2010 (10) TMI 135 - HC - Service Tax

Penalty - penalty under Section 76 of the Finance Act, 1994 can be reduced below the minimum limit prescribed - Whether the penalty under Section 76 of the Finance Act, 1994 can be dropped without invoking section 80 - in, law was entitled to come to a conclusion regarding the unawareness regarding tax liability/bona fide on the face of the fact that they had collected Service Tax - conjoint reading of Sections 76 and 80 of the Act, it is not possible to envisage a discretion as being vested in the authority to levy a penalty below the minimum prescribed limit Order upholding reduction of penalty set aside

Summary

Issues:
1. Whether the penalty under Section 76 of the Finance Act, 1994 can be reduced below the minimum limit prescribed?
2. Whether the penalty under Section 76 of the Finance Act, 1994 can be dropped without invoking section 80 of the Finance Act, 1994?
3. Whether the Tribunal was entitled to conclude regarding the unawareness of tax liability despite collecting Service Tax?

Analysis:
The appellant-revenue filed a tax appeal under Section 35G of the Central Excise Act, 1944, raising substantial questions of law for determination. The respondent, engaged in providing "Business Auxiliary Service," faced penalties for late payment of service tax and late filing of ST-3 returns. The Adjudicating Authority imposed penalties under Sections 76 and 77 of the Finance Act, 1994. The respondent appealed to the Commissioner (Appeals), who reduced the penalty under Section 76 invoking Section 80 of the Act. Subsequently, the appellant appealed to the Tribunal challenging the penalty reduction under Section 76.

In a related case, the High Court had previously quashed a Tribunal order and restored the matter for fresh consideration. The Court clarified that authorities cannot levy penalties below the minimum prescribed limit under Sections 76 and 80 of the Act. Consequently, the current Tribunal order was set aside, and the matter was remanded for reevaluation based on the Court's previous decision.

Therefore, the High Court, following its earlier ruling, quashed the Tribunal's order in the present case and directed a fresh assessment in line with the legal observations made in the prior judgment. The tax appeal was disposed of accordingly.