Imposition of Penalty under Section 77

PJ/Case Study/2011-12/07

CASE STUDY

Prepared By:
CA Pradeep Jain and
Sukhvinder Kaur, LLB [FYIC]

Introduction: -

In the case under study, the penalty under Section 77 of the Finance Act, 1994 was imposed on the assessees for non-furnishing of information asked vide Departmental letters which were not received by the assessees. However, the show cause notices issued thereafter were received and the ground of non-receipt of Departmental letters was raised but despite the said submission penalty was imposed. Whether such levy of penalty till the date of compliance was justified?

Relevant Legal Provisions:-

Section 77

Penalty for contravention of rules and provisions of Act for which no penalty is specified elsewhere-

(1) Any person,—

(a) who is liable to pay service tax, or required to take registration, fails to take registration in accordance with the provisions of section 69 or rules made under this Chapter shall be liable to pay a penalty which may extend to five thousand rupees or two hundred rupees for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance;

(b) who fails to keep, maintain or retain books of account and other documents as required in accordance with the provisions of this Chapter or the rules made thereunder, shall be liable to a penalty which may extend to five thousand rupees;

(c) who fails to—

(i) furnish information called by an officer in accordance with the provisions of this Chapter or rules made thereunder; or
(ii) produce documents called for by a Central Excise Officer in accordance with the provisions of this Chapter or rules made thereunder; or
(iii) appear before the Central Excise Officer, when issued with a summon for appearance to give evidence or to produce a document in an inquiry, shall be liable to a penalty which may extend to five thousand rupees or two hundred rupees for every day during which such failure continues, whichever is higher, starting with the first day after the due date, till the date of actual compliance;
(d) who is required to pay tax electronically, through internet banking, fails to pay the tax electronically, shall be liable to a penalty which may extend to five thousand rupees;
(e) who issues invoice in accordance with the provisions of the Act or rules made thereunder, with incorrect or incomplete details or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to five thousand rupees.
(2) Any person, who contravenes any of the provisions of this Chapter or any rules made thereunder for which no penalty is separately provided in this Chapter, shall be liable to a penalty which may extend to five thousand rupees.”;

Section 80

“Penalty not to be imposed in certain cases

Notwithstanding anything contained in the provisions of section 76, section 77 or section 78, no penalty shall be imposable on the assessee for any failure referred to in said provisions, if the assessee proves that there was reasonable cause for the said failure.”

Medical Superintendent, MDMH & Ors v/s Deputy Commissioner, Jodhpur
[Order-In-Appeal no. 116-118(CB)ST/JPR-II/2011, dated: 17.03.2011]

Brief facts of the case: -

-           Two of the appellants are government hospitals and third appellant is service provider registered under service tax. Department asked them to give details of the contractors that were supplying the man power to them. But these letters were not received by the appellants. And therefore, they were unable to furnish the said details.

-           Department issued show cause notice to the appellants for not providing the requisite information to the department. It was proposed to impose Penalty under Section 77 of the Chapter V of Finance Act, 1994.

-           Appellants received the show cause notices and in their reply they contended the fact of non-receipt of the letters demanding details and requested for copies of the said letters and promised to submit the required information soon.

-           Accordingly, copies of the letters were provided to the appellants and thereafter they furnished the details of the contractors.

-           But the information furnished by the appellant and their reply to SCN was not considered and the Adjudicating Authority imposed penalty @ 200/- per day from the 7^th day of the date of first letter till compliance date.

-           Aggrieved by the impugned order, appellants filed appeal before the Commissioner (Appeals).

Appellant’s Contentions: -

-           Appellant submitted that the show cause notices were issued for non-furnishing of information that was demanded vide said letters which were not received by them. They came to know about these letters only after the show cause notice was received by them. The show cause notice was duly replied in due time. In the reply also, it was submitted that they have not received any letter and as such were not having any information about the matter stated in the show cause notice. Copies of these letters were also desired by them in the reply. The only reason for delay in submission of information was that the letters were not received by them. They had no ill-intention behind this. As such, imposition of penalty was not justified.

In the case of third appellant-assessee, it was submitted that all the information required was submitted to the department.

-           The appellant further submitted that they had no intentions of hiding any information to attract penal provisions. The appellant is a Government Hospital and had no intent to disregard any provisions of the Government. If they had any knowledge of the facts they would have complied with it, but none of the letters was received by them and as such information was not submitted timely. But when the copy of the letter was provided to them, they have furnished the information required therein. This is sufficient evidence that the intention behind the delay in submission of information was the non-receipt of letters, there was no mistake of the appellant. But inspite of knowledge of these facts as duly stated in the show cause notice, these were not considered and the impugned order has been passed blindly for confirming the penalty. Such an order being non-speaking is not justified and is liable to be set aside in the light of decision given by the Apex Court in the case of State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]wherein it was decided that:

Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out. The "inscrutable face of a sphinx" is ordinarily incongruous with a judicial or quasi-judicial performance.: SUPREME COURT;

The analysis of this decision makes it clear that the order passed without giving reasons of decision is not justified in the eyes of law.

-           It was further held that similar decision was recently given by the Gujarat High Court in the case of CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]. In this case it is held as follows:-

“CESTAT is required to pass reasoned speaking orders - while setting aside the order of the Commissioner the Tribunal has not recorded any finding as to in what manner the findings recorded by Commissioner are erroneous or as to why it was required to take a different view.

It is a matter of regret that the Tribunal still continues to ignore the same: Despite there a being plethora of precedents holding that an appellate authority is required to record facts, contentions as well as reasons for arriving at its conclusions, it is a matter of regret that the Tribunal still continues to ignore the same and pass orders like the present one without recording facts or reasons.

The matter is remanded to the Tribunal for taking a fresh decision by a speaking order in accordance with law after affording due opportunity to the parties. :GUJARAT HIGH COURT; “

It was submitted that in the case of appellant also, no reasons has been assigned why the submissions made in the reply to show cause notice are not accepted while passing the impugned order. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed.

Similar decision has been given in the following cases:-

Wipro Computers Ltd. vs Commissioner of Customs, Chennai[2001 (135) ELT 450 (Tri.-Chennai)]; Commissioner of C.Ex.& Cus., Vapi vs Vishesh Dhatu Industries [2008 (222) ELT 337 (Bom.)]; Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]

-           Appellant referred to the provisions of Section 77 of the Finance Act, 1994 and submitted that theanalysis of Section 77 makes it clear that the assessee will be liable for penalty under this section on non-furnishing of information. Non furnishing of information means the information was not at all furnished to the department. But in the case of appellant, the information was furnished. The only thing is that there was delay in furnishing the information and even the delay was due to non-receipt of letters demanding the information which is not a mistake on part of the appellant. Further, at the time of passing the order the information was available at the department. As such, since the penalty under this section is imposable on account of NON-FURNISHING of information, it is not imposable in case of appellant as they have submitted the information. Thus, the impugned order should be set aside.

- Alternatively, it was submitted that even for the sake of argument if it is accepted that they have failed to furnish the information, there was sufficient cause behind this. Therefore, under the provisions of Section 80 of the service tax Act, 1994 if there is reasonable cause for failure then no penalty under the Section 77 will be imposed.

It was submitted that as such Section 80 was drafted to give relaxation in penal provisions of Section 77 if there is sufficient cause for failure. In the instant case also the appellant had not received any of the letters through which information was demanded. As such, they could not furnish the information desired in these letters. It is only after the issue of show cause notice that they have come to know about the fact that they were being demanded information. Further, when they got the copy of the impugned letters, they have duly submitted the information. This is sufficient evidence that there was sufficient cause for delay in submission of the information. As such, the benefit of this section should be extended to the appellant and the impugned order should be set aside.

-           In continuation, it was submitted that the hon’ble High Court and Tribunal has justified the invocation of section 80 if there was sufficient cause of failure. In this regard, reliance was placed on judgment given in Ashok Kumar Jain Vs UoI [2010-TIOL-233-HC-ALL-ST], Mrs Taradevi Bafna Vs CCE, Nashik [2010-TIOL-164-CESTAT-MUM] andJBM Auto System Private Ltd Vs CCE, Chennai [2010-TIOL-700-CESTAT-MAD].

Further, reliance was placed on FIIT JEE LTD. Versus COMMISSIONER OF SERVICE TAX, NEW DELHI[2006 (4) S.T.R. 143 (Tri. - Del.] and COMMISSIONER OF C. EX., TRICHY Vs RASI TRAVELS & CARGO PVT. LTD. [2008 (11) S.T.R. 378 (Tri. - Chennai)].

It was submitted that the analysis of these decisions makes it clear that penalty is not imposable u/s 77 by virtue of section 80 of the Finance Act, 1994. Therefore, extending the benefit of these decisions, the impugned order should be set aside.

-           It is submitted that as appellant is a Government hospital it has no intentions to violate or disregard any acts or provisions of law. The fact is that department too being a government body should cooperate with the appellant. The original in order passed against the appellant is totally erroneous and is liable to be set aside. To support their contentions they relied on the below mentioned cases -

i.SURAT MUNICIPAL CORPN. Versus COMMISSIONER OF C. EX., SURAT [2006 (4) S.T.R. 44 (Tri. - Del.)]
ii.BSNL Versus COMMISSIONER OF SERVICE TAX, BANGALORE [2008 (9) S.T.R. 499 (Tri. - Bang.)]

It was submitted that the analysis of the above cases also makes it clear that the appellant is Government body and having no intentions to act against the law. So penalty under Section 77 is not imposable on the appellant. The order in original is totally erroneous in law.

Findings of the Commissioner (Appeal): -

-           The Commissioner (Appeal) observed that on enquiry of the matter from the Deputy Commissioner a report was submitted. A perusal of the said report revealed that the appellants had replied the show cause notice and further no personal hearing has been given in the said case.

-           It was observed that it has been prescribed under Para no 1.2 of part II of Chapter 13 of CBEC Excise Manual of Supplementary Instruction 2005 that the notice(s) shall be given a personal hearing before the case is adjudicated whereas in the present case personal hearing was not given and cases were decided without discussing the reply to the show cause notice which is violation of natural justice.

-           Hence, the Commissioner (Appeal) set aside the impunged order only on this ground without going into the merits of the matter.

Decision of the Commissioner (Appeal):-

Appeals allowed.

Conclusion:-

The Commissioner (Appeal) rightly set aside the impugned orders imposing penalty under Section 77 as the said order was passed in violation of principles of natural justice. The principles of natural justice are required to be followed in each and every case so that injustice is not caused.

******

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PJ/CASE STUDY/2011-12/07
18 May 2011

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PJ/CASE STUDY/2011-12/07
18 May 2011