2009 (4) TMI 106 - AT - Service Tax

Penalty under section 78 - The language of Section 78, clearly leads to one effect that, if penalty is imposable under the said Section, the same shall not be lesser than the duty quantum. The Hon ble Supreme Court has held that in such a situation, no discretion is available with the authority on the quantum of penalty to be imposed - The quantum of penalty has to be equal to the duty amount.

Issues Involved:
1. Short payment of service tax.
2. Calculation of service tax liability.
3. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.
4. Application of Section 80 of the Finance Act, 1994 for penalty reduction.

Issue-Wise Detailed Analysis:

1. Short Payment of Service Tax:
The respondent, registered under "Air Travel Agent Service," was found to have short paid service tax for the period April 2001 to August 2006. The DGCEI authorities conducted investigations, resumed documents, and retrieved data from computers, which revealed the short payment. The adjudicating authority confirmed a demand of Rs. 7.67 crores, appropriated the amount already paid, ordered interest, and imposed penalties under Sections 76 and 78 of the Finance Act, 1994.

2. Calculation of Service Tax Liability:
The revenue appealed against the adjudicating authority's order, arguing that the calculation of the basic fare for determining the service tax liability was incorrect. The revenue contended that the adjudicating authority erroneously allowed deductions for airline taxes, refunds, and void air tickets. The respondent conceded that the calculation of service tax liability in the show cause notice was correct but argued for deductions of already paid service tax, wrong application of service tax rate, and rounding off adjustments. The tribunal upheld the service tax liability as demanded in the show cause notice but remanded the matter back to the adjudicating authority for recalculating the correct service tax liability, considering the respondent's submissions.

3. Imposition of Penalties under Sections 76 and 78:
The tribunal upheld the penalty under Section 76 of the Finance Act, 1994, as imposed by the adjudicating authority. Regarding the penalty under Section 78, the tribunal noted that the respondent had short paid the service tax and that the penalty was mandatory. However, the tribunal considered the respondent's argument that they had paid a significant amount before the issuance of the show cause notice, indicating bona fide intent.

4. Application of Section 80 for Penalty Reduction:
A difference of opinion arose between the members of the tribunal regarding the reduction of the penalty under Section 78. One member (Judicial) proposed reducing the penalty to Rs. 50 lakhs, invoking Section 80, which allows for non-imposition of penalties if there was reasonable cause for failure. The other member (Technical) disagreed, arguing that the penalty under Section 78 is mandatory and should not be reduced. The matter was referred to a third member, who agreed with the Technical member, sustaining the penalty of Rs. 10 crores. The tribunal concluded that Section 80 was not applicable as the infraction was not bona fide but a deliberate evasion of tax.

Final Judgment:
The final majority order sustained the penalty of Rs. 10 crores imposed by the Commissioner under Section 78 of the Finance Act, 1994. The service tax liability was upheld, but the matter was remanded to the adjudicating authority for recalculating the correct service tax liability. The cross-objections filed by the respondent were disposed of accordingly.

← Previous Next →