2011 (2) TMI 18 - AT - Service Tax

Penalty - penalty lower than the minimum prescribed - respondent had paid the service tax during the disputed period Refund - case of revenue-neutrality, involving no intention to evade tax - exercise of discretion under Section 80 of the Finance Act by the Commissioner (Appeals) was justified - respondents not in appeal and they have also not filed cross objection - In the absence of appeal by the respondent, there is, of course, no scope for setting aside penalty of Rs.50,000/- - no justification for enhancement of the penalty from Rs.50,000/- to Rs.1,49,758/- as sought for by the department - appeal by the department, rejected

Summary

Issues: Reduction of penalty under Section 76 of the Finance Act by the Commissioner (Appeals).

Analysis:
The appeal before the Appellate Tribunal CESTAT, CHENNAI involved a dispute over the reduction of penalty under Section 76 of the Finance Act by the Commissioner (Appeals). The respondent, a manufacturer of Oleoresin engaged foreign commission agents for export orders and paid a commission, leading to service tax demands and a penalty imposition. The Commissioner (Appeals) reduced the penalty from Rs.1,49,758 to Rs.50,000. The department appealed, arguing that the penalty could not be reduced below the minimum prescribed. The department cited decisions from the Hon'ble High Court of Gujarat to support its position. The respondent contended that as an exporter, they were confused about the service tax liability and could have claimed a refund if paid. They argued for invoking Section 80 to set aside the penalty entirely. The Tribunal considered both sides' submissions and records. It noted that while the penalty could not be lower than the minimum prescribed, the circumstances warranted invoking Section 80 due to the revenue-neutrality and lack of tax evasion intent. The Tribunal found no grounds to enhance the penalty and rejected the department's appeal, maintaining the penalty at Rs.50,000.

This case highlights the balance between penalty imposition and discretion under Section 76 of the Finance Act. The Tribunal acknowledged the department's argument on the minimum prescribed penalty but also considered the respondent's confusion as an exporter and the potential for a refund if the tax was paid. The Tribunal emphasized the concept of revenue-neutrality and lack of tax evasion intent in justifying the Commissioner (Appeals)'s discretion under Section 80. Despite recognizing the justification for invoking Section 80, the Tribunal noted the absence of an appeal or cross-objection by the respondent, limiting the scope for setting aside the penalty entirely. Ultimately, the Tribunal rejected the department's appeal, maintaining the penalty at Rs.50,000 based on the specific circumstances of the case.