2009 (6) TMI 84 - AT - Service Tax

Composite Penalty under service tax Section 76, 77 and 78 waiver u/s 80 - assessee had paid up the service tax with interest prior to issue of show-cause notice - The original authority had imposed a composite penalty of Rs. 1,29,171/- on the assessee under Section 76 read with Section 78 and this penalty also came to be sustained by the Commissioner (Appeals) held that - The show-cause notice had proposed to impose separate penalties under Sections 76, 77 and 78. The original authority imposed a penalty of Rs. 1,29,171/- under Section 76 read with 78 of the Finance Act, 1994 and this decision was upheld by the Commissioner (Appeals), regardless or oblivious of the different features of the two penal provisions. Section 76 provides for a penalty on a service tax assessee who commits default simpliciter in payment of the tax. Section 78, on the other hand, is a more stringent penal provision, which provides for a harsher penalty on a service tax assessee who commits default with mens rea. matter remanded

Summary

Issues:
1. Whether storage of empty containers falls within the ambit of "storage and warehousing services" for service tax.
2. Whether Sections 76 and 78 of the Finance Act, 1994 can be invoked to impose penalties on the assessee.
3. Whether the assessee is eligible for the benefit of Section 80 of the Finance Act, 1994.
4. Whether penalties under Sections 76 and 78 should be imposed separately based on the nature of default.

Analysis:
1. The lower appellate authority had to determine if the storage of empty containers constituted "storage and warehousing services" for service tax. The authority ruled against the assessee, upholding the demand for service tax. Additionally, the Commissioner (Appeals) considered the application of Sections 76 and 78 of the Finance Act, 1994 for imposing penalties on the assessee. The original authority and the Commissioner (Appeals) sustained the penalty imposed on the assessee under 'Section 76 read with Section 78'. The appeal challenged this decision.

2. The assessee claimed the benefit of Section 80 of the Finance Act, 1994, citing a delay in service tax payment with sufficient cause. They also referenced a Board circular suggesting that no show-cause notice should be issued for imposing penalties if the tax is promptly paid upon department notification. Despite not contesting the penalty's imposition method, the Tribunal noted a clear error in the lower authorities' orders, emphasizing the need to address this error.

3. The show-cause notice proposed separate penalties under Sections 76, 77, and 78. However, the original authority imposed a penalty under 'Section 76 read with 78', which was upheld by the Commissioner (Appeals). The Tribunal highlighted the distinction between the provisions of Sections 76 and 78. While Section 76 pertains to default in tax payment, Section 78 deals with more severe penalties for deliberate defaults with mens rea, including fraud, suppression, or intent to evade payment.

4. Consequently, the Tribunal set aside the decisions of the lower authorities and remanded the case for a fresh consideration of the penalties under the invoked provisions. The original authority was instructed to reassess if penalties should be imposed on the assessee and to what extent, ensuring the assessee's right to a fair hearing. The judgment emphasized the necessity for a detailed examination of the penal provisions' nuances before imposing penalties.