2014 (12) TMI 327 - AT - Service Tax

Penalty u/s 78 - Default due to ill management of sick industrial unit - Held that - It is a case of sick industrial unit. The default had occurred during the management of sick industrial unit. The unit was taken over but the appellant could not run it profitably and accordingly they surrendered the lease after a period of about 17 months. It is evident that the appellant was somehow trying to run the sick unit which resulted in unintentional default in service tax. In view of the above, it is a fit case for invoking the provisions of Section 80 and setting aside the penalty under Section 78 of the Finance Act. Thus, the penalty under Section 78 is set aside - Decided in favour of assessee.

Summary

Issues:
1. Appellant's liability for service tax compliance during the management of a sick industrial unit.
2. Applicability of penalty under Section 78 of the Finance Act.
3. Invocation of provisions of Section 80 for setting aside the penalty.

Issue 1:
The appellant, a sugar mill in the co-operative sector, leased a sick unit from a bank in 2006. The lease required retaining the old staff of the unit. After surrendering the unit back to the bank in 2008 due to profitability issues, the appellant argued that lapses in service tax compliance were inadvertent, with no intentional breach of law. The appellant paid the service tax and interest post-appellate order. The tribunal acknowledged the appellant's efforts to turn around the sick unit, leading to unintentional default in service tax compliance. Consequently, the tribunal found it appropriate to set aside the penalty under Section 78 of the Finance Act, considering the circumstances of managing a sick industrial unit.

Issue 2:
The tribunal examined the applicability of the penalty under Section 78 of the Finance Act in the context of the appellant's case involving a sick industrial unit. Despite the default in service tax payment, the tribunal noted the absence of contumacious activity or conscious breach of law by the appellant. Given the appellant's efforts to operate the sick unit and subsequent surrender due to unprofitability, the tribunal invoked the provisions of Section 80 to set aside the penalty under Section 78. This decision was based on the understanding that the default arose unintentionally during the management of the sick unit, justifying the leniency in penalty imposition.

Issue 3:
In light of the appellant's situation managing a sick industrial unit and the unintentional default in service tax compliance, the tribunal deemed it appropriate to utilize the provisions of Section 80 to waive the penalty under Section 78 of the Finance Act. The tribunal recognized the appellant's actions in attempting to operate the sick unit and ultimately surrendering it to the bank after facing profitability challenges. By setting aside the penalty, the tribunal balanced the enforcement of tax regulations with the unique circumstances of the appellant's case, emphasizing the leniency warranted in situations involving sick industrial units. Consequently, the tribunal allowed the appeal in part and disposed of the stay application.

This detailed analysis of the judgment outlines the issues addressed by the tribunal regarding the appellant's liability for service tax compliance, the application of penalties under the Finance Act, and the invocation of relevant provisions to set aside the penalty in the context of managing a sick industrial unit.