WAIVER OF PENALTY ARISES IF NON PAYMENT IS DUE TO BONAFIDE REASON

[Mr. M. GOVINDARAJAN]

            Section 80 of the Finance Act, 1994 provides that notwithstanding anything contained in the provisions of Section 76, Section 77 or Section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure. Section 76 provides penalty for failure of to pay service tax. This section imposes a penalty which shall not 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 the penalty payable in terms of this section shall not exceed the service tax payable. Section 77 provides for penalty for contravention of Rules and provisions of Act for which no penalty is specified elsewhere. This section imposes penalty which may extend to five thousand rupees.  Section 78 provides for penalty for suppressing the value of taxable service. This section imposes penalty 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.

            Section 80 provides the assessee with an opportunity to defend himself against the penalties imposed on him.  He is to prove to the satisfaction of the Central Excise Authorities that failure on his part was due to reasonable cause. 

            In 'Commissioner of Central Excise, Ludhiana V. Star Cargo Consultant' - [2009 -TMI - 34134 - CESTAT, NEW DELHI] the tribunal held that waiver of penalty arises if non payment is due to bona fide reason. In this case the respondents have service tax registration for Cargo Handling Services since 2003.  In the balance sheet for the year 2004-05 of the respondents it was found by the Central Excise Officers that a receipt of the amount of Rs.4,23,393/- was shown as rebate. This amount is received from custodian/contractors as compensation for not performing certain jobs which ultimately had been performed by the respondents. The Department took the view that this amount is to be treated as their receipt for providing the taxable service. The respondent deposited the service tax along with the interest. The Department subsequently issued a show cause notice for confirming the demand of service tax.  The Dy. Commissioner vide order-in-original besides confirming the service tax and interest imposed penalty equal to service tax confirmed under Section 76, penalty of Rs.1,000 under Section 77 and equal amount of service tax under Section 78. The Commissioner (Appeals) set aside the imposition of penalty under Section 76, 77 and 78 on the ground that the entire amount of service tax had been paid prior to the issue of show cause notice. 

            The Revenue filed appeal against the order of Commissioner (Appeals) before tribunal. The following pleadings are put forth by the Department:

> The only provision for waiving the penalty under Section 76 or 78 is Section 80 for which assessee has to show that there was genuine reason for delay in payment of service tax on non payment of service tax against which has not been invoked in this case by the Commissioner (Appeals);

> The payment of service tax prior to the issue of show cause notice cannot be ground for setting aside the penalty;

> There is no automatic waiver of the penalty when the service tax has been paid prior to the issue of show cause notice.

The respondent pleaded the following:

> This amount had not been received from the client to whom the Cargo Handling Service was provided but had been received from the contractors custodian as compensation for not doing certain jobs which they were supposed to perform, as a result of which those jobs had to be performed by the respondent and for this reason, only this amount had not been declared in the returns and no service tax has been paid;

> The service tax was paid immediately on pointing out by the Department;

> In the course of hearing before the Asst. Commissioner the reason as to why the service tax has not been paid on the amount had been explained;

> In view of the above penalty may not be imposed;

> It is a fit case for invoking Section 80 of the Finance Act, 1994

            The tribunal considered the submissions from both the sides. The factual position that the amount has been received from the contractors/custodian and not from the clients is not in dispute. As per the Department interpretation, the amount has to be treated as amount received for taxable service provided by the respondent to their clients as when the respondent received this amount as compensation from the contractors/custodian for failure to perform certain jobs, those jobs had been performed by them. The contention of the respondent is that there was confusion as to whether this amount would attract service tax or not and for this reason only they did not pay the service tax on this amount. The tribunal is of the view that on this case waiver of penalty in terms of the provisions of Section 80 of the Finance Act, 1994 should have been considered by the lower authority but there are no findings on this point in the impugned order. The tribunal agrees that waiver of penalty cannot be granted just because the service tax had been paid prior to the issue of show cause notice. But if the non payment of service was due to some bona fide reason on the part of the assessee and the assessee on being pointed out paid the service tax, the waiver of penalty under Section 76, 77 or 78 would be merited. The same has not been considered in the impugned order and therefore the tribunal remanded the matter to the Commissioner (Appeals) for considering as to whether in view of the facts of the case, waiver of penalty under Section 76, 77 & 78 was warranted under Section 80 of the Finance Act.