2011 (8) TMI 423 - HC - Service Tax

If the appellant had discharged its full duty and interest liability, that itself showed its bonafide or not. - Simultaneous penalties under both Sections 76 and 78 - The benefit of this Amendment in Section 78 by the Finance Act, 2008 - Held that - when the service tax/short-service tax was paid before the show cause notice, it was a bona fide error. - Decided in favour of Assesee. Regarding Penalty - Held that - there is bonafide error on the part of Appellant. therefore there is not question of penalty. decided in favour of Assessee. Regarding simultaneous penalty - penalty u/s 76 and u/s 78 - Amendment to section 78 - Held that - With this amendment the legal position now is that simultaneous penalties under both Section 76 and 78 of the Act would not be levied. However, since this amendment has come into force w.e.f. 10th May, 2008, it cannot have retrospective operation in the absence of any specific stipulation to this effect. Going by the nature of the amendment, it also cannot be said that this amendment is only clarificatory in nature.

Summary

Issues Involved:
1. Whether the Tribunal erred in upholding the penalty under Section 76 and reducing the penalty under Section 78 of the Finance Act, 1994.
2. Whether the Tribunal failed to appreciate the immediate payment of service tax by the appellant upon issuance of show cause notice.
3. Whether the Amendment in Section 78 by the Finance Act, 2008 should apply retrospectively, preventing simultaneous penalties under Sections 76 and 78.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Penalties under Sections 76 and 78:
The appellant challenged the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994. The Tribunal upheld the penalty under Section 76, which penalizes failure to pay service tax by the due date, and reduced the penalty under Section 78, which deals with suppression of taxable value, to 25% of the service tax demand. The Tribunal found that the appellant was paying service tax on the net commission instead of the gross commission, resulting in short payment. The Tribunal rejected the appellant's contention that penalties under both sections could not be imposed simultaneously, stating that the two sections are distinct and separate, and penalties can be imposed under both even if the offences arise from the same act.

2. Immediate Payment of Service Tax:
The appellant argued that the immediate payment of service tax upon issuance of the show cause notice, along with heavy interest, demonstrated their bona fides. The appellant contended that the shortfall in service tax payment was due to a misunderstanding of the calculation method and not due to any fraudulent intent. The Tribunal, however, did not accept this argument and upheld the penalties, noting that the appellant had deliberately mis-declared the taxable value in their ST-3 returns.

3. Retrospective Application of Amendment in Section 78:
The appellant argued that the Amendment in Section 78 by the Finance Act, 2008, which prevents simultaneous penalties under Sections 76 and 78, should apply retrospectively. The court held that the amendment is prospective and does not apply to past cases. The court referenced the Kerala High Court's decision in Asstt. CCE v. Krishna Poduval, which held that penalties under Sections 76 and 78 operate in different fields and can be imposed simultaneously. The court agreed with this view and stated that the amendment does not have retrospective effect.

Conclusion:
The court concluded that the penalties under Sections 76 and 78 were justified based on the appellant's actions. However, the court also found that the appellant had demonstrated bona fide conduct by paying the service tax and interest immediately after the issue was pointed out. The court referenced various judgments where penalties were set aside in similar circumstances. Ultimately, the court set aside the penalties imposed under Sections 76 and 78, ruling in favor of the appellant. The appeals were allowed, and no costs were imposed.