2014 (9) TMI 218 - HC - Service Tax

Levy of penalty where service tax and interest was deposited before passing of the order in original - manpower recruitment and supply of agency service - penalty under sections 77 and 78 - Held that - the conduct of the appellant in paying the entire amount of service tax dues together with interest even before the order of adjudication was passed is a factor which must weigh in the balance. The fact that the service tax was deposited even before the order of adjudication was passed was taken note of by the Assistant Commissioner in the order dated 24 November 2011. In these circumstances, we are of the view that no case for the imposition of a penalty was made out. In the present case, the Tribunal in its impugned judgment and order decided the issue of taxability without entering into any specific finding in regard to whether the condition precedent for the imposition of a penalty had been established. We would have remanded the proceedings back to the Tribunal for a fresh consideration but in the present case we have noticed from the records that the quantum of the amount contemplated in the notice is only 74,675/- In the interest of bringing a finality to the matter and in order not to burden the Tribunal by directing a fresh consideration in regard to a matter involving a small amount, we have considered it appropriate, by consent, to consider the issue as to whether the imposition of a penalty was warranted. - penalty waived - decided in favor of assessee.

Issues Involved:
1. Justification of penalty imposition under sections 77 and 78 of the Finance Act, 1994.
2. Appropriateness of the Tribunal's reliance on the judgment in the case of Neelav Jaiswal & Brothers vs. C.C.E. Allahabad.

Detailed Analysis:

1. Justification of Penalty Imposition under Sections 77 and 78 of the Finance Act, 1994:

The appellant was issued a show cause notice on 29 September 2010 for non-payment of service tax amounting to Rs. 74,675/- for the period from April 2005 to March 2010. The Assistant Commissioner confirmed the demand and imposed penalties under sections 77 and 78 of the Finance Act, 1994. The appellant had already deposited the service tax amount along with interest before the adjudication order was passed. Despite this, penalties were imposed for violations of sections 69 and 70, and an additional penalty under section 78, which could be reduced to 25% if paid within thirty days.

The appellant argued that there was no fraud, collusion, willful misstatement, or suppression of facts to justify the penalties under section 78. They also highlighted that the payment of service tax and interest before the adjudication order demonstrated their bona fides. Furthermore, a mass unawareness among service providers regarding the service tax liability on provident fund components was noted by the Joint Commissioner (Adjudication), Central Excise, Allahabad.

The court observed that section 78 provides for penalties in cases of fraud, collusion, willful misstatement, suppression of facts, or intent to evade payment of service tax. Section 80 allows for no penalty if the assessee proves reasonable cause for failure. The appellant's conduct in paying the dues before the adjudication order and the noted mass unawareness were significant factors. The court referenced the Supreme Court's principle that mere failure to declare does not amount to willful suppression, requiring a positive act from the assessee.

Given these considerations, the court concluded that there was no intent to evade payment of service tax, and thus, the imposition of penalties was not justified.

2. Appropriateness of the Tribunal's Reliance on the Judgment in the Case of Neelav Jaiswal & Brothers vs. C.C.E. Allahabad:

The Tribunal had relied on its earlier decision in Neelav Jaiswal & Brothers vs. C.C.E. Allahabad, where it was held that the taxable value under section 67 includes the gross amount charged by the service provider, including statutory liabilities like provident fund dues. The appellant did not contest the issue of taxability but focused on the penalty aspect.

The court noted that while the Tribunal's reliance on the earlier judgment was appropriate for determining taxability, it did not specifically address whether the conditions for imposing a penalty were met. Given the small amount involved and to avoid burdening the Tribunal with a fresh consideration, the court decided to address the penalty issue directly.

The court found that the appellant's actions and the context of mass unawareness justified the absence of intent to evade tax. Therefore, the penalties under sections 77 and 78 were not warranted.

Conclusion:

The court answered the questions of law in favor of the appellant, stating that the imposition of penalties was not justified. The appeal was disposed of without any order as to costs.

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