2010 (8) TMI 270 - HC - Service Tax

Penalty - imposition of penalty under sections 76 and 78 of the Act is not automatic authorities should not impose the penalty which includes imposition of penalty less than prescribed under law - depending upon the reasonable cause to be shown for the failure to pay the penalty

Summary

Issues:
Jurisdiction of authorities to reduce penalties under sections 76 and 78 of the Finance Act, 1994.

Analysis:
The appeal by the revenue challenged the reduction of penalties imposed by the Assessing Authority under sections 76 and 78 of the Finance Act, 1994. The case involved a Security Agency that provided services to a government undertaking without paying the required service tax. The Assessing Authority imposed penalties under various sections of the Act, which the Appellate Authority partially reduced considering the timely payment of tax and interest by the assessee. The revenue appealed to the Tribunal, arguing that penalties should not be reduced as per the Act's provisions. The Tribunal dismissed the appeal, leading to the revenue's challenge before the High Court.

The revenue contended that penalties should not be reduced as the service tax was paid after the show-cause notice, contrary to the assumption made by the appellate authorities. They argued that once contravention and suppression of information are established, penalties under sections 76 and 78 should be imposed without discretion. The High Court analyzed the provisions of the Act and noted that penalties are not automatic, and authorities have the discretion to consider reasonable causes for failures to pay penalties. Therefore, the Appellate Authority had the jurisdiction to reduce the penalties imposed by the Assessing Authority based on the circumstances of the case.

The High Court observed that the assessee had promptly paid service tax for other clients but had doubts regarding the tax liability for services provided to the government undertaking. The assessee paid the tax after the show-cause notice, demanding payment from the government entity. The Court emphasized that the Appellate Authority's decision to reduce the penalties was a valid exercise of discretion, considering the circumstances and the provision allowing for penalties to be less than prescribed under the law based on reasonable causes. The Court upheld the decision of the Appellate Authority, dismissing the revenue's appeal and ruling in favor of the assessee.