Waiver of Penalty under Section 76 and Section 78 of the Finance Act, 1994

PJ/CASE STUDY/2010-11/44

09 March 2011

PJ/Case Study/2010-11/44

CASE STUDY

Prepared By:
CA Pradeep Jain
Parag Ghate (B.Com) and
Sukhvinder Kaur, LLB [FYIC]

Introduction: -

A time limit has been prescribed under Service Tax provisions for filing of returns, for deposition of service tax. Section 70 of the Finance Act, 1994 that in case of delay in furnishing return, a late fee will be charged. Section 73 provides for recovery of service tax not levied or paid or short-levied or short paid. Section 76 provides for penalty to be imposed for failure to pay service tax. Section 77 provides penalty for contravention of rules and provisions of Act for which no penalty is specified elsewhere.Section 78 provides for imposition of equal penalty for suppressing the value of taxable service deliberately with intent to evade payment of duty.

However, should harsh action be taken against the assessees who have due to lack of knowledge taken registration belatedly and paid service tax belatedly or have late filed the service tax returns (ST-3) due to being new to the levy of service tax. The case under study has a similar scenario.

In the matter of M/s Thar Dry Port, Jodhpur
[Order-In-Original no. 805/ST/2009-10]

Brief facts of the case: -

-       Noticee was providing the service of Cargo Handling Service, Storage & Warehousing services & GTA service. It was noted by the Department that registration was not taken by the Noticee for these services.

-        The Noticee thereafter took Service tax Registration and filed ST-3 Return for the Half Year ending Sept., 2004 to Sept., 2005 on 24.10.2005 for providing Cargo Handling Service, Storage & Warehousing services & GTA service.

-        On scrutiny it came to notice of the Department that the Noticee had short paid total service tax of Rs 5819/- in respect of afore-mentioned services. In addition it was also noted that the Notice had filed the ST-3 Returns belatedly.

Show cause notice was issued to the Noticee alleging that they had contravened the Provisions of Section 66, 67 and 68 of Finance Act, 1944. Demand was raised for the service with interest and penalties under Section 76 & 77 of the Finance Act were proposed to be imposed.

Noticee’s Contentions: -

Noticee replied to the Show Cause Notice as under:

With regard to first allegation that they have filed the returns late, it was submitted that the service tax levy is new tax for them. Further, the return format had changed and as such they did not know how to file the return. But they have paid the tax along with the interest.

With regard to second allegation that the Noticee have not registered under different categories, it was submitted that they have paid all the respective taxes under different categories. But they did not know that they have to get registered under different categories. As soon as the Noticee came to know about the same, they have applied for the same and registered with your good office. They have paid the tax along with interest. As such the penalty should not be imposed for such procedural and venial breaches.

With regard to third allegation of non filing of return of “Business Auxiliary Services” it was submitted that have already filed the same.

Further, the allegation that the Noticee have short paid the tax, it was submitted that they have deposited the tax along with interest. Noticee will abide by the rules and regulations in the future. As such the penalty should not be imposed on them. A lenient view should be taken in the initial stage of implementation of service tax.

Lastly, with regard to imposition of penalty on them, the Noticee submitted that they have deposited the tax along with the interest. There was lack of knowledge on their part in initial stage of implementation of service tax. And have deposited the tax along with the interest. As such the penal action is not warranted in the initial stage.

Finding of the Adjudicating Authority: -

The Adjudicating Authority noted that the Noticee have deposited the short payment of service tax alongwith service tax.

It was held that as the Noticee has suo moto deposited the short paid service tax alongwith interest before adjudication, a lenient view is taken and Section 80 of the Finance Act was opted for.

Decision of the Adjudicating Authority:-

Demand of service tax with interest confirmed. No penalty imposed under Section 76 & 77 of the Finance Act.

Conclusion:-

Section 80 has been enacted to provide for relaxation from imposition of penalty in case of genuine mistakes being made by the assessee or in case of having reasonable cause for delay. In the case under study also as the Noticee was new to the levy he had made mistakes by late deposition of service tax but with interest and in late filing of ST-3 return due to lack of knowledge as he was covered under the service tax net for the first time. The Adjudicating Authority therefore rightly exercised power under Section 80 and refrained from imposing any penalty under Section 76 & 77 of the Finance Act.

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PJ/CASE STUDY/2010-11/44
09 March 2011

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