2010 (11) TMI 595 - HC - Service Tax

Appeal u/s 35G - Penalty - Business Auxiliary Service - Scrutiny - Whether the penalty under section 78 of the Finance Act, 1994 can be reduced below the minimum limit prescribed by invoking section 80 of the Finance Act, 1994 - in the case of Commissioner, Central Excise and Customs v. Port Officer 2010 -TMI - 77834 - GUJRAT HIGH COURT rendered on 8th July, 2010 in Tax Appeal No. 1367 of 2009 - The Court held that on a conjoint reading of Section 76 and Section 80 of the Finance Act, 1994, it is not possible to envisage a discretion as being vested in the authority to levy penalty below the prescribed limit. If the authority imposing the penalty is not entitled to levy below the minimum prescribed, the appellate Court and the Tribunal cannot read the provision so as being vested with such powers, namely, to reduce the penalty below the minimum prescribed. The Court accordingly answered the question in the negative.The penalty under Section 78 of the Finance Act, 1994 cannot be reduced below the minimum prescribed by invoking Section 80 of the Finance Act, 1994.- Appeal is allowed by way of remand to Tribunal.

Summary

Issues involved:
1. Reduction of penalty under Section 78 of the Finance Act, 1994 below the minimum limit prescribed by invoking Section 80.
2. Entitlement of the Tribunal to conclude regarding the unawareness of tax liability/bona fide based on the fact of collecting Service Tax.

Issue 1: Reduction of penalty under Section 78 of the Finance Act, 1994 below the minimum limit prescribed by invoking Section 80:
The case involved an appeal under Section 35G of the Central Excise Act, 1944, where the appellant revenue challenged an order made by the Tribunal proposing questions related to the reduction of penalties under Section 78 of the Finance Act, 1994. The respondent, a company holding service tax registration, had not paid service tax amounting to Rs. 4,81,121 to the Government on the received commission income/job charges. The Adjudicating Authority confirmed the service tax and imposed penalties under Sections 77 and 78. The Commissioner (Appeals) reduced the penalty under Section 78 to Rs. 1,00,000 by invoking Section 80. The revenue contended that the authority had no discretion to impose a lesser penalty than provided under Section 78. The Court referred to a previous decision and held that Section 80 overrides other penalty provisions and does not allow for a reduced penalty below the prescribed limit. The Court answered the question in the negative, stating that the penalty under Section 78 cannot be reduced below the minimum prescribed by invoking Section 80.

Issue 2: Entitlement of the Tribunal to conclude regarding the unawareness of tax liability/bona fide:
Despite notice, the respondent did not appear, and the question arose whether the Tribunal was entitled to conclude on the unawareness of tax liability or bona fide based on the fact that Service Tax was collected. The Court referred to a previous decision where it was held that the onus to establish a reasonable cause is on the assessee, and if established, no penalty is imposable. The Court emphasized that the provision does not allow for a reduced penalty even if a reasonable cause is established. The Court concluded that the Tribunal was not entitled to reduce the penalty below the minimum prescribed by invoking Section 80. The appeal was allowed, the Tribunal's order was quashed, and the case was restored for a fresh decision in light of the Court's decision.

In conclusion, the judgment addressed the issues of reducing penalties under Section 78 of the Finance Act, 1994 below the minimum limit prescribed by invoking Section 80 and the Tribunal's entitlement to conclude on the unawareness of tax liability or bona fide. The Court clarified that Section 80 does not permit a reduced penalty below the prescribed limit and emphasized that the onus to establish a reasonable cause is on the assessee. The Tribunal was not entitled to reduce the penalty below the minimum prescribed, leading to the appeal being allowed and the case being restored for a fresh decision.