2018 (7) TMI 1678 - HC - Service Tax

Simultaneous penalties u/s 76 and 78 - Commercial coaching and training services - case of Revenue is that the assessee was aware about its service tax liability; despite this knowledge, it filed its returns claiming that no liabilities were attracted - Held that - The appellant, when it smelt investigation and adverse orders, it apparently approached the service tax authorities and deposited the amounts which they were admittedly liable to pay. Such being the case of foreknowledge, in the opinion of the court, itself is an important factor that ought to have been and was taken into account by the lower revenue authorities. Hence, foreknowledge lead to the imposition of recovery of dues assessed as well as imposition of the penalty under Section 78 - penalty u/s 78 upheld. Penalty u/s 76 - effect of amendment, retrospective or prospective? - Held that - The appellant s contention with respect to retrospective effect of the amendment of Section 78 (which makes the imposition of penalties under Section 76 and 78 mutually exclusively) are unsubstantial as this court in M/s. Bajaj Travels Limited vs. Commissioner of Service Tax 2011 (8) TMI 423 - DELHI HIGH COURT held that the amendments are prospective in nature and cannot come to the aid of an assessee for past period - penalty u/s 76 also upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Excessive imposition of multiple penalties under the Central Excise Act, 1944.
2. Applicability of penalties under Section 76 and 78 of the Finance Act, 1994.
3. Foreknowledge of service tax liability and its impact on penalty imposition.
4. Retrospective effect of the amendment of Section 78.

Issue 1: Excessive imposition of multiple penalties under the Central Excise Act, 1944:
The appellant contested the excessive imposition of penalties under the Central Excise Act, 1944. The case involved the non-payment of service tax liabilities by the assessee engaged in commercial coaching and training services. The Commissioner's order confirmed the demands for service tax, Cess, and SHEC, along with interest. The Tribunal upheld the penalties imposed by the Commissioner, leading to the appellant's appeal. The appellant argued that the penalties were excessive, citing previous judgments to support their claim. However, the court noted the appellant's foreknowledge of the tax liabilities and their actions only after investigations were triggered. The court upheld the penalties imposed, emphasizing the importance of foreknowledge in penalty imposition and the judicious exercise of discretion by revenue authorities.

Issue 2: Applicability of penalties under Section 76 and 78 of the Finance Act, 1994:
The appellant raised concerns regarding the imposition of penalties under Section 76 and 78 of the Finance Act, 1994. The court analyzed the appellant's pre-show cause notice payments and the subsequent deposition of additional amounts. The court determined that the invocation of Section 78 for penalty imposition was justified due to the appellant's foreknowledge of the tax liabilities and their actions in response to impending investigations. The court found no fault in the exercise of discretion by the revenue authorities in imposing penalties under Section 76 and 78, given the circumstances of the case.

Issue 3: Foreknowledge of service tax liability and its impact on penalty imposition:
The court highlighted the appellant's awareness of their service tax liability despite initially claiming no liabilities. The appellant's proactive approach in depositing the amounts owed only after facing investigations was a crucial factor considered by the court. The court emphasized that foreknowledge of tax liabilities influenced the imposition of recovery dues and penalties under Section 78. The court deemed the invocation of Section 78 as appropriate, given the appellant's actions and foreknowledge, which were taken into account by the lower revenue authorities.

Issue 4: Retrospective effect of the amendment of Section 78:
The appellant contended the retrospective effect of the amendment of Section 78, which made penalties under Section 76 and 78 mutually exclusive. The court dismissed this contention, citing a previous judgment that held the amendments to be prospective and not applicable to past periods. The court clarified that the amendments could not aid the appellant for liabilities incurred before the enactment of the amendment. Consequently, the court dismissed the appeal filed by the appellant based on the aforementioned observations.

In conclusion, the court upheld the penalties imposed on the appellant under the Central Excise Act, 1944, emphasizing the significance of foreknowledge in tax liabilities and the judicious exercise of discretion by revenue authorities in penalty imposition. The court also clarified the retrospective nature of the amendment of Section 78, dismissing the appellant's contention regarding its applicability to past periods.