellant was under bona fide belief that since, entire job of depositing service tax and filing of the returns was assigned to the consultant, therefore they are under bona fide belief that the returns might have been filed regularly. In this position the Commissioner has correctly reduced penalty from Rs. 15,000/- to Rs. 500/- which does not require any interference.

Reasoning Of Judgement-The tribunal have carefully considered the submission made by both sides and perused the record. The present Revenue’s appeal is only for imposition of penalty under Section 78 and restoration of the penalty of Rs. 15,000/- imposed by the original authority which was reduced by the Commissioner (Appeals) to Rs. 500/-. From the entire proceedings, they observed that appellant have been making submission before the adjudicating authority and before the Commissioner (Appeals) that they did not have any intention to evade service tax as they have been making cash payment to their consultant, who was assigned the job for computing the service tax and depositing in the bank and also filing the return periodically. However, consultant has not deposited cash given to him as service tax in the bank and consultant defrauded the respondent when this fact came to the notice, the department has initiated investigation. Ld. Commissioner in respect of dropping penalties, recorded his findings as under :
I find that the impugned case is an outcome of an investigation conducted by the Department at the end of the consultant appointed by the appellants. The appellants have claimed that they had appointed the consultant for making tax calculations, payment of service tax and submission of return etc. and they were paying cash to the consultant for the payment of service tax. I find that no contrary evidence has been brought in the investigations in this regard to prove that the amount was not being paid by the appellants to the consultant for the payment of service tax to the department or the appellants were colluding with the consultant. The show cause notice states that the department has filed F.I.R. with the police authorities for the fraudulent act on the part of the consultant. Therefore, the appellants also not been named in the F.I.R. along with the consultant. The ld. Adjudicating authority has not accepted the plea of the appellants regarding payment of amount of service tax to consultant and their bona fide belief that the consultant has deposited the amount on the grounds that they have not ascertained the authenticity of such payment from the jurisdictional service tax Superintendent. In view of the these facts charges of fraud or collusion or wilful misstatement, or suppression of facts or contraventions of provisions of Act Rules with intent to evade payment of duty do not stand against the appellants. Accordingly the appellants are not liable to any penalty under Section 78 of the Act. Further, in view of the said facts an extremely lenient view is called for while imposing the penalty under Section 77 of the Act for not filing the returns as the appellants had entrusted the said job to the consultant who was found to be involved in a fraud and there is no evidence contrary to the appellant’s claim or their collusion with the consultant.
From the above findings of the ld. Commissioner (Appeals) where it can be seen that the same is discussed in details that regarding the fraud committed by the consultant with the appellant for not depositing service tax in the government’s account for which FIR proceedings also initiated against consultant by the department, which clearly shows that it is not the appellant who has committed an offence of non-payment of service tax, it is the consultant, who has defrauded them therefore there is reasonable cause for waiver of penalty under Section 78. Accordingly ld. Commissioner (Appeals) has correctly set aside the penalty imposed under Section 78. As regard the reduction of penalty under Section 77 from Rs. 15,000/- to Rs. 500/-. On the same fact ld. Commissioner (Appeals) has exercised his discretion reducing penalty from Rs. 15,000/- to Rs. 500/-. In the view of tribunal there is no reason to interfere in the findings of the ld. Commissioner (Appeals) who has reduced penalty by proper application of mind. Therefore they upheld the impugned order and dismiss the appeal of the Revenue. CO is also disposed of accordingly.

Decision-Appeal dismissed

Comment-In the given case the assessee is defrauded by the consultants as inspite the payment of service tax being made by the assessee the same shall not be deposited by the consultants. This clearly shows that the assessee does not have any malafide intention and accordingly there is reasonable cause for waiver of penalty imposed u/s 78 of Finance Act, 1994. And according to tribunal there is no reason to interfere in the findings of the ld. Commissioner (Appeals) who has reduced penalty u/s 77 by proper application of mind. Therefore the appeal filed by the revenue is dismissed.
When there is reasonable cause for non payment of tax then penalty under Section 78 can be waived by invoking provisions of section 80.

Prepared By-Neelam Jain

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PJ/Case Law /2016-17/3288

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