TWIN PENALTIES FOR SAME OFFENCE IN SERVICE TAX ?

[Dr. Sanjiv Agarwal]

The Service Tax provisions contain severe penalties for non-payment of Service Tax or short payment of Service Tax which could be with or without any intent to evade payment of Service Tax i.e., unintentional non-payment or willful default. The penal provisions are over and above the requirement of paying interest for delayed payment at the rate prescribed in section 75 of the Finance Act, 1994.

Interest (Section 75)

Section 75 is a charging provision which provides for charging of interest at the prescribed rate for the failure on the part of the assessee to pay to the credit of the Central Government in the prescribed or stipulated period. This interest will be on the amount of Service Tax due. It should be noted that section 75 stipulates interest only on delayed payment of service tax. As such, no interest can be levied on the delayed payment of any amount other than service tax under any section of Finance Act, 1994. Section 75 does not authorize the Department to charge interest on delayed payment of education cess.

The current rate is 18 percent p.a. However, a concession of 3 per cent has been allowed for taxpayers whose turnover during any of the years covered in the notice or the preceding financial year is below Rs. 60  lakhs. It may be noted that rate of interest had been enhanced by 5 per cent from 13 per cent to 18 per cent w.e.f. 1.4.2011. Thus, in respect of this specified category, applicable rate of interest w.e.f. 1.4.2011 shall be 18 per cent p.a.

Penalty for failure to pay Service Tax (Section 76)

Penalty for delayed payment is linked to the amount due but penalty cannot exceed the upper ceiling. Upto 7.4.2011, penalty was Rs. 200 per day but maximum penalty was equivalent to tax itself.

In CCE, Kolkata-I v. Gurdian Leisure Planners Pvt. Ltd. [2006 (11) TMI 492 - CESTAT, KOLKATA] it was observed that the purpose of imposition of penalty is to defeat recurrence of breach of law and discourage nor compliance of law by wilful breach. In case of service tax, penalty has to be imposed even in justified cases and findings, except where reasonable cause is shown for failure to pay service tax.

Penalty for suppressing value of taxable service (Section 78)

Where any service tax has not been levied or paid or has been short levied or short pair or erroneously refunded, by reason of—

• Fraud; or
• Collusion; or
• Wilful mis-statement; or
• Suppression of facts; or

• Contravention of any of the provisions or the rules made thereunder with the intent to evade payment of service tax.

The person, liable to pay such service tax or erroneous refund, as determined under Section 73, shall also be liable to pay a penalty, in addition to such service tax and thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or short levied or short paid or erroneously paid.

Where true and complete details of the transactions are available in the specified records, penalty shall be reduced to 50 percent of the service tax so not levied or paid or short levied or short paid or erroneously refunded. Where such service tax and the interest payable thereon is paid within thirty days from the date of communication or order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person shall be 25 percent of such service tax. This benefit is available only if the amount of penalty so determined has also been paid within 30 days. This limitation of 30 days is extended to 90 days in case of a service provider whose value of taxable services does not exceed Rs. 60 lakhs during any of the years covered by the show cause notice or during the preceding financial year.

Section 78 was amended by the Finance Act, 2008 and the amendment provides that in case where penalty for suppressing the value of taxable service under Section 78 is imposed, the penalty for failure to pay service tax under Section 76 shall not apply. With this amendment the legal position now is that simultaneous penalties under both Section 76 and 78 of the Act would not be levied. However, since this amendment has come into force w.e.f. 16th May, 2008, it cannot have retrospective operation in the absence of any specific stipulation to this effect. Going by the nature of the amendment, it cannot be said that this amendment is only clarificatory in nature.

Both penalties can be levied

In Bajaj Travels Ltd v. CST 2011 (8) TMI 423 - DELHI HIGH COURT , it was held that Section 76 and 78 are operated in two different fields. Penalty was imposable under both Sections separately, even if offences were committed in course of same transactions or arose out of same act.

By their very nature, Section 76 and 78 of the Act operate in two different fields. In the case of Assistant Commissioner of Central Excise v. Krishna Poduval 2005 (10) TMI 279 - Kerala High Court the Kerala High Court has categorically held that instances of imposition of penalty under Section 76 and 78 of the Act are distinct and separate under two provisions and even if the offences are committed in the course of same transactions or arise out of the same Act, penalty would be imposable both under Section 76 and 78 of the Act. We are in agreement with the aforesaid rule.

Both penalties cannot be levied

Penalty under both sections 76 and 78 are not imposable as these provisions are mutually exclusive [Safe Test Enterprise v. CCE, Salem2009 (11) TMI 162 - CESTAT, CHENNAI; V Sriram & Co v. CCE, Salem 2009 (11) TMI 163 - CESTAT, CHENNAI] However a contrary view was taken in CST, Lucknow v. Tirupati Trading Co 2009 (9) TMI 259 - CESTAT, NEW DELHI.

Karnataka High Court in United Communications, Udupi v. CCE 2011 (10) TMI 163 - KARNATAKA HIGH COURT, it was held that since penalty could not be imposed both under sections 76 and 78, penalty under section 78 was only to be imposed. Similarly, Karnataka High Court in World View Vision v. CCE2011 (10) TMI 179 - KARNATAKA HIGH COURT, held that since penalty cannot be imposed both under sections 76 and 78, penalty under section 78 was only to be imposed on assessee.

In CCE v. First Flight Courier Ltd. 2011 (1) TMI 52 - High Court of Punjab and Haryana, High Court held that penalty u/s 76 is not justified if penalty under section 78 is imposed. It held, thus as under sections 76 provides for penalty for failure to pay the amount while section 78 provides for penalty for suppressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is different, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78.

In CCE, Chandigarh v. Krishna Automobiles 2011 (4) TMI 580 - CESTAT, NEW DELHI, it was held that since section 58 w.e.f 10.5.2008 provide expressly that penalties under Section 76 and 78 are not imposable at same time for same offence, there was no reason to impose both penalties, even for period prior to 10.5.2008. [Also see Ideal Security v. CCE, Allahabad 2011 (3) TMI 647 - CESTAT, NEW DELHI; CCE, Aurangabad v. Pendharkar Constructions 2011 (4) TMI 535 - CESTAT, MUMBAI; CCE, Trichy v. Home Fashion International 2011 (2) TMI 466 - CESTAT, CHENNAI].

In CST v. Motor World 2012 (6) TMI 69 - KARNATAKA HIGH COURT, it was held that for imposing penalty u/s 76, 77 and 78, not only ingredients of those sections should exist, but also there should be absence of reasonable cause for said failure. The imposition of penalties under those sections is not automatic. Also, section 76 and 78 are mutually exclusive and therefore, if penalty is payable u/s 78, then section 76 is not attracted. While imposing penalty under section 76, the question of imposing penalty under section 78 also will not arise because section 76 applies to a case where the person has not either registered himself under the Act or having registered himself has not filed the return and not paid tax for the activity which he is carrying on. In such circumstances, the question of finding fault with the returns, which are filed furnishing inaccurate value of such taxable service or suppressing or concealment of the value of taxable service would not arise. The amendment brought about is only clarificatory in nature. That was the position even before the amendment. It is clear from the express provisions of sections 76 and 78.

It was further held that if there is no reasonable cause shown, authority has discretion regarding quantum of penalty to be imposed. However, penalty to be imposed cannot be less than the minimum or more than the maximum prescribed under the statute. If penalty imposed is not less than the minimum prescribed under law, revisional authority has no power to enhance amount of penalty on ground that it is less. The high court, thus held as follows on various issues concerning penalties -

• The imposition of penalty under the Act is not automatic. The ingredients mentioned in the section should exist. In respect of sections 76, 77 and 78, not only the ingredients of those sections should exist, but also there should be absence of reasonable cause for the said failure.
• Sections 76 and 78 are mutually exclusive. If penalty is payable under section 78, section 76 is not attracted. Therefore, no penalty can be imposed for the same failure under both the provisions.
• Even if the ingredients stipulated in sections 76 and 78 are established, if the assessee shows reasonable cause for such failure, then the authority has no power to impose penalty in view of section 80.

It is thus, clear that both the penalties are not leviable. Neither the law permits that nor the legislative intent warrants the levy of both the penalties.