2010 (3) TMI 433 - HC - Service Tax

Penalty- Whether the Tribunal is correct in setting aside the penalty imposed under Section 76 & 78 of Finance Act by the Revisionary Authority in exercise of power conferred under Section 84 of the Finance Act. When the Respondent had suppressed the value of taxable service and has deposited the service tax after delay without providing any reasonable cause for delay? Held that- Assessee-respondent being a government undertaking no intention to evade tax. Thus, Tribunal rightly restored penalty imposed under section 76 and set aside penalty imposed by revisionary authority. Thus the order of Tribunal not interfered.

Summary

Issues:
1. Imposition of penalty under Sections 76 & 78 of the Finance Act.
2. Validity of penalty imposition by Revisionary Authority.
3. Applicability of penalty under Section 78 based on Show Cause Notice.
4. Justification for penalty imposition under Section 76.
5. Government Undertaking's intention to evade tax.
6. Proving reasonable cause for non-payment of tax.

Analysis:

1. The appeal was filed by the Revenue-Appellant challenging the Final Order passed by the Tribunal, which set aside the penalty imposed under Sections 76 & 78 of the Finance Act by the Revisionary Authority. The main question raised was whether the Tribunal was correct in setting aside the penalty when the Respondent had suppressed the value of taxable service and deposited the service tax after a delay without providing a reasonable cause for the delay.

2. The Respondent-Assessee, a Government-owned Corporation, entered into an agreement for the supply of material and deposited the service tax upon being pointed out by the Revenue. The Adjudicating Authority initially imposed a penalty, which was revised by the Commissioner acting as the Revisionary Authority. The Commissioner increased the penalty amounts under Sections 76 and 78 of the Act.

3. The Assessee appealed to the Tribunal, which set aside the penalty imposed under Section 78, stating that it was not invoked in the Show Cause Notice. Therefore, the imposition of penalty under Section 78 was deemed unwarranted based on procedural grounds.

4. The Tribunal also reinstated the penalty imposed under Section 76 by the Adjudicating Authority, overturning the Revisionary Authority's decision. The Tribunal considered the Assessee's status as a Government Undertaking and their lack of intention to evade tax. Additionally, as per Section 80 of the Act, the penalty is not applicable if the Assessee proves a reasonable cause for non-payment, which the Assessee did by explaining the delay and promptly depositing the tax upon notification.

5. The High Court found no merit in the Revenue's appeal, emphasizing the importance of the Show Cause Notice as the foundation of the case. Since the penalty under Section 78 was not proposed in the Notice, the Revenue was unjustified in imposing it through Revisionary jurisdiction. Therefore, the Court upheld the Tribunal's decision to set aside the penalties imposed by the Revisionary Authority.

6. Considering the facts presented, including the Assessee's prompt tax deposit upon notification and the absence of any intention to evade tax, the High Court declined to interfere with the Tribunal's order. The Court dismissed the appeal, affirming the Tribunal's decision to reinstate the penalty under Section 76 and reject the penalties imposed by the Revisionary Authority.