2018 (8) TMI 628 - AT - Service Tax

Penalty u/s 76 and 78 of FA - Doctrine of Merger - whether penalties can be imposed simultaneously under section 76 and 78? - Held that - It is now a settled law that for the period prior to 10.05.2008 simultaneous penalties can be imposed under section 76 and 78. Quantum of penalty - whether penalty imposed under section 78 is in excess of the demand? - Held that - Section 78, as it stood during the period, provided for a penalty equal to the amount of service tax levied or paid or short levied or short paid. There is a mandatory penalty and this cannot be either increased or reduced - the penalty imposed is in excess of demand, which needs to be reduced. Appeal allowed in part.

Summary

Issues:
1. Imposition of penalties under sections 76 and 78 simultaneously.
2. Validity of penalty imposed under section 78 in excess of the demand.

Analysis:

Issue 1: Imposition of penalties under sections 76 and 78 simultaneously
The appellant, a service provider, challenged penalties imposed under sections 76 and 78 by the Commissioner. The appellant contended that penalties cannot be imposed simultaneously under both sections. The appellant's counsel argued that the penalties under sections 76 and 78 cannot be imposed together, especially when the confirmed demand is lesser than the penalty amount. The Commissioner, however, argued that penalties under both sections can be imposed independently, citing legal precedents from different High Courts and the Tribunal. The Commissioner referred to judgments supporting the imposition of simultaneous penalties under sections 76 and 78 for the period before May 10, 2008. The Tribunal, relying on the Supreme Court's decision, concluded that simultaneous penalties can indeed be imposed under sections 76 and 78 before May 10, 2008. The Tribunal upheld the penalties imposed by the Commissioner, citing legal clarity on the issue.

Issue 2: Validity of penalty imposed under section 78 in excess of the demand
The Tribunal analyzed the penalty imposed under section 78, which was found to be in excess of the confirmed demand. Section 78 mandates a penalty equal to the amount of service tax levied or paid. The Commissioner, while confirming a demand of a specific amount, imposed a penalty exceeding this amount. The Tribunal noted that the penalty under section 78 cannot be increased or reduced and should align with the confirmed demand. Therefore, the Tribunal reduced the penalty imposed under section 78 to match the confirmed demand amount. The appeal was partly allowed, reducing the penalty under section 78 while upholding the rest of the Order-in-Original.

In conclusion, the Tribunal clarified the legality of imposing penalties under sections 76 and 78 simultaneously before May 10, 2008. It also rectified the penalty amount under section 78 to align with the confirmed demand, ensuring compliance with the legal provisions. The judgment provided a detailed analysis of the issues raised by the appellant, the Commissioner's arguments, legal precedents, and the final decision based on the applicable laws and judicial interpretations.