TMI Blog2017 (4) TMI 1180X X X X Extracts X X X X X X X X Extracts X X X X ..... so 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, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Steel and Power Limited, respondent No.3 herein, which are used for material handling in the plant for which the petitioner receives rent on yearly, monthly or trip basis for such supplies as per the agreement entered into with respondent No.3 herein and the petitioner was found involved to have been engaged in providing services of transportation of goods. Thereafter, on 21-10-2014, show cause notices were issued to the petitioner. Statement of authorised representative of the petitioner was recorded on 3-9-2014 in which it was stated by Mr. Jagdish Parulkar that they are engaged in supply of tangible goods service with M/s. Nalwa Steel and Power Limited and two other companies and they have obtained service tax registration on 13-6-2014 for supply of tangible goods and they did not obtain service tax registration in time because they understood that the work at M/s. Nalwa Steel and Power Limited is the transportation work. They have neither claimed service tax nor collected the same from M/s. Nalwa Steel and Power Limited respondent No.3. The service tax liability for the services provided to respondent No.3 against supply of tangible goods service has not been discharged on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion has been filed by the petitioner herein stating inter alia that imposition of penalty to the petitioner by the impugned order is unsustainable and bad in law. 3. Return has been filed by the Department opposing the writ petition. 4. Mr. Vaibhav Shukla, learned counsel appearing for the writ petitioner, would vehemently submit that the petitioner 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 Finance Act, 1994, which is exempted from service tax liability under Section 66D of the Finance Act. He would further submit that after notice of investigation, the petitioner found that the services rendered by it are taxable as per Section 66E (f) of the Finance Act as supply of tangible goods and the petitioner voluntarily and without recovering the amount from respondent No.3, immediately made payment of service tax on 28-6-2014 which was paid to the petitioner later by respondent No.3 and also paid the amount of interest liability on 28-6-2014 without waiting to obtain the same from the service recipient i.e. respondent No.3, as such, there is no attempt on the part of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x, the person, liable to pay such service tax or erroneous refund, 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 shall be reduced to fifty per cent of the service tax so not levied or paid or short-levied or short-paid or erroneously refunded: Provided further that where such service tax and the interest payable thereon is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under the first proviso shall be twenty-five per cent. of such service tax: Provided also that the benefit of reduced 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for short-levy or non-levy of duty in certain cases.-(1) The amount of penalty for non-levy or short-levy or non-payment or short payment or erroneous refund shall be as follows:- (a) where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reasons of fraud or collusion or any willful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to the duty so determined; (b) where details of any transaction available in the specified records reveal that any duty of excise has not been levied or paid or has been shortlevied or short-paid or erroneously refunded as referred to in sub-section (5) of section 11A, the person who is liable to pay duty as determined under sub-section (10) of section 11A shall also be liable to pay a penalty equal to fifty per cent. of the duty so determined; (c) where any duty as determined under subsection (10) of section 11A and the interest p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill not also be imposed merely because it is lawful to do so. In spite of a minimum penalty prescribed, the authority competent to impose the penalty may refuse to impose the penalty if the breach complained of was a technical or venial breach, flew from a bona fide though mistaken belief. (See Karnataka Rare Earth anr. v. Senior Geologist, Department of Mines Geology (2004) 2 SCC 783 and Bharjatya Steel Industries v. Commissioner, Sales Tax, UP (2008) 11 SCC 617.) 13. Penalty imposable under Section 11AC of the Act of 1944 has been considered by the Supreme Court in the matter of Union of India v. Rajasthan Spinning and Weaving Mills (2009) 13 SCC 448 relying upon its earlier decision in the matter of Cosmic Dye Chemical v. CCE (1995) 6 SCC 117 and it has been held that suppression or mis-statement of facts must be willful to constitute a ground for the purpose of Section 11AC of the Act of 1944 and mis-statement or suppression of facts must be willful and the condition precedent for imposition of penalty is that the authority would have to be satisfied that non-payment or short payment of duty was deliberate with intent to avoid payment of duty. In paragraph 29 of the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a consideration of the terms of the statute and other relevant circumstances it clearly appears that that must have been the intention of Parliament. [See the decision of the House of Lords in Vane v. Yiannopoullos, (1964) 3 All ER 820, and the opinion of Lord Reid at page 823]. 15. Similarly, in the matter of Commissioner of Central Excise, Calcutta-II v. Indian Aluminium Company Limited (2010) 15 SCC 167, Their Lordships of the Supreme Court have categorically held by relying upon the judgment of the Supreme Court in Rajasthan Spinning and Weaving Mills case (supra) that unintentional and bona fide non-payment of duty does not entail penalty under Section 11-AC of the Act of 1944. Identically, in the matter of Commissioner of Central Excise, Vapi v. Kisan Mouldings Limited (2010) 15 SCC 100, following the ratio of Rajasthan Spinning and Weaving Mills case (supra), the Supreme Court has held that that since it is a case of bona fide mistake and there was no intention to evade tax by the respondent, penalty was rightly not imposed. 16. Thus, it is quite vivid that presence of mens rea is absolutely necessary ingredient for imposing penalty under Section 78 of the Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner to evade the tax. Otherwise, there is no reason for the Settlement Commission to grant immunity to the petitioner from criminal prosecution. As held by the Supreme Court in Pepsi Foods Ltd. case (supra) and Rajasthan Spinning and Weaving Mills case (supra), presence of mens rea is a necessary constituent for imposing penalty under Section 78 of the Finance Act, 1994, which is absolutely absent in the present case and there is no intention to evade tax by the petitioner, it was a bona fide mistake on its part which it immediately rectified on being noticed particularly, in view of the fact that the Settlement Commission has granted immunity to the petitioner from prosecution under the Finance Act, 1994 and the Rules made thereunder. 19. Therefore, this Court is of the considered opinion that 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 Finance Act, 1994 deserves to be quashed. 20. Resultantly, the writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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