2004 (10) TMI 1 - AT - Service Tax

Service Tax Appellant being under bona fide belief, failure to pay service tax Penalty Penalty when not imposable

Summary

Issues:
1. Conflict in views on the imposition of penalty under Section 76 of the Finance Act 1994 for failure to collect or pay service tax.
2. Interpretation of penalty provisions under Sections 76 and 77 of the Finance Act 1994.
3. Application of Section 80 for waiver of penalties if reasonable cause for failure is proven.

Detailed Analysis:

Issue 1:
The case was referred to the Larger Bench to resolve the conflict in views on the imposition of penalty under Section 76 of the Finance Act 1994. The appellants were engaged in providing services as Consulting Engineers but had not registered with the Department or paid service tax. The original authority confirmed the tax demand and imposed penalties under Sections 76 and 77. The appeal against the order of the Commissioner (Appeals) raised the question of whether the penalty should be Rs. 100/- per day in absolute terms or per day.

Issue 2:
The interpretation of penalty provisions under Sections 76 and 77 was a key point of contention. The appellant argued that Section 76 prescribed a minimum penalty of Rs. 100/- only, subject to a maximum of Rs. 200/- per day, based on previous Tribunal decisions and proposed amendments. However, the Revenue contended that Section 76 mandated a penalty not less than Rs. 100/- but which could extend to Rs. 200/- for each day of failure to pay service tax. The Tribunal analyzed the punctuation and legislative intent to determine the correct interpretation, ultimately deciding that the penalty under Section 76 should be not less than Rs. 100/- per day but could extend to Rs. 200/- per day.

Issue 3:
The application of Section 80 for waiver of penalties based on reasonable cause was crucial. The appellants, being manufacturers of Air Conditioning Systems, had cooperated with the investigation and paid the service tax but had doubts about the applicability of service tax to their activities as Consulting Engineers. The Tribunal found that there was a reasonable cause for their failure to deposit the service tax in time. Therefore, despite the provisions of Sections 76 and 77, the appellants were entitled to the benefit of Section 80, leading to the setting aside of the penalties imposed under Sections 76 and 77.

In conclusion, the Tribunal resolved the conflict in views on penalty imposition under Section 76, clarified the interpretation of penalty provisions under Sections 76 and 77, and applied Section 80 to waive penalties due to a reasonable cause for failure to pay service tax.