2008 (3) TMI 107 - AT - Service Tax

Investigation report did not indicate mens rea or contumacious conduct on the part of the assessee to evade service tax - appellant paid the tax due along with interest before issue of the Show Cause Notice - penalty can be imposed under Section 78 only if a service provider has evaded payment of duty by fraud, wilful suppression, collusion etc. - instant case is a fit one to grant relief provided under Section 80 assessee s appeal allowed

Summary

Issues:
1. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994 for non-compliance with statutory formalities by an out-door caterer.
2. Consideration of ignorance of law as a defense against imposing penalties.
3. Application of Section 80 for waiving penalties in cases of failure to follow statutory formalities.

Analysis:
1. The impugned order revised the original authority's decision and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994 on an out-door caterer for not registering with the department, not paying service tax, and not filing returns. The appellant paid the tax due along with interest before the Show Cause Notice was issued. The original authority, considering service tax as a new concept, had dropped the proposal for penalties due to procedural lapses. The Commissioner, however, found that waiving penalties solely based on ignorance of law was not legally sound.

2. The original authority noted that the appellant's failure to comply with statutory provisions was due to ignorance of the law, as no mens rea or contumacious conduct was found to evade service tax. The appellant's payment of tax without dispute and attribution of ignorance to non-compliance were accepted. The Commissioner, however, held that ignorance of the law was insufficient to absolve one from penal liability. It was observed that the appellant did not willfully evade payment of service tax, and no dishonest conduct was found. Therefore, imposition of penalties was deemed unjustified.

3. The Tribunal's decision in a similar case highlighted that penalties under Section 78 could be vacated if there was sufficient cause for the failure to follow statutory formalities, considering service tax as a new levy. Section 80 allows relief from penalties in such cases. In this context, the Tribunal vacated penalties imposed on an out-door caterer for not registering and not paying tax, citing Section 80. Following this precedent, the appeal was allowed, and penalties were vacated in the instant case.

This judgment underscores the importance of considering the circumstances, including ignorance of the law and the absence of fraudulent intent, in determining the imposition of penalties for non-compliance with statutory provisions related to service tax obligations.