QUANTUM OF PENALTY

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

            Section 76 of the Finance Act, 1994 ('Act' for short) provides penalty for failure to pay service tax. Section 77 of the Act provides penalty for contravention of Rules and provisions of the Act for which no penalty is specified elsewhere. Section 77 provides penalty who-

1. fails to take registration;
2. fails to keep, maintain or retain books of accounts and other documents;
3. fails to furnish information called by an Officer;
4. fails to produce documents called for by a Central Excise Officer;
5. fails to appear before Central Excise Officer when issued with a summon for appearance to give evidence or to produce a document in an inquiry;
6. fails to pay the tax electronically when it is required to pay by electronically;
7. issues invoice with incorrect or incomplete details or fails to account for an invoice in his books of account;
8. contravenes any of the provisions of the act or any rules for which there is no penalty is separately provided.

QUANTUM OF PENALTY:

            Section 76 of the Act provides penalty which shall not be less than two hundred rupees 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 day after the due date till the date of actual payment of the outstanding amount of the service tax.  The section further provides that the penalty payable shall not exceed the service tax payable.

            Section 77 provides penalty which may extend to five thousand rupees in the following cases:

• fails to pay the tax electronically when it is required to pay by electronically;
• issues invoice with incorrect or incomplete details or fails to account for an invoice in his books of account;
• contravenes any of the provisions of the act or any rules for which there is no penalty is separately provided.

Section 77 provides penalty which may extend to five thousand rupees or two hundred rupees for every day during which such failure continues whichever is higher, starting with the first day after the due date, till the date of compliance in the following cases:

-fails to take registration;

- fails to furnish information called by an Officer;

- fails to produce documents called for by a Central Excise Officer;

-fails to appear before Central Excise Officer when issued with a summon for appearance to give evidence or to produce a document in an inquiry

Thus Section 77 provides two types of penalties.

            Section 78 provides penalty which shall not be less than the service tax but not exceeding twice the amount of service tax. The first proviso to Sec. 78 provides that where the service tax and the interest is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid shall be 25% of the service tax so determined. Thus reduced penalty shall be available only if the amount of penalty so determined has also been paid within the period of thirty days.

            Section 80 provides the assessee with an opportunity to defend him against the penalty imposed on him under Sections 76, 77 or 78 if he can prove to the satisfaction of the Central Excise authorities that failure on his part was due to reasonable cause. The phrase 'reasonable cause' has not been defined in the service tax provisions. It will depend upon the circumstances of each case.

            The amount of penalty to be imposed under the provisions is not fixed. Minimum limit is prescribed in some cases.   Section 80 gives the discretionary powers to the adjudicating authorities even not to impose penalty if reasonable cause is shown by the assessee. Enhancement or reduction of penalty is possible in appeals as well as in revisionary proceedings. In 'Commissioner of Central Excise V. First Flight Couriers Private Limited - 2007 -TMI - 2250 - HIGH COURT, KARNATAKA] it was held that although the original authority is empowered to consider the aspect pertaining to the imposition of penalty yet the power of the Review Authority to revise the order subsists and it cannot be disturbed by the tribunal.

            The quantum of penalty to be imposed is to be decided based on the facts and circumstances of the cases.

RELEVANT CASE LAWS:

1. Commissioner of Central Excise V. State Bank of India - [2009 -TMI - 33223 - ALLAHABAD HIGH COURT]

            For delay in depositing service tax by the respondent SBI, Assi Branch, Bhaidaini, Varanasi, a penalty of Rs.11,179/- was imposed which was reduced by the Commissioner (Appeals) to Rs.5,000/- which has been upheld by the tribunal.  The Revenue has preferred the appeal against the order of the tribunal.  As the revenue effect is only Rs.6000/- and odd, the court is not inclined to entertain the appeal which is accordingly dismissed.

2. Safeguard V. Commissioner of Central Excise, Bhopal - [2009 -TMI - 32335 - CESTAT, NEW DELHI]

            The appellants are engaged in providing the service under the category of 'security services' to various parties.  They are liable to pay service tax since 16.10.1998. The appellant got registered on 26.6.2002.  There was a demand of tax for the period from 16.10.98 to 31.12.2002. The adjudicating authority confirmed the demand of tax of Rs.8,67,542/-. He also imposed penalty of Rs.200/- per day under Sec. 76 of the Finance Act, 1994, Rs.1000/- under Sec. 75A and 77 and equal amount of tax under Sec. 78 of the Act. The Commissioner (Appeals) modified the adjudication order in so far as the penalty under Sec.76 was reduced to Rs.100 per day.

            The tribunal found that the non payment of tax was detected. It also noted that the appellant provided service to a semi-government body. So the penalty under Sec. 78 of the Act is not warranted.  Regarding the imposition of penalty under Sec. 76 of the Act, it is revealed from the order of the Commissioner (Appeals) that the appellant contended that they got them registered with the Central Excise authorities and delay in filing of returns is procedure lapse. The tribunal is unable to accept such contention. The tribunal held that the appellant got registered with the Central Excise office and failed to file the returns within the time which cannot be ignored as a mere procedural nature. So the penalty under Sec. 76 of the Act is warranted. However the tribunal found that the amount of penalty is excessive. The appellant is a small entrepreneur and providing security services. Therefore the penalty under Sec. 76 of the Act is reduced to Rs.50,000/-

3. Commissioner of Central Excise, Raipur V. Merlin Marketing - [2009 -TMI - 33240 - CESTAT NEW DELHI]

            The respondents are engaging as C&F agent of M/s Intas Pharmaceuticals Ltd., It has been alleged that the respondent failed to discharge the tax liability as C&F agent during the relevant period. The respondent deposited the tax of Rs.34,815/- along with interest upon detection by the Central Excise Officers before the issue of show cause notice. The adjudicating authority confirmed the demand of tax and appropriated the amount as deposited by the respondent. He also imposed penalty of equal amount under Sec. 78 of the Finance Act, 1994 and penalty of Rs.100/- per day for non filing of the returns under Sec. 76 of the Act along with interest. The Commissioner (Appeals) has set aside the penalty under Sec. 78 and reduced the penalty to Rs.5000/- under Sec. 76 of the Act. Hence the Revenue filed this appeal.

            The tribunal held that the Adjudicating Authority observed that the Respondent had intentionally entered into agreement to save the tax and mislead the Revenue department.  In view of the above, it appears that the Respondent had knowingly entered into agreement to the principal in order to avoid the payment of tax. So, the Commissioner (Appeals) is not correct to extend the benefit under Sec. 80 of the Finance Act, 1994 in the present case. Accordingly the impugned order passed by the Commissioner (Appeals) is required to be set aside.  The adjudication order is restored. However it is sent hat the respondent deposited the duty before the issue of show cause notice and therefore imposition of penalty under Sec.78 of the Act would be reduced to 25% of the tax which comes to Rs.8700/-. Considering the facts and circumstances of the case, the penalty imposed under the Adjudication order is reduced to Rs.8700/- and Rs.5000/- under Sections 78 and 76 of the Act respectively.

4. Reach Events Management V. Commissioner of Service Tax, Bangalore - [2008 -TMI - 31372 - CESTAT, BANGALORE]

            The Original Authority in each of the cases after due examination of the reasons given for failure to pay service taxes in time exercised his discretion in dropping the penalties and in some cases imposed lesser penalty. The Revisional Authority took up the matter and found that non imposition of penalty was not justified and so also the imposition of lesser penalty.  In each of the cases he has imposed the penalties and enhanced the same in terms of the impugned orders. The tribunal held that the Revisional Authority in some case was satisfied with the reasonable cause furnished by the assessee in not depositing the tax in time. Therefore, the non imposition of penalty in both the case is justified. While in the case of other appeals, enhancing penalty by the Revisional authority is not justified. The impugned order is set aside by the tribunal.

5. Shree Sadar Patel Seva Samaj V. Commissioner of Service Tax, Ahamedabad - [2009 -TMI - 32356 - CESTAT, AHMEDABAD]

            The appellant is not disputing the confirmation of demand of tax. The prayer in the appeal is only to set aside the quantum of penalty of identical amount imposed under Sec. 76 and of Rs.10000/- imposed under Sec. 77 of the Act. The appellant contended that there is no intention to evade duty inasmuch as they are charitable trust and on coming to know their liability have come forward on their own to pay tax and interest without intervention of the Department. The Department also agrees that on the face of evidence of bona fide of the appellants the provisions of Sec. 80 of the Act would apply. In view of the above the tribunal set aside the penalties imposed upon the appellant.

6. Alpha Polypropylene V. Commissioner of Customs, Central Excise & Service Tax, Daman - [2009 -TMI - 33254 - CESTAT AHMEDABAD]

            The Asst. Commissioner vide his order dated 31.12.2004 confirmed the duty of Rs.21,93,742/- as service tax and imposed penalty on an identical amount under Sec. 78. However the penalty of Rs.1,67,400/- was imposed by him under Sec. 76 of the Finance Act. Appeal was filed before the Commissioner (Appeals). In the mean time the Commissioner, in his revisionary power, enhanced the penalty from Rs.1,67,400/- to Rs.21,93,742/- which is equivalent to the tax amount. Appeal is filed against the order of revision. In the mean time Commissioner (Appeals) set aside the penalty imposed. In view of the developments the tribunal allowed the petition.