2007 (10) TMI 28 - AT - Service Tax

Penalty Clearing & Forwarding Agent service Reasonable cause shown for delay in payment of tax Sick unit declared by BIFR Exoneration from penalty is granted as sufficient cause has been shown But non-filing of return because of financial constraints is not condonable

Summary

Issues:
1. Levy of interest and penalties on service tax payment.
2. Applicability of Section 80 of the Finance Act, 1994 for penalty imposition.
3. Exoneration from penal liability under Sections 76 and 77 based on reasonable cause.
4. Interpretation of Section 80 for penalty exemption.

Analysis:

1. The appellants, working as consignment agents, paid service tax belatedly for the period April 2002 to March 2003. Lower authorities levied interest and penalties under Sections 76 and 77 of the Finance Act, 1994. The appellants contested only the penalties in their appeal, having already settled the tax and interest dues.

2. The Tribunal considered the appellants' declaration as a sick industry by the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985. The appellants argued that being declared sick prior to the dispute period should be a reasonable cause under Section 80 of the Finance Act, 1994, to avoid penalties. The Revenue contended that financial difficulties do not constitute a reasonable cause for penalty exemption under Sections 76 and 77.

3. The Tribunal noted that previous cases did not address the issue of whether a sick industry declaration by BIFR should exempt an assessee from penal liability under Sections 76 and 77. The unique question in this case was whether the appellants should be exonerated under Section 80 based on being declared sick by BIFR.

4. Section 80 of the Finance Act, 1994 provides for penalty exemption if the assessee proves a reasonable cause for the failure. The Tribunal found that while financial constraints do not excuse non-filing of returns under Section 77, the appellants' sickness declaration by BIFR constituted a reasonable cause for delayed service tax payment under Section 76. Therefore, the penalty under Section 76 was set aside, granting partial relief to the appellants.

This comprehensive analysis of the judgment highlights the issues involved, the arguments presented by both parties, and the Tribunal's interpretation of the relevant legal provisions to arrive at a decision regarding penalty imposition on the appellants.