PENALTY NOT REDUCIBLE BELOW THE MINIMUM PRESCRIBED

[Mr. M. GOVINDARAJAN]

     Sec. 76 of the Finance Act, 1994 ('Act' for sort) provides that any person liable to pay service tax, in accordance with the provisions of Sec. 68 or the rules made,  fails to pay such tax shall pay, in addition to such tax and interest on that amount in accordance with the provisions of Sec. 75, penalty-

Which shall not be less than Rs.200/- for every day during which such failure continues; or

At the rate of 2% of such tax per month

whichever is higher, starting with the first date after the due date till the date of such payment of the outstanding amount of service tax?

     Sec. 78 provides that where any service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reasons of-

Fraud; or

Collusion; or

Willful mis-statement; or

Suppression of facts; or

Contravention of any of the provisions or the rules with intent to evade payment of service tax, the person liable to pay such service tax or erroneously refunded, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice the amount of service tax so not levied or paid or short levied or short paid or erroneously refunded.

Sec. 76 provides for minimum penalty by use of expression 'not less than' the prescribed amount.   Sec. 80 provides that no penalty shall be imposable on the assessee for any failure referred to in Sec. 76 if the assessee proves that there was reasonable cause for the said failure.   It can be, therefore, inferred that penalty is not reducible below the minimum prescribed if reasonable cause for waiver is not shown.   The discretion is available with the authorities to impose penalty between maximum and minimum amount.

     Sec. 78 also provides minimum penalty not less than the amount of service tax not levied or paid or short levied or short paid or erroneously refunded and maximum of twice the amount of service tax so not levied or paid or short paid or erroneously refunded.

     The question taken up for discussion in this article is whether penalty is not reducible below the minimum prescribed under the Act for which the decisions taken by the tribunals in the following cases are taken up:

Union of India V. Aakar Advertising & Aakar Communications - 2008 -TMI - 4495 - HIGH COURT RAJASTHAN;

Union of India V. Shiv Ratan Advertisers - 2008 -TMI - 31813 - HIGH COURT RAJASTHAN;

Commissioner of Central Excise, Madurai V. Bhakya Beauty Parlour - 2008 -TMI - 30586 - CESTAT, CHENNAI.

In 'Union of India V. Aakar Advertising & Aakar Communications' (supra) appeal was filed against the order of the tribunal partly allowing the appeal and modifying the order of the Commissioner.   The tribunal has reduced the penalty imposed under Sec. 76 to 10% of the tax demanded.   One of the questions framed in this appeal by the tribunal is whether the tribunal could reduce the penalty imposable under Sec. 76 of the Act as amended by the Finance Act, 1998 read with Rule 6 of the Service Tax Rules below the minimum limit prescribed under that section.

     The tribunal analyzed the provisions of Sec. 76 of the Act.   The court held that a look at the provisions of the section does show that it does prescribe a minimum penalty by using the expressions 'not later than'.  Of course, the upper limit has also prescribed therein.   The question precisely is, as to whether the tribunal, or the authority below, has any authority to impose a penalty, which is even less than the amount permissible to be imposed by Sec. 76.

     The assessee referred to the provisions of Sec. 80 of the Act and the judgment of Hon'ble Supreme Court in 'Dilip N. Shroff V. Joint Commissioner of Income Tax' (2007) 6 SCC - 329 and judgment of the Division Bench of the Rajasthan High Court in 'Union of India through Commissioner of Central Excise V. Dial & Travel (2007) 208 CTR Report - 170 and contended that when Sec. 80 provides that penalty shall not be imposable for any failure referred in Sec. 76, 77 & 78 if the assessee proves that there was reasonable cause for the said failure which reasonably implies that the authority can impose a penalty less than the minimum prescribed in the section.

     The court held that the court have gone through the judgment and found that those judgments cited by the appellant no where lay down that despite provision providing for penalty, by using the expression 'not less than' still the authorities can impose any amount of penalty, lesser than 'not less than'.   Therefore the two judgments are of no assistance to the appellants.

     The court held that the penalty imposable may be set aside if the assessee proves that there was reasonable cause for the said failure, then the existence of sufficient cause is question of fact, which is required to be decided by the authorities below, and if it is found that there is sufficient cause the penalty cannot be imposed.   But if the reasonable cause is not shown and penalty is required to be levied then the minimum penalty prescribed cannot be further reduced under the garb of any existing discretion assumed to be vesting, with the authority, including the tribunal.   Where the two limits have been prescribed, being the minimum and the upper limit, then obviously the free play is available between the two limits only, and the discretion can be exercised, within these limits, but then, that does not mean that the authorities have any power to impose penalty less than the minimum prescribed by the section.

     In 'Union of India V. Shiv Ratan Advertisers' (supra) the appeal filed by the Revenue is on the same line.   The Revenue in this case relied on the judgment of 'Union of India V. Aakar Advertising and Aakar Communications (supra).   The High Court accepted the said judgment and decided on the same lines holding that the authorities below cannot reduce the penalty below the minimum and remanded back to the Commissioner to decide the amount of penalty to be imposed under Sec. 76 between the minimum and maximum permissible limits.

     In 'Commissioner of Central Excise, Madurai V. Bhakya Beauty Parlour' (supra) the Revenue filed the appeal contending that the tribunal has no power to reduce the quantum of penalty under Sec. 76 of the mandatory minimum as held in 'Union of India V. Aakar Advertising and Aakar Communications' (supra) and therefore the penalty on the respondent must be Rs.100/- per day of default as imposed by the original authority.  The tribunal has accepted the argument of revenue.  As regards the penalty under Sec. 78 the Commissioner (Appeals) is satisfied that the service provider is not having intention for evading tax, imposition of penalty under Sec. 78 of the Act could have been dispensed with but reduced the penalty imposed by the original authority.   The Revenue has not also challenged the same.   The tribunal upheld the same.