2019 (6) TMI 1245 - AT - Service Tax

Benefit of reduced penalty - penalty not deposited by assessee - whether the Commission (Appeals) was right in giving the benefit of reduced penalty of 25% under Section 78 of the Finance Act, 1994 even when the penalty has not been deposited by the respondent assessee? - HELD THAT - The assessee can get the benefit of reduced penalty of 25% of the service tax determined, provided the assessee fulfills the following two conditions as per the proviso to Section 78(1) of the Finance Act, 1994, namely (i) that the determined amount of service tax along with interest is paid within a period of one month from the date of issue of determining order; and (ii) that the penalty imposed is equal to the amount of service tax confirmed, however, if the assessee deposits the 25% of penalty within a period of one month, the amount of 100% or equal amount of penalty can be reduced to 25%. The learned Commissioner (Appeals) erred in determining the quantum of penalty at 25% of the service tax demand and wrongly extended the benefit to the assessee for 25% of mandatory equal amount of penalty as provided under section 78 of Finance Act, 1994. Penalty set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
- Challenge to the order of Commissioner (Appeals) regarding the quantum of penalty at 25% of service tax demand
- Benefit of reduced penalty of 25% under Section 78 of the Finance Act, 1994
- Interpretation of the penal provisions under Section 78 of the Finance Act, 1994

Analysis:
1. The appeal was filed against the Commissioner (Appeals) order challenging the determination of penalty at 25% of service tax demand. The issue to be decided was whether the Commissioner (Appeals) was correct in granting the benefit of reduced penalty of 25% under Section 78 of the Finance Act, 1994, even when the penalty was not deposited by the respondent assessee.

2. Section 78 of the Finance Act, 1994, outlines penalties for various scenarios such as fraud, collusion, willful misstatement, suppression, or contravention of provisions with intent to evade payment of service tax. The section provides for a penalty equal to the amount of service tax not paid or short-paid. However, the penalty can be reduced to 25% if the service tax and interest are paid within thirty days, as per the proviso.

3. The appellate authority cannot extend the time for paying the reduced penalty beyond what is stipulated in the third proviso to Section 78(1) of the Finance Act, 1994. The statute is explicit that the option to pay the reduced penalty ends after thirty days from the date of communication of the order. The reduced penalty can only be paid within the specified time frame, and any extension beyond that is legally unsustainable.

4. The Hon'ble Delhi High Court's decision in a similar case highlighted that the reduced penalty must be paid within the specified time frame as per the statute. Any deviation from this timeline is not permissible, and the appellate authority cannot allow payment of reduced penalty beyond the statutory limit.

5. In this case, the Commissioner (Appeals) erred in determining the penalty at 25% of the service tax demand and extending the benefit to the assessee for the reduced penalty amount. However, in a related appeal, the imposition of penalty under Section 78 of the Finance Act, 1994 was set aside, rendering the current appeal infructuous, leading to its dismissal.

In conclusion, the judgment clarifies the strict adherence to the statutory timelines for paying reduced penalties under Section 78 of the Finance Act, 1994, emphasizing that any extension beyond the specified period is legally unsustainable.