WAIVER OF PENALTY

[Mr. M. GOVINDARAJAN]

Section 75A of the Finance Act, 1994 ('Act' for short) provides penalty for failure of registration. But the said section was omitted by the Finance Act, 2004 with effect from 10.09.2004. Sec. 76 provides penalty for failure to pay service tax. Sec. 77 provides penalty for contravention of Rules and provisions of the Act for which no penalty is specified. Sec. 78 provides penalty for suppressing the value of taxable services. Section 80 provides that notwithstanding anything contained in the provisions of Sec. 76, Sec. 77 or Sec. 78 no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure. In case penalty is imposed by lower authorities and if the appellate authority is satisfied that there was a reasonable cause for failure then the appellate authority under the principles of Sec.80 may waive the penalty imposed on the assessee.

In this article some case laws are discussed in regard to waiver of penalty.

In 'Agarwal Agency V. Commissioner of Central Excise & Service Tax, Patna' - 2009 -TMI - 34716 - CESTAT, KOLKATA the appellants were registered with the Revenue as provider of Clearing and Forwarding Agents service. They provided services to various clients and the fact was not disclosed to the Revenue. The Revenue came to know this fact only when the premises were visited by the Revenue Officers. Hence there is a clear suppression on the part of the appellants with the intent to evade tax. Therefore the appellants had not made out a case to avail the benefit under Sec. 80 of the Act.

In 'Auto World V. Commissioner of Central Excise, Allahabad' - 2009 -TMI - 34618 - CESTAT, NEW DELHI the Tribunal held - "it appears that there was doubt regarding levy of tax on commission by the authorized automobile dealers which working as 'direct marketing agent' of ICICI bank for providing services to various customers for purchasing vehicles on loan, was clarified by the Board's circular dated 06.11.2006. In the present case the appellants were engaged in providing service to different customers who were purchasing vehicles by getting loan from Financial Institutions and the appellants were receiving commission on loan arranged by them. It is seen that the party paid the tax in December 2004 partly. There is no mala fide on the part of the appellants and therefore imposition of penalty under Sec. 78 of the Finance Act is not warranted. It is noticed that service tax was introduced on the activities of the appellants in July 2003 and the appellants paid the tax voluntarily in December 2004 with interest. After considering the facts and circumstances of the case, the dispute relates to new levy and the appellant paid the tax partly before issue of show cause notice and the balance amount before issue of adjudication order. Payment of tax was not disputed by them. Hence it is a fit case to invoke Sec. 80 of the Finance Act, 1994. Hence the penalty imposed on the appellant is set aside.

In 'Pratik Enterprises V. Commissioner of Central Excise & Customs, Vapi' - 2009 -TMI - 34984 - CESTAT, AHMEDABAD the Tribunal found that the appellant is an individual and is a proprietary firm and in view of the fact that he co-operated with the investigations and paid the service tax with interest as applicable, lenient view as regard penalty is required to be taken. The fact that the firm is a proprietary firm and a small firm going by the size of the transaction is sufficient as reasonable cause for the purpose of Section 80 of the Finance Act, 1994. Accordingly the penalties imposed on the appellants are set aside.

In 'Narbheram Motion (P) Limited V. Commissioner of Central Excise & Service Tax, Ranchi' - 2009 -TMI - 75167 - (CESTAT, KOLKATA) the appellants contended that the demand is in respect of service tax and as per Sec. 80 of the Finance Act, 1994, in case the asssessee shows reasonable cause for not paying tax penalty can be waived. The Commissioner (Appeals) decided the appeal by taking into consideration of the provisions of Sec. 11AC of Central Excise Act. Therefore the impugned order is not sustainable. The Tribunal held that as the relevant provisions of the Finance Act was not taken into consideration the impugned order is set aside and the matter is remanded to Commissioner (Appeals) to decide afresh after affording an opportunity of hearing of the appellant.

In 'Krishna Mobikes V. Commissioner of Central Excise (Service Tax), Trichy' - 2010 -TMI - 75516 - CESTAT, CHENNAI the assessees have obtained a certificate for full and final settlement of tax arrears under Sec. 96(2) of the Finance Act, 2008 in respect of Dispute Resolution Scheme, 2008. The certificate is dated 31.10.2008 and granted immunity from institution of any proceedings for imposition of penalty under Finance Act, 1994 in respect of matters covered in the above said declaration made by the assessee. In view of the above settlement the penalty imposed on the appellants is set aside.

The above said case laws are only examples. Waiver of penalty may be based on the facts and circumstances of the cases. But the assessee to avoid penalty is to prove that there is a reasonable cause for failure of the act which attracts penalty.