2008 (2) TMI 346 - AT - Service Tax

Delay in payment of the service tax - Doubt and confusion as regards their liability to pay service tax - no mala fide intention on their part - assessee proves that there was a reasonable cause for failure to deposit the dues or filing returns, no penalty shall be leviable in terms of Section 76, 77, 78 or Section 79 - appellate authority having admitted that there was no mala fide on the part of the appellant, should have set aside the entire amount of penalty in stead of reducing the same.

Summary

Issues:
Imposition of personal penalty under Section 76 of the Finance Act, 1994 for late payment of service tax. Appellant's confusion regarding the nature of their activities and liability to pay service tax.

Analysis:
The judgment revolves around the imposition of a personal penalty of Rs.21,000 under Section 76 of the Finance Act, 1994 on the appellant for late payment of service tax related to their job work of coating belts for wristwatches, categorized as business auxiliary services. The appellant contended that the delay in payment was due to their unawareness of the service tax law, considering it a new levy, and the confusion regarding whether their activities fell under manufacturing activities or business auxiliary services. The Commissioner (Appeals) acknowledged the confusion but still imposed a reduced penalty of Rs.21,000, citing the delay of over 400 days as a reason for liability. The appellate authority accepted the lack of mala fide intention in the delay and the subsequent payment with interest but still upheld the penalty, leading to a self-contradictory decision.

The appellant relied on Section 80, which states that if the assessee proves a reasonable cause for failure to deposit dues or file returns, no penalty shall be levied under Sections 76, 77, 78, or 79 of the Finance Act. Given the acknowledgment of no mala fide intent by the appellant, the appellate authority should have entirely set aside the penalty instead of merely reducing it. Consequently, the judgment set aside the penalty imposed on the appellant, allowing the appeal on that specific issue.

In conclusion, the judgment highlights the importance of considering reasonable causes for delays in payment of dues, especially in cases where confusion or doubt exists regarding the applicability of tax laws to specific activities. The decision emphasizes the need for a consistent approach in penalty imposition based on the circumstances of each case and the presence or absence of mala fide intentions.