2011 (3) TMI 628 - AT - Service Tax

Penalty - In absence of charge in show cause notice, the adjudication having travelled beyond show cause notice, the penalty imposed under section 78 of the Finance Act, 1994 is not sustainable - CBEC Circular No. 87/05/2006-S.T., dated 6th November, 2006 - At the infancy stage of law, several controversies arose that is a reasonable cause that comes to the rescue of the appellant. We consider it proper that the present case in hand is a fit case for invoking Section 80 of the Finance Act, 1994 - procedure should not prevent substantive justice when money has gone to the treasury and procedure should also not be tyrant but subordinate to legislation - Appeal is allowed

Summary

Issues:
1. Levy of penalty under Section 78 of the Finance Act, 1994 without mention in the show cause notice.
2. Penalty under Section 76 of the Finance Act, 1994 for non-registration and service tax levy.
3. Levy of penalty under Section 77 of the Finance Act, 1994 for failure to register.
4. Education cess imposition without proper verification of return errors.

Analysis:

Issue 1: Levy of Penalty under Section 78
The appellant contested that penalty under Section 78 was unjustly imposed as it was not mentioned in the show cause notice. The Tribunal acknowledged that the show cause notice did not propose such a penalty, depriving the appellant of a chance to defend against it. Consequently, the penalty under Section 78 was deemed unsustainable and set aside.

Issue 2: Penalty under Section 76
Regarding the penalty under Section 76 for non-registration and service tax levy, the appellant argued that the confusion in the law, clarified by a CBEC Circular, justified their actions. The Tribunal agreed that the appellant acted in good faith due to uncertainties in the law, invoking Section 80 of the Finance Act, 1994 to waive the penalty under Section 76.

Issue 3: Penalty under Section 77
The penalty under Section 77 for failure to register was upheld by the Tribunal. Despite facing proceedings under Section 73, the appellant's failure to register was considered deliberate, leading to the confirmation of the penalty of Rs. 1,000.

Issue 4: Education Cess Imposition
Regarding the education cess imposition, the Tribunal directed the adjudicating authority to reconcile returns with challans to verify payments made by the appellant. Emphasizing substantive justice, the Tribunal instructed proper consideration of payments to ensure that the amounts due are accurately calculated. The Tribunal highlighted the importance of following procedural justice without being overly rigid, allowing the appeal partially with these directions.

In conclusion, the Tribunal set aside the penalty under Section 78, waived the penalty under Section 76, confirmed the penalty under Section 77, and instructed a thorough verification of education cess payments for accurate assessment.