2016 (2) TMI 1035 - AT - Service Tax

Imposition of penalty u/s 76 and 78 of the FA - delayed payment of tax - financial difficulties - Held that - The poor financial situation of the appellant company is established by the documents submitted by the appellant - The Tribunal in the case of Ramanasekar Steels Ltd Vs CCE Chennai 2007 (10) TMI 28 - CESTAT CHENNAI exonerated the appellants from the penalty imposed u/s 76 as the company was not in a position to discharge the liability of tax as the company was declared as a sick company - penalty set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Imposition of penalty under Section 76 of the Finance Act, 1994; Appeal against the penalty under Section 76 and Section 78; Consideration of financial difficulties as a reasonable cause for non-payment.

Analysis:
1. The appellant contested the penalty under Section 76 of the Finance Act, 1994, due to financial difficulties leading to delayed service tax payments. The appellant, registered with the Service Tax Department, faced challenges in paying the tax, which resulted in the imposition of penalties. The original authority confirmed the penalty under Section 76 but dropped the penalty under Section 78 due to no malafide intention to evade tax payment.

2. The appellant's representative argued that financial constraints, especially delays in receiving payments from government agencies like BSNL, caused the default. The appellant's financial situation was worsened by liabilities towards banks, exceeding credit limits, and debt restructuring by a consortium of banks. The appellant maintained transparency by disclosing liabilities in ST-3 returns, seeking relief under Section 80 of the Finance Act, 1994.

3. Conversely, the department's representatives contended that the penalty under Section 76 was justified, emphasizing the default in service tax payment. They disagreed with the original authority's decision to not impose penalty under Section 78, advocating for its imposition.

4. The Tribunal considered both parties' arguments and reviewed relevant legal precedents, including the distinction between tax, interest, and penalty. Referring to judgments like Pratibha Processors Vs UOI and cases of Ramanasekar Steels Ltd and Ralson Carbon Black Ltd, the Tribunal concluded that the appellant's financial crisis constituted a reasonable cause for non-payment. Consequently, the Tribunal set aside the penalty under Section 76, allowing the appeal, while dismissing the department's appeal against dropping the penalty under Section 78.

5. In conclusion, the Tribunal's decision highlighted the importance of considering financial difficulties as a valid reason for delayed tax payments and the applicability of Section 80 in such cases. The judgment provided relief to the appellant based on the established reasonable cause for non-payment, emphasizing the compensatory nature of interest and penal character of penalties in fiscal statutes.