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Principal Commissioner of Service Tax Delhi –II Versus Tops Security Ltd.

2015 (12) TMI 443 - DELHI HIGH COURT

Extension of time for making reduced penalty - Was the CESTAT justified in granting to the Respondent the benefit of payment of reduced penalty to the extent of 25% in terms of the 3rd proviso to Section 78 (1) of the Finance Act 1994 (as it stood prior to its substitution by the Finance Act 2015) within 30 days from the date of the order of the CESTAT - Held that:- It appears to the Court that the very object of extending to an Assessee the option of availing the benefit of payment of reduced p .....

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This is, of course, subject to payment of not only the service tax and interest but also the reduced penalty within 30 days of the “communication of the order” of the adjudicating authority.

The SCN issued to an Assessee invariably mentions the statutory provisions under which the demand for service tax, interest and penalty is proposed to be raised. There can be no question, therefore, of the Assessee being unaware of the provisions of the statute. It is also very likely that in the .....

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adjudication order itself should remind the Assessee of the option available of paying a reduced penalty in terms of the second and third proviso to Section 78 (1) of the Finance Act 1994.

In the instant case, the CESTAT could not have permitted the Respondent to pay the reduced penalty amount in terms of the second proviso to Section 78 (1) of the Finance Act, 1994 within thirty days from the date of the impugned order of the CESTAT. Such a direction was contrary to the third proviso .....

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the Petitioner : Ms Sonia Sharma, Senior Standing Counsel For the Respondent : Ms Kavita Jha, Mr Shammi Kapoor, Mr Vaibhav Kulkarni and Ms Purva Juneja, Advocates ORDER Dr. S. Muralidhar, J. 1. This appeal by the Principal Commissioner of Service Tax, Delhi under Section 35G of the Central Excise Act, 1944 (CE Act) read with Section 83 of the Finance Act 1994, is directed against an order dated 18th November 2014 passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) in App .....

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Jha, learned counsel for the Respondent. 5. The facts leading to the filing of the present appeal are that the Respondent, Tops Security Limited, is engaged in the business of providing security services. An investigation carried out by the Directorate General of Central Excise Intelligence revealed that the Respondent was charging and collecting service tax from its clients but the service tax that was paid was not commensurate with the amount received for the services rendered. Accordingly, a .....

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f ₹ 81,07,919/- to the period 2010-11 were also issued. In these SCNs penalty under Section 76 of the Finance Act, 1994 was proposed. 6. Consequent upon the above SCNs, an Order-in-Original was passed by the Adjudicating Authority, i.e. the Commissioner (Adjudication), on 6th November, 2012 confirming the above demand of service tax with interest. As regards the first SCN the said Order-in-Original levied penalty equivalent to the service tax amount in terms of Section 78 of the Finance Ac .....

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passed on that date, the CESTAT recorded the statement on behalf of the Respondents that they were not disputing their liability to pay service tax and interest but only were seeking to avail the benefit of the reduced penalty in terms of the 3rd proviso to Section 78 of the Finance Act, 1994. After noticing the judgment of the Gujarat High Court in the case of CCE, Ahmedabad v. Ratnamani Metals and Tubes Ltd. 2013 (296) ELT 327 (Guj. HC), the CESTAT ordered as under: In the light of the foregoi .....

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ion 78 of Finance Act, 1994 will be reduced to 25% of the said amount provided the service tax and interest are paid within 30 days from the date of communication of this order and the said reduced penalty (25% of 8,15,44,386/-) is also paid within the said time i.e. 30 days from the date of communication of this order. 8. The question that has been urged in this appeal by the Department is whether the CESTAT was justified in law in extending to the Respondent the benefit of payment of 25% of th .....

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ther words, the reduced penalty was not paid within 30 days of the passing of the order of the CESTAT. Indeed, this has not been disputed before this Court by the learned counsel for the Respondent as well. She informed the Court that upon failure of the Respondent to avail of the benefit granted to it by the CESTAT by the impugned order, the Department has initiated steps for recovery of the service tax, interest and penalty by inter alia freezing the accounts of the Respondent. She urged that .....

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ct, 1994 many provisions of the CE Act (for which corresponding similar provisions do not exist in the Finance Act) have been made applicable in relation to service tax as they apply in relation to duty of excise a significant omission is Section 11AC of the CE Act which also deals with levy of penalty for short-levy or non-levy of excise duty in certain cases. While the reason for this may be that a similar provision exists in the Finance Act 1994 in the form of Section 78, one consequence woul .....

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th these prefatory comments, the scheme of the provisions of the Finance Act, 1994 relevant to the question of penalty may be examined. Section 76 of the Finance Act 1994 talks of penalty leviable generally upon failure to pay service tax plus interest in accordance with Section 75. Section 77 talks of penalty for contravention of the rules and provisions of the Act for which no penalty is specified elsewhere. Section 78 (1) of the Finance Act 1994 (as it stood prior to its substitution by the F .....

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payment of service tax, the person, liable to pay such service tax or erroneous refunds, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall be equal to the amount of service tax so not levied or paid or shortlevied or short-paid or erroneously refunded. Provided that where true and complete details of the transactions are available in the specified records, penalty sha .....

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ced penalty under the second proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso. Provided also that in case of a service provider whose value of taxable services does not exceed sixty lakh rupees during any of the years covered by the notice or during the last preceding financial year, the period of thirty days shall be extended to ninety days. 13. Under Section 78 (1) of the Finance Act 1994, the .....

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994 gives an Assessee the benefit of paying a reduced penalty of 25% of the service tax. However, when the second proviso is read with the third proviso, it is plain that for availing of the benefit two conditions have to be satisfied by the Assessee. The first is that such service tax and interest payable thereon should be paid within 30 days from the date of communication of the order of the Central Excise Officer determining such service tax. The second condition is that the reduced penalty a .....

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f the Finance Act, 1994 corresponds to the second proviso to Section 11 AC of the CE Act as it stood prior to its substitution by Finance Act, 2011 and to Section 11 AC (1) (c) as it stood after such substitution. Section 11AC of the CE Act has been the subject matter of decisions of the High Court as well as circulars of the CBEC which will be discussed hereafter, although as earlier noted, Section 11 AC of the CE Act does not ipso facto apply to the levy of penalty under the Finance Act, 1994 .....

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of ₹ 2,73,488 constituting the duty in respect of the said goods. The SCN issued to the Assessee mentioned in para 8 about the said debit entry and the fact that it had been made voluntarily and admittedly" by the Assessee. In the adjudication order, while confirming the duty, a penalty equivalent to 100% of the duty was levied under Section 11AC of the CE Act. After losing the appeal before the CESTAT, the Assessee contended before this Court that in view of the first proviso to Sec .....

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been denied that benefit at the appellate stage only because it failed to pay the reduced penalty within 30 days of the date of communication of the adjudication order. This Court in K. P. Pouches (P) Ltd. v. Union of India (supra) further observed as under: 27. To obviate any similar situation from arising in future, we are of the opinion that in its adjudication order the adjudicating authority under the Act should explicitly state the options available to the Assessee under Section 11AC of t .....

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herever penalty is imposed under Section 11AC of the CE Act, the provisions contained in first and second proviso to Section 11AC should be mandatorily mentioned in the Order-in-Original itself by the adjudicating authority. 16. It appears that thereafter a situation arose where a Commissioner (Appeals) allowed the benefit of the proviso to Section 11AC of the CE Act at the appellate stage and permitted an Assessee to pay reduced penalty of 25% within 30 days of the communication of the order of .....

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days of the communication of the order passed by the adjudication authority. It was further clarified that only where penalty was enhanced at the appellate stage that in case of the 25% of the differential amount the penalty can be paid within 30 days of the order and not otherwise. 17. The same issue arose again in this Court in Sri Sai Enterprises v. Commissioner of Central Excise (2013) 288 ELT 40 (Del). This was a case where the Assessee failed to make payment of the service tax and interes .....

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iance of Section 11AC, the said grievance should have been raised at the earliest opportunity. The Appellant should have deposited the duty amount. Effectively, therefore, the decision in K. P. Pouches (P) Ltd. (supra) has been limited to a situation where the entire excise duty leviable has been paid upfront by the Assessee even before issuance of the SCN. 18. In CCE, Raigad v. Castrol India Ltd. 2012 (286) ELT 194 (Bom HC), the Bombay High Court took note of the decision of this Court in K. P. .....

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he availability of paying 25% penalty, the Assessee cannot agitate that there is violation of the statutory provisions contained in Section 11AC and it will not be open to the appellate authority or the Courts to permit the Assessee to pay 25% penalty beyond the time prescribed under Section 11AC. The Bombay High Court, therefore, set aside an order of the CESTAT permitting the Assessee to pay 25% of the penalty within 30 days from the date of communication of the order of its order. 19. When a .....

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pay the reduced within 30 days of the order of the CESTAT. 20. The Gujarat High Court at this stage took note only of, and chose to follow, its earlier decisions in CCE v. Akash Fashion Prints Pvt. Ltd. 2009 (239) ELT 439 (Guj) and CCE v. M/s. Krishnaram Dyeing & Finishing Works 2013 (298) ELT 376 (Guj). Soon thereafter it again dealt with the issue in Commissioner of Central Excise v. Rajeshree Dyeing & Printing Mills (P) Ltd. 2014 (305) ELT 442 (Guj). This time the Gujarat High Court t .....

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self, nobody can be permitted to plead ignorance of the law." However, it was observed that "we need not be oblivious of stark reality" and that "it would not be too much to expect the Revenue to spell out the fulfilment of such requirements in the order itself." On the facts of the case in Rajeshree Dyeing & Printing Mills (P) Ltd. (supra), the Gujarat High Court noted that despite the adjudication order spelling out the availability of the option of payment of redu .....

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adjudication order the option available to an Assessee of paying reduced penalty, that option cannot be made available at the appellate stage by permitting the Assessee to pay the reduced penalty within 30 days of the order of the appellate authority. 22. As far as Section 78 (1) read with Section 83 of the Finance Act, 1994 is concerned, apart from the fact that Section 11AC of the CE Act is not ipso facto applicable, the circular of the CBEC issued in the context of that provision requiring th .....

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ate authority to give such an option at the appellate stage. 23. It appears to the Court that the very object of extending to an Assessee the option of availing the benefit of payment of reduced penalty in terms of the second proviso to Section 78 (1) of the Finance Act 1994 was to provide an incentive for prompt payment of the service tax and interest that is due. When an Assessee does not wish to contest the service tax liability or even when it wishes to contest such liability, but is prepare .....

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tax, interest and penalty is proposed to be raised. There can be no question, therefore, of the Assessee being unaware of the provisions of the statute. It is also very likely that in the adjudication proceedings the Assessee, who invariably has an authorised representative to put across its case to the adjudicating authority, will make a reference to the statutory provisions. In particular if the submission relates to penalty it is unlikely that an Assessee will not even refer to the relevant s .....

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cation mentioning the statutory provision and the time period within which an Assessee may, if it so chooses, file an appeal. However, even if the covering letter failed to mention it, an Assessee would not be able to plead ignorance of such provision and seek extension of the period of limitation on that score. Even for the purposes of an appeal, the date on which an order is 'communicated' to the party who seeks to file the appeal is the crucial date. That period cannot get extended on .....

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