CAN BOTH PENALTIES U/S 76 AND 78 IN SERVICE TAX BE LEVIED EVEN BEFORE MAY 2008?

[Dr. Sanjiv Agarwal]

Penalty cannot be imposed both under Section 76 & 78 of the Act as it is the clear intention of the legislature that they do not want penalty to be imposed under both the Sections. It is submitted that the proviso to Section 78 of the Act, as introduced vide Finance Act, 2008 w.e.f. 10.05.2008, clearly provides that penalty under Section 76 shall not be imposed if it has been imposed under Section 78.

It has been held in Desert Inn Ltd. v. CCE, Jaipur 2011 -TMI - 206767 – (CESTAT, NEW DELHI) that once penalty under section 78 has been imposed, penalty under section 76 further is not maintainable. [Also see K.P. Pouches Pvt. Ltd. v. Union of India 2008 -TMI - 30328 – (HIGH COURT OF DELHI)].

In Karnataka High Court in United Communications, Udupi v. CCE 2011 -TMI - 207385 – (KARNATAKA HIGH COURT), it was held that since penalty could not be imposed both under sections 76 and 78, penalty under section 78 was only to be imposed. Similarly, Karnataka High Court in World View Vision v. CCE (2012) 34 STT 289, held that since penalty cannot be imposed both under sections 76 and 78, penalty under section 78 was only to be imposed on assessee.

Hon’ble Tribunal in the Opus Media & Entertainment vs CCE, Jaipur 2007 -TMI - 2921 – (CESTAT, NEW DELHI) and The Financers vs CCE, Jaipur 2008 -TMI - 4599 – (CESTAT, NEW DELHI) has been very clearly held that cases in which penalty are imposed under Section 78 cannot fall in respect of the same service tax evaded under Section 76. There is no scope for imposing double penalty, both under Sections 76 and 78 for the same offence. It has to fall either under Section 76 or 78 and mens rea will have to be proved Levy of penalties u/s 76 and 78 is contrary to the statutory provisions.

In CCE v. First Flight courier Ltd. 2011 -TMI - 202397 – (High Court of Punjab and Haryana), High Court held that penalty u/s 76 is not justified if penalty under section 78 is imposed. It held, thus as under section 76 provides for penalty for failure to pay the amount while Section 78 provides for penalty for sup­pressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is differ­ent, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78. The matter was considered by this Court in STA No. 13 of 2010 (Commissioner of Central Excise v. Mis. Pannu Property Dealers, Ludhiana 2010 -TMI - 78899 – (PUNJAB AND HARYANA HIGH COURT)) decided on 12-7-2010, wherein it was observed :-

"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time."

In CCE, Chandigarh v. Krishna Automobiles 2011 -TMI - 207444 – (CESTAT, NEW DELHI), it was held that since section 78 w.e.f 10.5.2008 provide expressly that penalties under sections 76 and 78 are not imposable at same time for same offence, there was no reason to impose both penalties, even for period prior to 10.5.2008. [Also see Ideal Security v. CCE, Allahabad 2011 -TMI - 206801 – (CESTAT, NEW DELHI); CCE, Aurangabad v. Pendharkar Constructions 2011 -TMI - 206799 – (CESTAT, MUMBAI); CCE, Trichy v. Home Fashion International 2011 -TMI - 205963 – (CESTAT, CHENNAI)]. 

In Shashi Kant Mishra v. CCE, Allahabad (2011) 24 STR 673 (Cestat, New Delhi), it was held that penalty under section 76 and 78 imposed for same offence and this principle had been recognized by amendment w.e.f. 10.05.2008 by Finance Act, 2008 by adding proviso to section 78. The benefit of this amendment should be given to service provider even if period of dispute is prior to the  amendment. As such, penalty u/s 76 was set aside.

 In The Financers v. CCE, Jaipur (2007) 8 STR 7 (Cestat, New Delhi), in Order dated 16.4.2007, it was held that both the penalties u/s 76 and 78 can not be imposed (The relevant period is prior to 12.05.2008). The following extracts are relevant –

“Section 76 of the Act provides that if any person, liable to pay Service tax fails to pay it, he will have to pay in addition to the tax and interest thereon, a penalty which shall not be less than Rs. 100/-, but which may extend to Rs. 200/- for every day during which such failure continues subject to the maximum of Service tax that he failed to pay. Section 76, therefore, is a provision which does not require a guilty mind and deals with a case where the liability to pay service tax is not discharged under the provisions of the Act. In contrast, Section 78 of the Act, specifically deals with cases of evasion of payment of Service tax with a guilty mind. Under the said provision, if any person has, with intent to evade payment of Service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of taxable service, such person shall pay by way of penalty in addition to Service tax and interest thereon, a sum which shall not be less than, but shall not exceed twice the amount of service tax sought to be evaded by reason of suppression of concealment of the value of taxable service or furnishing of inaccurate value of such taxable service. Cases in which penalties are imposed under Section 78 cannot fall in respect of the same Service tax evaded for a double penalty under Section 76 also, these two provisions are mutually exclusive and the cases where guilty mind does not exist will fall under Section 76 while those where such mens rea is required, will fall under Section 78. Therefore, there is no scope for imposing double penalty, i.e., both under Sections 78 and Section 76, when a person is found guilty of evasion by reason of suppression or concealment etc. and penalty is imposed under Section 78. In cases where penalty under Section 78 is imposed, therefore, no penalty can be imposed also under Section 76 of the Act.”

Gujarat High Cout in CCE & C v. Gujarat Intelligence Security (India) (2012) 34 STT 82 (Gujarat), confirmed the Tribunal order of deleting penalties imposed u/s 76 and 78 for non-payment of service tax on the ground that in view of various courts, question whether service tax is payable at all or not was a pure question of interpretation of law and further figures of payments were reflected in balance sheet and therefore, no malafide could be attributed to the assessee.  

 The following judicial pronouncements delivered after the 2008 amendment to section 78 for the period prior to 10.05.2008 are also relevant :

                  In Prompt Services v. CCE, Bolpur (2011) 23 STR 523 (Cestat, Kolkata), it was held that simultaneous imposition of both penalties under section 76 and 78 of Finance Act 1994 be set aside in view of Tribunals taking lenient view in past, confirming penalty only under one section considering legislative change made subsequently. Penalty under one section (section 78) was held to be sufficient and held as an adequate deterrent and as such penalty under section 76 was set aside.

In CCE, Triunelveli v. R. Valathi Raja 2010 -TMI - 208550 – (CESTAT, CHENNAI), where original adjudicating authority imposed penalty u/s 76, 77 and 78 on assessee and where on appeal, Commissioner (Appeals) upheld the penalties u/s 77 and 78 but set aside the penalty u/s 76, it was held that Order did not required any interference as penalties u/s 76 and 78 were mutually exclusive. The revenue appeal was dismissed in favour of revenue.  

In CCE, Trichy v. Home Fashion International 2011 -TMI - 205963 – (CESTAT, CHENNAI), it was observed that where section 78 is invocable, obviously there is delay in payment of Service Tax as well and offence u/s 78 is a serious offence which includes offence u/s 76. It was held that it is a settled law as decided in a number of cases that even for period prior to 10.05.2008, no separate penalty u/s 76 is warranted when there is a penalty imposed u/s 78. As such departmental appeal was rejected vide order dated 7.2.2011 [Also see AR. AS. PV. PV. Motors v. CCE, Salem 2010 -TMI - 77459 – (CESTAT, CHENNAI)]

In CCE, Rajkot v. Port Officer 2010 -TMI - 205303 – (CESTAT, AHMEDABAD), where revenue pleaded that Commissioner (Appeals) had no discretion to reduce penalty u/s 76, it was held that if discretion to reduce penalty is not exercised by original authority judiciously, a discretion is still available to appellate authority to reduce penalty, even if there is no express provision there for.

In view of the above, it can be forcefully said  that both penalties u/s 76 and 78 of Finance Act, 1994 cannot be levied simultaneously  even before the amendment made in May 2008.

 

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