2016 (1) TMI 347 - HC - Service Tax

Levy of penalty u/s 76 and 77 - tribunal deleted the penalty u/s 80 - The question therefore, to be decided in such case is whether the assessee established such reason for failure. - Held that - When the department found that the assessee had received certain payments against which tax was not paid, the assessee contended that it was under bona fide belief that the amount received prior to insertion of explanation to section 67 would not invite tax. Under the insistence of departmental authority, they nevertheless, paid the entire tax along with interest on 4.1.2006, upon which a show cause notice was issued for imposition of penalty. When the entire issue was debatable, the decision of the Tribunal to delete the penalty was perfectly justified - Decided against the revenue.

Summary

Issues:
- Challenge to the judgment of CESTAT dated 16.4.2015 by the Revenue
- Whether there was a bonafide belief on the part of the assessee regarding taxable amount
- Setting aside of penalties by CESTAT without a reasonable cause being shown by the assessee

Analysis:
The tax appeal before the Gujarat High Court involved a challenge by the Revenue against the judgment of CESTAT dated 16.4.2015. The primary issues raised for consideration were whether there was a bonafide belief on the part of the assessee regarding the taxable amount and whether the penalties imposed could be set aside without a reasonable cause being shown by the assessee. The tribunal had deleted the penalties, prompting the Revenue to file the appeal.

The crux of the matter revolved around Section 80 of the Finance Act 2004, which deals with the imposition of penalties in certain cases. Subsection (1) of Section 80 stipulates that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure in question. Therefore, the key question to be determined was whether the assessee had established a valid reason for their failure to comply with the tax regulations.

The Tribunal, in its judgment, highlighted the addition of Explanation 3 to Section 67 of the Finance Act, which clarified that the gross amount charged for taxable services would include any amount received before, during, or after the provision of such services. The assessee had argued that they believed, in good faith, that amounts received prior to the insertion of this explanation would not be taxable. Despite this belief, they paid the tax along with interest upon the insistence of the departmental authority.

Given the debatable nature of the issue and the provisions of Section 80 of the Finance Act 2004, the Tribunal concluded that no penalty could be imposed on the assessee. The High Court, in its judgment, upheld the decision of the Tribunal, emphasizing that the legislation itself introduced the explanation with the phrase "for removal of doubts," indicating a level of ambiguity that supported the assessee's position.

In light of the above analysis, the High Court dismissed the tax appeal, affirming the Tribunal's decision to delete the penalty imposed on the assessee. The judgment underscored the importance of considering the circumstances and the legal provisions surrounding the imposition of penalties in tax matters, particularly when there is a genuine belief or ambiguity in the application of tax laws.