Whether penalty for delayed filing of nil return was justifiable in the present case?

PJ/Case Study/2013-14/60

CASE STUDY

Prepared by: CA Neetu Sukhwani &
Kushal Shah

Introduction:-

M/s The Power of Transmission, hereby referred to as the assessee was registered with the Service Tax Department for providing the services under the category of “Errection, Commissioning and Installation” and “Works Contracts Services”. During the course of audit and on scrutiny of the documents of the assessee, it was observed that the assessee had not paid interest amounting to Rs. 26,640/- for the period from January, 2010 to March, 2010 and July, 2010 to September, 2010. It was also observed that the assessee have filed belated ST-3 returns for the period of October, 2010 to March, 2010 and April, 2011 to September, 2011. Accordingly, audit para was raised for interest and penalty amount of Rs. 20,000 each for late filing of ST-3 return. However, due to some personal problems of the assessee, the audit para could not be replied and the interest amount paid by them could not be intimated to the department. Subsequently, a show cause notice was issued proposing to recover interest and penalty as stated in the audit para. After considering the submissions of the assessee, interest already paid was appropriated and penalty was waived in view of the provisions contained in section 80 of the Finance Act, 1994.

M/S THE POWER OF TRANSMISSION, JAISALMER V/S DEPUTY COMMISSIONER, CENTRAL EXCISE AND SERVICE TAX DIVISION, JODHPUR

[ORDER IN ORIGINAL -160/ST/2013 DATED 02.04.2013]

Relevant Legal Provisions:

Section 70 of the Finance Act- Furnishing of Returns.{During the relevant period}
(1) Every person liable to pay service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency [and with such late fee not exceeding [two] thousand rupees, for delayed furnishing of return] as may be prescribed.

Issue Involved:

The following issue was involved in this case before the adjudicating authority:-
Whether penalty for delayed filing of nil return was justifiable in the present case?

Brief Facts:M/s The Power of Transmission, are the service providers engaged in providing services under the category of Errection, Commissioning and Installation and Works Contracts Services. They were served with a show cause notice no. V (ST)SCN/57/JDR/2012/3152-53 dated 31.12.2012 wherein interest amounting to Rs. 26,640/- for the period from January, 2010 to March, 2010 and July, 2010 to September, 2010 was proposed to be recovered along with penalty amount of Rs. 20,000 each for late filing of two ST-3 returns, i.e., for the period of October, 2010 to March, 2010 and April, 2011 to September, 2011. The assessee had although deposited the interest amount but was unable to intimate the same to the department due to some personal reasons. The delayed ST-3 returns were also NIL returns. Consequently, the assessee filed the reply to the above show cause notice pleading to drop the proceedings initiated against them.

Assessee’s Contention:- The assessee made following contentions before the Adjudicating Authority:-

1)         They submitted that the impugned show cause notice issued to them is wholly and totally erroneous and is liable to be quashed.

2)         They further submitted that the show cause is alleging that interest of Rs. 26640/- should be imposed upon them on delayed payment of service tax pertaining to the month of Jan. 2010 to March 2010 and July 2010 to September 2010 which was paid by them on 25.9.2010 and 6.1.2011 respectively as it is in contravention of Section 75 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994. In this regard, they submit that they agreed that they were liable for the payment of interest amount and they have already deposited the required interest amount of Rs. 26640/- vide challan dated 15/09/2012. A copy of the challan was also enclosed with the reply. Thus, when interest amount has already been paid by them, imposition of interest again vide this show cause notice is not justifiable.

In continuation to the above, they submit that they had prepared reply to the objections raised during the audit and they had also paid the interest payable by them as determined by the audit para but they could not intimate the said reply and interest paid by them to the department due to some personal problems prevailing at that time. They submit that they have been consistently facing difficult times even since the period when the audit was being conducted as the mother of the partner of the firm died on 24.03.2012. While the partner was trying to get over the difficult time, his brother, Ali Khan was found to have cancer and within a short span, he also died on 30.09.2012. It can very well be understood that ensuring effective compliance   becomes difficult in such circumstances and so they request to kindly acknowledge the payment of interest as determined as compliance of the law and drop the proceedings initiated against them in this regard. Therefore, the show cause notice proposing to recover interest again is not sustainable and should to be quashed. A copy of ultra sonography report, hospital bills and the death certificates were also enclosed for the sake of reference.

3)         Further in the show cause notice it was alleged that penalty amounting to Rs. 40000/-, i.e., Rs. 20000/- for each ST-3 return should be imposed on them in contravention of Section 70(1) of the Finance Act, 1994 read with Rule 7C of Service Tax Rules, 1994 for delayed filing of ST-3 returns. In this regard, they submit that during the period Oct, 2010 to September, 2011 and April, 2011 to September, 2011, they have not provided any service and so they were under impression that there is no need to file the nil return. They were not having knowledge of service tax rules and regulations in this regard. But when it was brought to their notice that they have to file the return even if it is nil, they have filed the same immediately. Therefore, penalty should not be imposed on them for this technical lapse because there is no revenue loss by this default. They regret for such a default being committed on their part and request to condone the penalty for delay in filing of said nil returns by exercising the discretionary power being given in this respect.

4)         Without prejudice to above, they submit that since they have not provided any service during the mentioned period, they were not liable to pay the service tax. It has been clarified by CBEC in circular no. 97/8/2007 dated 23.8.2007 that a person who is not liable to pay the service tax is also not liable to file the service tax return. The relevant para from this circular is reproduced as follows:-

“6.       Service tax return
6.1       The service tax return is required to be filed under Section 70 of the Act read with rule 7 of the Rules, by 'any person liable to pay the service tax'. This return is required to be filed on a half yearly basis, in Form ST-3. For the periods from April to September and October to March, it must be filed by the 25th October and the 25th April respectively. Further, ‘Input Service Distributor’ is also required to file this return. Persons who are not liable to pay service tax (because of an exemption including turnover based exemption), are not required to file ST-3 return.”

Thus, the above circular makes it ample clear that the person who is not liable to pay the service tax need not file the service tax return. This is exactly our case where they have not filed the return as they were not liable to pay the service tax. Moreover, this circular seeks to clarify that a person who has provided services but is covered under exemption is also not required to file ST-3 return but in their case they have not even provided any service during the said period and so have not filed the nil returns. Therefore the ratio of above circular is extendable to them and as they have filed the said nil returns belatedly, no penalty should be imposed on them.

5)         Aligning with above, the above referred circular supports their view of not filing the return where there is no liability to pay service tax. The Circulars issued by the Board are binding on the departmental authorities and they cannot take a stand contrary to these circulars. This view has been affirmed by the hon’ble Supreme Court from time to time in various cases. Some of such cases are referred as below:-

a.    Collector of C. Ex., Vadodara v/s Dhiren Chemical Industries [2002 (139) ELT 3 (SC)].

b.    Paper Products Ltd v/s Commissioner of Central Excise [2002-TIOL-84-SC-CX]

c.     Collector of Central Excise, Bombay v/s Kores (India) Limited [2002-TIOL-414-SC-CX]

In all of the above cases, the highest court of India has held that the Board circulars are binding on the department and they cannot take a stand that is contrary to the clarification issued by Board. Thus, in the light of these decisions, the benefit of above circular should be extended to them and the impugned show cause notice should be quashed because they have filed nil returns and complied with the provisions even when the same were not required as per clarification issued. Therefore, when they have complied with the provisions of filing nil returns, though belatedly, penalty should not be imposed on them.

6)         Further Hon’ble Tribunal in case of B & A Multiwall Packaging Ltd. V/s Commissioner of C. Ex., BSR-I [2006 (3) S.T.R. 673 (Tri.-Kolkata) held that when nil return filed on knowledge of procedural requirement, the procedural lapse is condonable and imposition of penalty is not warranted. Similar view was taken by Hon’ble CESTAT in the matter of Ashok Rastogi v/s Comm. Of Central Excise, Kanpur [2006 (Tri.- Delhi)]. Furthermore, this view has also been confirmed in the recent decision given by Hon’ble Tribunal in the case of M/s Amarpali Barter Pvt. Ltd., M/s Vijay Laxmi Promoters Pvt. Ltd. vs Commissioner of Service Tax, Kolkata [2013-TIOL-32-CESTAT-KOL] wherein it has been held as follows:

ST - Appellant although registered with the department had not provided any service during the period April, 2005 to March, 2008 and had not filed any returns – they filed six ST-3 returns together for the period on 18/11/2008 – penalty imposed u/s 77 of FA, 1994 dropped by Commissioner(A) but late fees u/r 7C of STR were upheld – in view of Circular No. 97/8/07-ST dated 23/8/07 since no service was provided there is no requirement of filing ST-3 return - fit case to invoke the proviso to Rule 7C and waive the late fees relating to the Nil Returns filed – order set aside and appeal allowed: CESTAT [para 4]

Therefore, in the light of the above cited cases, penalty should not be imposed on them by extending the benefit of the same and the show cause notice should be set aside.

7)         They submit that in the light of above Board Circular they were not liable to file the service tax returns as they had not provided any service and were not liable to pay service tax. Thus, there was genuine reason for not filing the NIL return. Even then they have filed the returns before surrendering the registration. However, since the returns are filed even when legally they are not required to be filed, as such, no penalty should be imposed upon them. Since there was genuine reason as stated above for not filing the NIL return, they request not to impose penalty. They further Submit that the Hon’ble CESTAT in their judgment in R. B. Bahutule V Commr. Of C. Ex. Mumbai 2006 (003) STR 0240 Tri.- Bom. has held that-

“Adjudicating authority have discretion in not imposing penalty for delay in payment in service tax and delay in filing return if assessee proves that there was reasonable cause for such failure in terms of Section 80 of Finance Act, 1994 but they have no such discretion for imposing penalty for failure to apply for registration.”

They submit that there was no default as regards payment of service tax as no service was provided by them during the said period. When, penalty for delay in filing return was condoned in the above case, when the assessee has also defaulted in payment of service tax, penalty can very well be condoned in their case also. In this connection, they also rely on decision in case of Visteon Automotive India Private Limited v Commissioner of Central Excise 2007 (5) STR 112 (Mad Tri) has held that in case of nil returns, there should not be any levy of penalty. It is clearly shows that the penal action cannot be taken against us on the basis of above citations. Therefore, the Show Cause Notice is liable to be quashed.

8)         Without prejudice to the above, they submit that no penalty should be imposed on them for delay in filing nil returns because there is no revenue loss to the government. But even if it is accepted for the sake of argument that they should be made liable to penalty under section 70(1), then also, they cannot be held liable for paying penalty of Rs. 20,000/- for delay in filing the return for the period October, 2010 to March, 2011 because the amendment regarding the maximum penalty for delay in filing return from Rs. 2000/- to Rs. 20,000/- was made vide The Finance Act, 2011, w.e.f. 8.4.2011 and so when the penalty during the period of default was restricted to only Rs. 2000/- per return then they cannot be penalized with enhanced amount that has come into force w.e.f. 8.4.2011 irrespective of the fact that show cause notice has been issued to them later. Therefore, the show cause notice is itself erroneous as regards the amount of penalty to be levied under section 70(1) of the Finance Act, 1994 and so the same should be set aside.

9)         Aligning with the above, they submit that when offence or default is committed before introduction of penalty provisions then penalty cannot be imposed for earlier period when the provisions were not in force. This view was confirmed by a number of decisions wherein it was held that imposition of penalty under section 11AC for the period prior to its introduction is not legal. This view has also been held by the Apex Court in the case of Commissioner of Central Excise, Coimbatore vs Elgi Equipments Ltd. [2001 (128) E.L.T. 52 (S.C.)] wherein it was held that:

“Penalty - Mandatory penalty - Section 11AC of Central Excise Act, 1944 prospective in operation - Illegality committed prior to insertion of said section in the Act cannot be the subject matter of penalty under the said provision - Department’s S.L.P. dismissed. [para 2]”
The analogy drawn by the above case was also followed by the Karnataka High Court in the case ofCommr. Of C.Ex., Mangalore vs Supra Foundry Services (P) Ltd. [2001 (132)E.L.T. 543].
In light of the above decisions, it can very well be established that penalty cannot be imposed when the provision was not in force. Similarly, in their case, the provision of maximum penalty for delay in furnishing return was Rs. 2,000/- as per the law in force for the period of default i.e. October, 2010 to March, 2011 while penalty of Rs. 20,000/- has been imposed on them in view of the amendment made in section 70(1) w.e.f. 8.4.2011. As such, the show cause notice imposing penalty under section 70(1) is not legal and is liable to be quashed.

Reasoning of Judgement:- After hearing the appellant, the Deputy Commissioner found that the assessee had deposited the interest amount of Rs.26,640/- on 15.09.2012 as demanded in the Show cause notice and same was liable for appropriation under section 75 of the Finance Act,1994.He further added that Circular No.97/8/2007 dated on 23.8.2007 was not relevant as the assessee was not taking benefit of turnover based exemption, and accordingly, assessee was liable for penalty for late filling ST-3 Returns for the period Octomber,2010 to March,2011 and April,2011 to September,2011 as per Section 70 of the Finance Act,1994.
He further stated that the person liable to pay service tax is required to file ST-3 Returns, however, as the amount of service tax involved in both the ST-3 returns was NIL, and taking into account the evidences put forth by the assessee regarding death of mother and brother, taking recourse to Section 80 of the Finance Act, penalties for late filling ST-3 Returns is not imposable where Service Tax amount involved was nil.

Order of Central Excise and Service tax Department, Jodhpur: -

The Deputy Commissioner viewed that the penalty imposed in the above show cause notice is not justifiable in view of the facts and circumstances of the case. The deputy commissioner thus ordered:
Ø Appropriation of the interest deposited amounting to Rs. 26,640/- under section 75 of the Finance Act, 1994.
Ø Non imposition of penalty under section 70 of the Finance Act for delayed filing of nil returns.

Decision:-Show cause notice discharged.

Conclusion:- It can be concluded from this case that a lenient approach is taken for imposition of penalties for delayed filing of NIL service tax returns as there is no revenue loss. Furthermore, the proceedings should be initiated keeping in mind the provisions in force during the period of dispute and not of the provisions prevalent while issuing the show cause notice. In the instant case also, discretionary power was exercised in view of section 80 of the Finance Act, as regards non imposition of penalty as there was a reasonable cause for the failure to file NIL returns in time.

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22 June 2013

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