TMI Blog2012 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable cause for such failure, then the authority has no power to impose penalty in view of Section 80 of the Act. Whether the revisional authority has jurisdiction to impose penalty for the first time when it has not been imposed by the adjudicating or assessing authority by invoking Section 80 – Held that:- When the assessing authority, in its discretion has held that no penalty is leviable, by virtue of Section 80 of the Act, the revisional authority cannot invoke its jurisdiction and impose penalty for the first time. Power of revisional authority - assessing/adjudicating authority was satisfied with the "reasonable cause" shown by the assessees but still penalty was imposed, not on the ground that there was no reasonable cause or that the reasons were not acceptable to him, but penalty was imposed in substance to educate the taxpayer about his moral responsibility - assessee has not challenged the said orders but has paid the same – Held that:- revisional authority had no jurisdiction to interfere with the said orders as the authority held that there was sufficient cause for non-payment of duty. Therefore, the order passed by the revisionary authority is erroneous a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power conferred under Section 84 of the Act, can suo motu revise the order of the assessing authority and enhance the penalty? (In other words what is the scope of revisionary power under Section 84 of the Act?) 6) Whether the revisional authority has jurisdiction to impose penalty for the first time when it has not been imposed by the adjudicating or assessing authority by invoking Section 80? CONCEPT OF SERVICE TAX 4. The Apex Court in the case of ALL INDIA FEDERATION OF TAX PRACTITIONERS AND OTHERS vs UNION OF INDIA AND OTHERS [(2007) 9 VST 126 (SC)] 2007 (7) STR 625 (SC) explaining the meaning of service tax held as under :- The source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act 1994, the Central Government derived its authority from the residuary entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of article 268A in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003 which st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to service tax. Later on and gradually, more and more services were brought under the service tax net with the result that at present there are 118 taxable services. Each year the annual Finance Acts have increased the list of taxable services. The service tax law in our country is evolving so as o encompass every sector and thus new category of services are being introduced. Many a time, service providers are not clear as to whether the services provided by them are taxable or not. The Central Board of Excise and Customs (CBEC) also issues circulars clarifying the law. The stress is on developing a culture of voluntary compliance. The Government is against draconian provisions in practice. In fact, in the Finance Act, 1994 initially there were various provisions in Sections 87 to 92 which made non-compliance of the provisions of the Act a punishable offence, providing for prosecution of offenders. However, when the Finance Act, 1998 was enacted, these provisions have been omitted. 6. It is in this background keeping in mind the object and intendment of the Parliament in enacting this law, the provisions dealing with the penalty have to be considered. Sections 76, 77, 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-registration attracts penalty. After registration, he is expected to file returns, if he is liable to pay tax. If the returns are not filed, again it attracts penalty. For non-registration and for not filing returns, a fixed amount is prescribed as penalty. Though under these two provisions, the maximum penalty is prescribed, discretion is conferred on the authority to levy a lesser amount. Section 79 deals with penalty for failure to comply with the notice i.e. a person who fails to comply with the provision of Section 71. 9. A person who is liable to pay tax under Section 68 of the Act, if his understanding is that he is not liable to pay tax, he may not even register himself, may not file return and consequently may not pay tax. Even if a person who has registered himself and has been paying service tax for certain activities, may fall to include in his returns the activity, which according to him does not attract service tax and therefore may not pay tax. It also amounts to a case of failure to collect or pay service tax on that particular activity, though he has registered himself under the Act and has filed returns in respect of activity on which service tax is attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o comply with the requirements of the said provisions: c) absence of reasonable cause for the failure to comply with the requirement of law. 12. It is only thereafter that the authority has been vested with the power to impose penalty. In this regard, it is useful to refer to the judgment of the Delhi High Court in the case of WOODWARD GOVERNOR OF INDIA P. LTD. VS. CIT AND OTHER reported in 2002 (253) ITR 745 (Del.) which was rendered in the context of the Income Tax Act, 1961 which contains a provision conferring discretion on income tax authorities, not to impose penalties when there is reasonable cause shown by an assessee. It reads as under:- Section 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271C, no penalty shall be imposable on the person or the assessee as the case may be, for any failure referred to in the said provisions. If he proves that there was reasonable cause for the said failure. A clause beginning with notwithstanding anything is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause in a given case, the imposition of penalty under Section 76,77 and 78 is not automatic. The existence of grounds/ingredients postulated in the said provisions is a condition precedent for attracting penalty. Therefore, first, we have to find out whether in the facts of a given case whether those ingredients exist. Once it is held that those ingredients exist and the provisions are attracted, then if the language used in the said provisions do not leave any discretion in the authority in the matter of imposition of penalty, penalty is to be imposed in terms of the said provision. However, if any discretion is left, then the said quasi-judicial discretion is to be exercised reasonably. Before levying penalty, the authority is required to find out whether there was any failure referred to in the concerned provision and the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause, which was the reason for the failure referred to in the concerned provision. Thereafter the authority has to consider the explanation offered by the assessee for failure and whether it constitutes a reasonable cause. Reasonable cause means ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le in consequence of an order passed under the Act. If the conditions stipulated in the section are satisfied the Commissioner has a discretion in the matter. In exercise of that discretion the Commissioner can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted. The words the Commissioner may in his discretion....reduce or waive the amount of penalty in Section 18-B of the Act are clear enough to show that the power conferred on the Commissioner is to be exercised by him in such manner as he deems just and proper. When a discretion is conferred on an authority the same must be exercised fairly and not arbitrarily, justly and not fancifully vide S G Jaisinghani vs. UOI and others: AIR 1967 SC 1427. Even if the legislature has not used the words in his discretion in Section 18(B)(1) Commissioner could have exercised only a discretionary power in view of the employment of the word may . Now when the parliament used both expressions may and in his discretion together the position is placed beyond the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;rupees one hundred' like in the case of Sec. 77, the phrase 'per day' used after the words 'rupees two hundred' shall apply to the words rupees one hundred also. Section 76 and 77 as it stood at the relevant point of time are as follows:- 76. Penalty for failure to collect or pay service tax Any person liable to pay service tax in accordance with the provisions of Sec. 68 or the rules made there under who fails to pay such tax shall pay in addition to paying such tax and interest on that tax in accordance with the provisions of Sec. 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for everyday during which such failure continues so however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay. 77. Penalty for failure to furnish prescribed return. If a person fails to furnish in due time the return which he is required to furnish under sub-section (1) of Sec.70 or by notice given under sub-section (2) of that section, he shall pay by way of penalty a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. Since the adjudicating authority has exercised discretion in imposing the penalty with reference to the facts of each case, there was no justification for the Review authority to enhance the penalty on the ground that Sec. 76 prescribes minimum penalty of ₹ 100/- for every day. All these appeals are allowed accordingly. 17. This decision of the Tribunal has been affirmed by this Court in the case of CCE Vs SUNITHA SHETTY reported in 2006 (3) STR 404 (Kar.), which has been followed by this court in the case of Commissioner of central Excise vs Royal Agencies in CEA No. 4/2004 disposed of on 26.2.2008. Similar views have been taken by various other High Courts. Therefore, this penalty provision being penal in nature has to be strictly considered. If two views are possible, it is that view which is beneficial to the assessee which is to be preferred. That is what has been done by the Tribunal as well as by this Court. Therefore, it is not possible to accept the contention of the revenue that less than one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority is empowered to impose penalty as prescribed under Section 78, for such failure. Here the penalty prescribed is penalty which shall not be less than but which shall not exceed twice the amount of service tax sought to be evaded by reason of suppression or concealment of the value of taxable service or the furnishing of inaccurate value of such taxable service. 21. When once the ingredients of Section 78 are established and there is no reasonable cause for failure, Section 80 is not attracted. Then the authority has to impose a minimum penalty of the amount of service tax sought to be evaded and the maximum is double the said amount. Here there is no discretion, which is vested with the authority. The discretion is only confined to impose a penalty above the minimum and less than the maximum provided for under the Act. It is in that context, in the light of the scheme of this provision that Sections 76 and 78 operate in a mutually exclusive area. For the same reason the question of imposing penalty both under Section 76 and 78 would not arise. The penalty is to be imposed either under Section 78 or under Section 76 and certainly not under both the provisions. In this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act 2008 (18 of 2008) which came into force from 10.5.2008, the Parliament has made the legal position clear by introducing a proviso to Section 78. It reads as under:- Provided also that if the penalty is payable under this section, the provision of Section 76 shall not be attracted. 23. 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 Section 76 and 78. REVISIONAL JURISDICTION: SECTION 84 24. Section 84 of the Act reads as under:- 84. Revision of orders by the Commissioner of Central Excise (1) The Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner has to be satisfied of twin conditions namely. (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent if the order of Income tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase Prejudicial to the interests of the Revenue is not an expression of art and is not defined in the Act Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy And Co. Vs S P Jain (1957) 31 ITR 872, the High Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of ADDL. CIT VS. SUDERSHAN TALKIES reported in (1993) 2000 ITR 153 (Del.) again dealing with the revisional power under the income tax law held as under:- A similar question had come up for consideration before this court in the case of Addl. CIT v J K D'Costa (1982) 133 ITR 7. Proceedings for levy of penalty were not initiated by the Income tax Officer and the Commissioner had in that case passed an order under section 263 of the Act and directed the Income-tax Officer to initiate proceedings for the levy of penalty. This court came to the conclusion that the proceedings for the levy of penalty whether under section 271(1) (a) or section 273(b) are proceedings independent of and separate from the assessment proceedings. It then came to the conclusion that failure to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income tax to pass an order under Section 263 and direct initiation of penalty proceedings. After this point was decided in favour of the assessee the Commissioner of Income tax filed a special leave petition being SLP (Civil) Nos. 11391-11392 of 1981 (see (1984) 147 ITR (St) 1) and the same was dismissed by the Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese words are missing in Section 84. As pointed out earlier. If there is no indication of the scope of power of revisional authority under the Act, it is liable to be struck down as violative of Article 14 as it amounts to conferment of unbridled power or arbitrary power on the revisional authority. Therefore, to save the said provision from unconstitutionality, we have to place a reasonable interpretation on the said provision. It is in this context, the very phrase revisional power or the word revision gives and indication, in so far as the scope of power to be exercised by the authority under this Act. 30. While interpreting a fiscal legislation what has to be kept in mind by the revisional authorities is the scheme of each and every legislation to levy and collect tax in accordance with the provision of the Act. This task is entrusted to the revenue. The revenue is levying tax lawfully payable by a person. Certainly revisional authorities owe a duty to review such orders and facilitate levy and collection of tax which are legitimately due to the Department. Penalty is one such category, which cannot be considered as loss of revenue to the exchequer. Non-payment of tax an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty, that by itself is not conclusive. The Court has to apply its mind to find out first whether the case falls under Section 76 or 78 and only then can penalty be imposed in accordance with the statutory provision. CONCLUSIONS 33. In the light of the foregoing discussion and for the reasons stated above, we answer the substantial questions of law as under ;- (1) 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 of the Act, not only the ingredients of those Sections should exist, but also there should be absence of reasonable cause for the said failure. (2) 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. (3) Even if the ingredients stipulated in Sections 76 and 78 of the Act 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 of the Act. (4) Even after holding that the ingredients stipulated in Sections 76 and 78 exist, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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