2014 (4) TMI 843 - HC - Service Tax

Waiver of penalty u/s 80 - reasonable cause - delayed payment of service tax on Intellectual property rights service - Penalty u/s 76, 77 & 78 - Commissioner deleted penalty u/s 80 - Tribunal upheld penalty - Held that - adjudicating authority while deciding not to impose a penalty, had due regard to the fact that the assessee had obtained registration for the purposes of service tax in respect of Intellectual Property Right Services on 30 September 2006; that the entire dues on account of service tax together with interest for the period from 10 September 2004 to 30 September 2007 had been paid on 10 December 2008 and there was compliance by the assessee thereafter - In this background the adjudicating authority held that there was some confusion in regard to the applicability of the service tax. This circumstance must be also coupled with the admitted circumstances in the present case which were that a notice which was issued to the assessee on 8 November 2004 (together with a corrigendum dated 22 January 2006) seeking to levy service tax on scientific technical consultancy service had resulted in an order of adjudication by which the demand had been dropped on 28 December 2006 - adjudicating authority had correctly granted to the assessee the benefit of the provisions of section 80 of the Finance Act, 1994 as it then stood by deleting the penalty and that the exercise of revisional jurisdiction under section 84 by the Commissioner was not in accordance with law - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of Section 80 of the Finance Act, 1994 when the proviso to Section 73(1) is invoked.
2. Interpretation of Section 80 in relation to mandatory penalties under Section 78.
3. Revisional power of the Commissioner under Section 84 of the Finance Act, 1994 to reverse the discretion exercised by the adjudicating authority under Section 80.

Issue-wise Detailed Analysis:

1. Applicability of Section 80 of the Finance Act, 1994 when the proviso to Section 73(1) is invoked:
The Tribunal's judgment held that once the extended period of limitation under the proviso to Section 73(1) was applied, there could be no reasonable cause within the meaning of Section 80. However, the High Court clarified that Section 80 contains a non-obstante provision that overrides Sections 76, 77, and 78, allowing the assessee to prove reasonable cause for failure. This interpretation ensures that Section 80 is not rendered otiose, as it would be if penalties under Section 78 automatically excluded the application of Section 80. The court emphasized that the non-obstante clause in Section 80 must be given effect, allowing the assessee to establish reasonable cause even when the extended period under Section 73(1) is invoked.

2. Interpretation of Section 80 in relation to mandatory penalties under Section 78:
The court noted that Section 78 deals with aggravated situations involving fraud, collusion, willful mis-statement, suppression of facts, or contravention of provisions with intent to evade payment of service tax. Despite this, Section 80 allows the assessee to prove reasonable cause for failures under Sections 76, 77, or 78. The Tribunal's view that the invocation of the extended period under Section 73(1) negates reasonable cause under Section 80 was deemed incorrect. The court highlighted that the language of Section 80, which includes a non-obstante clause, must be interpreted to give meaning to the provision, allowing reasonable cause to be established even in cases involving Section 78.

3. Revisional power of the Commissioner under Section 84 of the Finance Act, 1994 to reverse the discretion exercised by the adjudicating authority under Section 80:
The adjudicating authority had initially decided not to impose penalties, considering the assessee's voluntary compliance and the confusion regarding the applicability of service tax. The Commissioner, exercising revisional jurisdiction under Section 84, imposed penalties, reversing the adjudicating authority's discretion. The High Court held that the adjudicating authority had correctly applied Section 80 by deleting the penalty, given the reasonable cause established by the assessee. The court found that the Commissioner's interference in the exercise of revisional jurisdiction was unwarranted, as a possible view had been taken by the adjudicating officer.

Conclusion:
The High Court concluded that the adjudicating authority had correctly granted the benefit of Section 80 of the Finance Act, 1994, by deleting the penalty. The exercise of revisional jurisdiction by the Commissioner under Section 84 was not in accordance with law. The appeal was disposed of, with the questions of law answered in favor of the assessee. There was no order as to costs.