2010 (12) TMI 394 - AT - Service Tax

Cenvat Credit - Demand - Penalty - In view of no element of mens rea present in the present case and presence of the elements for penalty being sine qua non, this appellant should not suffer penalty as consequence under Section 76 and 78 of the Finance Act 1994 for no factual finding about contumacious conduct of the appellant to cause loss of Revenue - It is needless to mention that for the period of default, interest is to be payable by the appellant on the demand arose, consequent upon giving effect to the first appellate order - Both stay and appeal are disposed

Summary

Issues:
1. Reduction of service tax demand and set off of Cenvat Credit.
2. Applicability of penalty under Section 77 of the Finance Act 1994.
3. Interpretation of penalty under Sections 76 and 78 of the Finance Act 1994.

Analysis:

Issue 1: Reduction of service tax demand and set off of Cenvat Credit
The appellant contested a service tax demand initially of Rs. 3,72,105/-, which was reduced to Rs. 2,08,158/- in the first appellate order. Subsequently, a Cenvat Credit set off further reduced the demand by Rs. 1,42,542/-. The appellant paid an additional amount of Rs. 75,000/- to clear the remaining demand. The counsel argued that since the appellant received substantial relief in the first appeal, no further penalty should be imposed due to the absence of mala fide intention. The Tribunal acknowledged the payments made by the appellant and disposed of the appeal without requiring any pre-deposit.

Issue 2: Applicability of penalty under Section 77 of the Finance Act 1994
The Department contended that penalties should apply for late filing of returns and default in tax payments under Section 77 of the Finance Act 1994. The Tribunal upheld a penalty of Rs. 4,000/- as decided by the Appellate Authority. However, regarding penalties under Sections 76 and 78, the Tribunal disagreed with the Appellate Authority's interpretation based on a Supreme Court decision. It noted that the absence of mens rea and contumacious conduct meant the appellant should not face penalties under Sections 76 and 78. The Tribunal emphasized that penalties should not be levied without factual findings of deliberate misconduct causing revenue loss.

Issue 3: Interpretation of penalty under Sections 76 and 78 of the Finance Act 1994
The Tribunal clarified that penalties under Sections 76 and 78 should not be automatically imposed without evidence of intentional wrongdoing leading to revenue loss. Citing a Supreme Court ruling, the Tribunal emphasized the necessity of mens rea and contumacious conduct for penalties under these sections. Since these elements were absent in the present case, the Tribunal ruled in favor of the appellant, providing partial relief by dismissing penalties under Sections 76 and 78. Interest payment on the demand arising from the first appellate order was deemed necessary for the period of default.

In conclusion, the appeal succeeded partially, with the appellant receiving relief from penalties under Sections 76 and 78. The Tribunal highlighted the importance of factual findings and the presence of mens rea for imposing penalties under the Finance Act 1994, ensuring a fair and just application of the law.