DOUBLE PENALTY IS NOT IMPOSABLE

[Mr. M. GOVINDARAJAN]

Sec. 76 of the Finance Act, 1994 ('Act' for short) provides penalty for failure to pay service tax. It provides that any person, liable to pay service tax in accordance with the provisions of Sec. 68 or the Rules made there under fails to pay service tax, shall pay in addition to such tax and the interest on that tax amount in accordance with the provisions of Sec. 75, a penalty which shall not be less than two hundred rupees for every day during which such failure continues or at the rate of two per cent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax. The total amount of penalty payable shall not exceed the service tax payable.

Section 77 of the Act provides penalty for contravention of Rules and provisions of the Act for which no penalty is specified elsewhere.

Section 78 of the Act provides for penalty for suppressing the value of taxable service. It provides a penalty, in addition to the payment of service tax and interest, which shall not be less than but which shall not exceed twice the amount of service tax.

Penalties imposed under Sec. 76, 77 and 78 are subject to the provisions of Sec. 80 which means that no penalty can be imposed on the assessee if he proves to the satisfaction of the Central Excise authorities that there was reasonable cause for his failure.

An order imposing penalty for failure to carry out a statutory obligation, as held by Hon'ble Supreme Court, in 'Hindustan Steel Limited V. State of Orissa' - 1978 (2) ELT (J.159), is the result of a quasi criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. It was also held that penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

In 'Remac Marketing (P) Ltd., V. Commissioner of Service Tax, Kolkatta' - [2009 -TMI - 32394 - CESTAT, KOLKATA] the tribunal discussed elaborately in imposing penalty to the assessee. The tribunal stressed that there should not be double penalty.  In this case the appellant came in appeal against Order in appeal upholding the order in original which result with service tax demand of Rs,9,67,681/- with interest and penalty of Rs.100/- per day starting from the date of default till the date of payment of the tax due imposed under Sec. 76 of the Finance Act, 1994.  Also a penalty of Rs.9,67,681/- was imposed under Sec. 78 of that Act. Appellate authority found that the appellant although had collected service tax from its customers, there was default in making deposit of the tax collected and also tax due. The Appellate Authority also found that there was suppression of fact which prevented revenue to realize its dues. The appellant has already deposited the service tax demand before issuance of show cause notice.

The appellant contended that the entire amount of tax having been deposited the appellant may be exonerated from penalties imposed.  Citing the decisions of tribunals in-

The Financers V. Commissioner of Central Excise, Jaipur - [2008 -TMI - 4599 - CESTAT, NEW DELHI];

Opus Media and Entertainments V. Commissioner of Central Excise, Jaipur - [2008 -TMI - 2921 - CESTAT, NEW DELHI]

the appellant pleaded that shall not be double penalty both under Sec. 76 and Sec. 78 of the Act.

The Department contended that the appellate order was very clear in bringing out the violation of law by the appellant and does not warrant exonerating the appellant from penalty which otherwise shall encourage them to get scot free when they violated law. Therefore penalties imposed by the authorities below were proper.

The tribunal observed that the argument of the appellant did not throw light why tax realized was not deposited into the credit of the Central Government and whether there was reasonable cause to grant immunity under the law. Bona fide of the appellant could not come forward nor any reasonable cause was placed before the tribunal to consider the reason of failure to make deposit of the tax due. The appellant's plea that entire tax having been deposited before the issue of show cause notice it is entitled to immunity from penalty would tantamount to condoning violation of law by the assessee with impunity and the appellant having resorted to defiance attitude, it should not be exonerated from penalty.  The tribunal is of the opinion that for admitted violation of law, the appellant will undoubtedly be liable to penalty under law for breach thereof.  The tribunal is of further opinion that the appellant has left the tribunal with no alternative than to prevent future recurrence by appropriate dose of penalty. The quantum of penalty imposed appeared to the tribunal was disproportionate and that called for intervention.   Having regard to the circumstances of the case the tribunal reduced the penalty to Rs.1 lakh to meet the end of justice.

The tribunal further discussed about the penalty proceedings in tax matters. Penalty proceedings are quasi-criminal proceedings. The modern criminology does not encourage the imposition of severe or savage sentences against criminals, because the deterrent or punitive aspect of punishment is no longer treated as a valid consideration in the administration of criminal law. But it must be remembered that ordinary offences with which the normal criminal law of the country deals are committed by persons either under the pressure of provoked and unbalanced emotions, or as a result of adverse environments and circumstances, and so, while dealing with these criminals who, in many cases, deserve a sympathetic treatment in a few cases, are more sinned against them sinners, criminal law treats punishment more as a reformative or corrective than as a deterrent or punitive measure.

In regard to penalty under Sec. 78 the tribunal held that there should not be double penalty as cited in the two cases by the appellant, the tribunal waive the penalty imposed under Sec. 78 of the Act.

In most of the cases penalties are imposed under various sections of the Finance Act, 1994 which were upheld by the tribunals. This is the case in which it has specifically emphasized that double penalty shall not be imposable. By virtue of this phenomenon the tribunal reduced the penalty imposed under Sec. 76 and waived the penalty imposed under Sec. 78.