2012 (11) TMI 697 - AT - Service Tax

Refund of the penalty paid penalty set aside Held that - In the case of penalties the burden to show that the penalty has been passed on to another person is on the department and not on the assessee as in the case of duty - penal liability can never be passed on to another person who has not committed the offence - department has to prove that unjust enrichment would mean that some extra effort is required in addition to merely looking at the balance sheet or profit & loss account on the part of the department In favor of assessee

Summary

Issues Involved:
- Eligibility for refund of penalty paid after penalties were set aside in appeal proceedings.
- Application of unjust enrichment principle to penalty.
- Burden of proof regarding passing on of penalty liability.

Eligibility for Refund of Penalty:
The central issue in this case was whether the appellant was entitled to a refund of the penalty paid by them after the penalties had been set aside in the appeal proceedings. The appellant had claimed a refund of Rs.81,799/- along with interest of Rs.6,000/-, which had been credited to the Consumer Welfare Fund on the grounds that the appellant had not demonstrated that the liability had not been passed on. The appellant argued that since the penalty amount had been shown as an expenditure but disallowed during the assessment, it should be presumed that the liability had not been passed on. The appellant relied on various decisions to support their case, emphasizing that the principles of unjust enrichment should not apply to penalties. The Tribunal ultimately found in favor of the appellant, allowing the appeal and granting consequential relief.

Application of Unjust Enrichment Principle to Penalty:
A key aspect of the case revolved around the application of the unjust enrichment principle to penalties. The appellant contended that penalties should be treated differently from duties and interest, and the burden of proof regarding passing on the penalty liability should lie with the department, not the assessee. The appellant cited decisions and observations from the Hon'ble High Court of Bombay to support their argument that the unjust enrichment principle should not apply to penalties. The Tribunal analyzed the various arguments presented and ultimately agreed with the appellant's position, highlighting that penal liability cannot be transferred to another person who has not committed the offense. The Tribunal's decision emphasized the need for the department to prove unjust enrichment in cases of penalties, distinct from duties.

Burden of Proof Regarding Passing on of Penalty Liability:
Another critical issue addressed in the judgment was the burden of proof concerning the passing on of penalty liability. The appellant argued that once the penalty amount is shown as an expenditure, it should be presumed that the burden has not been passed on, similar to the treatment of duties and interest. The Tribunal, however, disagreed with this view, emphasizing that penal liability cannot be transferred to another person who did not commit the offense. The Tribunal's decision underscored the necessity for the department to demonstrate unjust enrichment in penalty cases, requiring additional effort beyond merely examining financial statements. The judgment highlighted the appellant's ability to present a compelling case supported by relevant legal precedents, ultimately leading to the allowance of the appeal and granting relief to the appellant.