Waiver of penalty under section 80

PJ/CASE STUDY/2011-12/14

06 July 2011

PJ/Case Study/2010-11/14

CASE STUDY

Prepared By:

CA Pradeep Jain

Sukhvinder Kaur, LLB [FYIC]

And Megha Jain

Introduction: -

In case an assessee for some reason is prevented from depositing the service tax on time or files ST-3 returns belatedly or does not realize that there is service tax liability and does not discharge the same unless pointed out, then would imposing penalty under Section 76 and Section 78 of the Finance Act, 1994 be justified when although there is default but there is no mens rea or fraud or willful suppression. The service tax is also deposited before the issuance of show cause. In such a case Section 80 gives power to the Adjudicating Authority to waive the penalty if reasonable cause. In the case under study, service tax was deposited with interest before the issuance of SCN. Whether penalty can be imposed on the assessee?

Relevant Legal Provisions: -

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.

In the matter of M/s The Thar Dry Port [Unit of Hasti Petro Chemicals & Shipping Ltd]

[Order-In-Original no. 805/ST/2009-10, Dated: 13.10.2010]

Brief facts of the case: -

- Noticee is a dry port and are registered under Service tax for providing Cargo Handling Service, Storage & Warehousing Services & GTA service.

- They filed the ST–3 Return for the Half Year ending Sept, 2004 to Sept, 2005 on 24.10.2005.

- On scrutiny of ST-3, Department noticed that Noticee short paid service tax in respect of the services provided by them. In addition, it was alleged that there was delay in filing the ST–3 Returns. By this act, Noticee had contravened the provisions of Section 66, 67, & 68 of the Finance Act, 1994.

- Show cause notice was issued to the assessee.

Noticee’s Contentions: -

In their reply, following submissions were made:

- Noticee submitted that the first allegation is that they have filed the returns late. It was submitted that the service tax levy is new tax for them. Further, the return format was changed and as such they did not know how to file the return. But they have paid the tax along with the interest. As such, their request your good honour to kindly condone the delay in late filing of return and did not impose penalty on them.

- The second allegation in the show cause notice against the Noticee is that they have not got themselves registered under different categories. They submit that they have paid all the respective taxes under different categories. But they did not know that they have to register under different categories. As soon as they 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. This shows that they did not have any intention to evade payment of tax. As such the penalty should not be imposed on them for such procedural and venial breaches.

- They further submit about third allegation of non filing of return of “Business Auxiliary Services” that they have already filed the same. They have deposited the tax also along with the interest. As such the penalty should not be imposed on them.

- Further, it was submitted that the show cause notice alleged that they have short paid the tax. They submit that they have deposited the tax along with the tax. They 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, there is proposal of imposition of penalty on the Noticee. They submit that they have deposited the tax along with interest. There was lack of knowledge on their part in initial stage of implementation of service tax. They 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 had replied that there is no short payment of service tax but it did not elaborate where the error lies. The Adjudicating Authority also checked the ST-3 Return for one full year but could not reconcile the figures shown in the show cause notice. Moreover, Noticee agreed to deposit the short paid service tax and deposited this short paid service tax along with interest.

It was held that since before Adjudication the Noticee had suo motto deposited the short paid service tax along with interest so a lenient view was taken and option under Section 80 of the Finance Act, 1994 exercised.

Decision of the Adjudicating Authority:-

Demand of Service Tax with interest confirmed. The Adjudicating Authority refrained from imposing any penalty under Section 76 & 77 of the Finance Act, 1994.

Conclusion:-

The Adjudicating Authority rightly did not impose any penalty under Section 76 and Section 78 and exercised the option of waiving the duty under Section 80. As the assessee had already paid the service tax with interest on his own and even before the issuance of Show cause notice, relief from imposition of penalty was rightly granted.

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PJ/CASE STUDY/2011-12/14
06 July 2011

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