2014 (10) TMI 28 - AT - Service Tax

Imposition of penalty - Whether the penalty of ₹ 6,67,226/- imposed on the appellant under Section 76 for failure to pay the Service Tax by the due date can be waived under Section 80 of the Finance Act, 1994 - Held that - Section 80 provides that notwithstanding anything contained in the provisions of Section 76, Section 77 or Section 78, no penalty shall be imposable on an assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure. The point of dispute is as to whether the failure to discharge the Service Tax liability by the duty date on account of financial crisis can be treated as reasonable cause for the purpose of this Section. This point has been considered by the Tribunal in the case of Ramanasekar Steels Ltd. (2007 (10) TMI 28 - CESTAT, CHENNAI) wherein the Tribunal has held that when the assessee has been declared as sick by BIFR it is a reasonable cause for delay in payment of tax warranting waiver of any penalty under Section 76. Things would have been different had non-payment of tax was due to fraud or with intention to evade the tax, which is not the allegation here. I am, therefore, of the view that ratio of this judgment of the Tribunal is squarely applicable to the facts of the present case. No contrary decision has been pointed out by the respondent. In view of this, the impugned order upholding the penalty imposed under Section 76 is not sustainable - Service Tax demand along with interest and penalty imposed under Sections 70 and 77 are upheld, the penalty imposed under Section 76 is set aside - Decided partly in favour of assessee.

Summary

Issues:
Non-payment of Service Tax and late filing of ST-3 returns leading to penalty imposition under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:
The appellant, a manufacturer of carbon black chargeable to Central Excise duty, received services from a Goods Transport Agency and paid Service Tax as a service recipient. However, they failed to pay Service Tax for two six-monthly periods and filed ST-3 returns late. The Department issued a show cause notice for recovery of Service Tax, interest, and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The Additional Commissioner confirmed the Service Tax demand, interest, and penalties, which was upheld by the Commissioner (Appeals), leading to the filing of this appeal.

The appellant did not contest the duty demand, late fee, and penalty under Section 77 but challenged the penalty under Section 76. They argued that being declared a sick unit by BIFR caused financial difficulties, resulting in delayed Service Tax payment. Citing a precedent, they claimed that such circumstances warranted penalty waiver under Section 80. The respondent, however, supported the penalty imposition under Section 76, emphasizing that financial hardship alone should not justify waiving penalties for late payment.

After hearing both sides, the Tribunal upheld the Service Tax demand, interest, late fees, and penalty under Section 77. The critical issue revolved around whether the penalty under Section 76 could be waived due to financial crisis constituting a reasonable cause for delayed payment. Referencing the precedent case of Ramanasekar Steels Ltd., the Tribunal agreed that being declared a sick unit by BIFR was a valid reason for late payment, warranting penalty waiver under Section 80. Since no contrary decision was presented, the Tribunal set aside the penalty imposed under Section 76 while upholding the other penalties.

In conclusion, while the Service Tax demand, interest, and penalties under Sections 70 and 77 were upheld, the penalty under Section 76 was set aside based on the reasonable cause of financial crisis as determined by the Tribunal. The appeal was partly allowed, providing relief to the appellant in terms of penalty waiver under Section 76.