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2017 (4) TMI 1180 - HC - Service TaxPresence of mens rea - imposition of penalty u/s 78 of FA - Investigation was initiated against the petitioner on the basis of intelligence report that the petitioner is engaged in supply of tangible goods on hire basis without obtaining service tax registration - case of petitioner is that they did not obtain service tax registration under bona fide impression that since the petitioner is a goods transport agency under Section 65 (50b) of the FA, 1994, which is exempted from service tax liability under Section 66D of the FA - Held that: - It is settled law that an order imposing a penalty for failure to carry out a statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged has either acted deliberately in defiance of law or was guilty of contumacious or dishonest conduct, or acted in conscious disregard of its obligation. A penalty will not also be imposed merely because it is lawful to do so - presence of mens rea is absolutely necessary ingredient for imposing penalty under Section 78 of the FA, 1994. It is true that agreement between the petitioner and respondent No.3 clearly provides that the petitioner would produce the service tax registration certificate and likewise, reimbursement of service tax was limited to the production of demand regarding payment of service tax. But, it is not in dispute that the petitioner did not produce the service tax registration certificate to respondent No.3, however, immediately after initiation of investigation and upon service of notice of investigation by respondents No.1 and 2, the petitioner had already discharged its tax liability before issuance of show cause notice and paid the service tax liability on 25-7-2014 and discharged interest liability on 26-8-2014. There is no willful suppression of facts to evade tax on the part of the petitioner and it was bona fide on the part of the petitioner, it was not deliberate and in absence of finding relating to mens rea recorded by the Settlement Commission, the penalty imposed upon the petitioner under Section 78 of the FA, 1994 deserves to be quashed. Petition allowed - decided in favor of petitioner.
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