2008 (9) TMI 86 - AT - Service Tax

Appeal against penalties imposed u/s 76, 77 and 78 by the revisional authority, CCE - original authority exercised the discretion under Section 80 of the Act and refrained from imposing penalty - In view of HC decision in case of CCE, Bangalore-II v. Sunitha Shetty, it is held that revisional authority did not lave powers to revise a decision of the competent authority which had in exercise of the discretion conferred on it u/s 80, consciously refrained from imposing penalty on the assessee.

Summary

Issues: Application for waiver of pre-deposit and stay of recovery of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:
1. The application was filed by M/s. Solomon Foundry seeking waiver of pre-deposit and stay of recovery of penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994 by the revisional authority, the Commissioner of Central Excise, Trichy. The appellants were found to have provided 'Maintenance and repair service' during the period 1-7-2003 to 31-12-2005, with a total service tax liability of Rs. 3,59,853. The appellants paid Rs. 3 lakhs before the show cause notice and the remaining balance before adjudication.

2. The original authority noted that the appellants' failure to pay service tax was due to a genuine belief that they were not liable to pay during the said period. The appellants argued that the contract with ONGC did not include provisions for recovering service tax, leading them to absorb the tax liability without passing it on to clients. They requested leniency based on the payment made before the show cause notice, citing legal precedents supporting waiver of penalties in such cases.

3. The authorized representative highlighted case law supporting the waiver of penalties if taxes were paid before the issue of a show cause notice. They referenced specific judicial authorities such as CCE, Bangalore-II v. Sunitha Shetty and S-Mac Security Services Pvt. Ltd. v. CST, Bangalore. On the other hand, the JCDR presented decisions from the Tribunal emphasizing that ignorance of the law was not a sufficient defense under Section 80 of the Act.

4. After considering the arguments and submissions, the Member (T) found that the original authority refrained from imposing penalties under Sections 76, 77, and 78 of the Finance Act, 1994, citing the appellants' lack of awareness of Service Tax Rules due to ignorance and lack of proper guidance. The Member relied on a judgment of the Hon'ble High Court of Karnataka, upholding the Tribunal's decision that a revisional authority cannot revise a decision where penalties were consciously not imposed by the competent authority under Section 80 of the Act. Consequently, the impugned order was vacated, and the appeal was allowed, leading to the disposal of the stay application.