2015 (1) TMI 812 - HC - Service Tax

Imposition of penalty - Invocation of Section 80 - Held that - there is a case of wilful suppression and concealment of value of taxable services. Therefore, the plea of reasonable cause has been negatived by the original authority and the same has not been challenged by the appellant. In such circumstances, there can be no question of invocation of Section 80 of the Act. In view of the above, the Tribunal is fully justified in upholding the penalty order passed under Section 78 of the Act. On the facts of the case, if there is a finding of wilful suppression and concealment of value, there is no question of invocation of Section 80 of the Act. The lower authority rightly declined to exercise the power under Section 80 of the Act and the Commissioner was correct in seeking revision of that order and in the light of the said provision of law the order of the Tribunal is fully justified in the facts of the case. - Decided against assessee.

Summary

Issues Involved:
1. Whether the penalty is imposable where the tax is paid before issuance of show cause notice.
2. Whether lower authorities were right in not exercising their power under Section 80 of the Finance Act.

Detailed Analysis:

1. Imposability of Penalty When Tax is Paid Before Show Cause Notice:

The appellant, a service provider in outdoor catering, was issued a show cause notice for service tax dues, leading to a demand for Rs. 2,65,429/- including education cess, and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant accepted the adjudication order without appeal. However, the department revised the penalty under Section 78, imposing it equal to the tax liability due to a finding of wilful suppression.

The Tribunal upheld the revised penalty under Section 78, citing wilful suppression. The appellant contended that penalties should not be imposed if the tax is paid before the show cause notice. The Court referred to the Supreme Court's decision in *Union of India v. Dharamendra Textile Processors* and *Union of India v. Rajasthan Spinning & Weaving Mills*, which clarified that penalties under Section 11AC of the Central Excise Act are mandatory and leave no discretion. This principle was applied to the Finance Act, 1994, affirming that penalties are imposable even if tax is paid before the show cause notice. This Court also referenced its own decisions in *Commissioner of Central Excise v. Eurotherm Del India Ltd.* and *Commissioner of Central Excise v. Drums and Barrels Madras Pvt. Ltd.*, which supported the mandatory nature of penalties. Thus, the first question of law was resolved against the assessee.

2. Non-Exercise of Power Under Section 80 of the Finance Act:

Section 80 of the Finance Act allows for non-imposition of penalties if the assessee proves reasonable cause for failure. The original authority found wilful suppression and concealment of taxable service value, negating any reasonable cause. This finding was unchallenged by the appellant. The Tribunal upheld the penalty under Section 78, stating that Section 80 could not be invoked in cases of wilful suppression. The Court agreed, noting that the lower authority correctly declined to exercise power under Section 80, and the Commissioner was justified in revising the order. Consequently, the second question of law was also resolved against the assessee.

Additional Considerations:

The Tribunal remanded the issue of penalty under Section 76 to the Commissioner for re-determination, allowing the appellant to contest the bar on imposing penalties under both Sections 76 and 78. The Court dismissed the appeal, affirming the Tribunal's order, but left the issue of dual penalties open for the appellant to challenge upon remand.

Conclusion:

The appeal was dismissed, affirming the Tribunal's findings on both issues of law, with no costs imposed. The appellant was granted the opportunity to contest the imposition of dual penalties under Sections 76 and 78 before the Commissioner.