2015 (1) TMI 38 - HC - Service Tax

Penalty u/s 77 Clearing & Forwarding Agent service Reasonable cause shown for delay in payment of tax Sick unit declared by BIFR - Held that - as regards the non-payment of tax, it pointed out to the sickness of the company, which ultimately, ended up on filing of petition before BIFR (Board for Industrial and Financial Companies) in the year 2001 declaring as sick company under Section 3(1)(a) of the Sick Industrial Companies (Special Provisions) Act, 1985 - It is no doubt true that the default is with reference to the period from October 1999 to March 2003. It is also a matter of record that the assessee had paid service tax for the period from April 2002 to March 2003. Considering the financial constraint that the assessee had undergone and on satisfaction that sufficient cause shown by the assessee for not having been able to pay service tax in time, the CESTAT had deleted the penalty - Decided against Revenue.

Summary

Issues:
1. Interpretation of "reasonable cause" under Section 80 of the Finance Act, 1994.
2. Validity of setting aside penalty based on the declaration of a company as a sick industry.

Analysis:

1. The High Court examined whether the declaration of the respondent as a sick industry by the Board for Industrial and Financial Companies (BIFR) could be considered a "reasonable cause" for invoking Section 80 of the Finance Act, 1994. The Court noted that the company had faced financial difficulties leading to the BIFR declaring it as a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. The Court observed that the assessee had demonstrated a "reasonable cause" for the failure to pay service tax during the specified period. The Court agreed with the CESTAT's decision to delete the penalty based on the financial constraints faced by the assessee and the satisfactory cause shown for the delay in payment.

2. The Court also addressed the issue of whether the Tribunal was justified in setting aside the penalty solely on the grounds of the company being declared a sick industry. The CESTAT had confirmed the levy of penalty under Section 77 for non-filing of returns but had deleted the penalty for non-payment of tax considering the company's financial difficulties and the subsequent declaration as a sick industry. The Court upheld the CESTAT's decision, emphasizing that the assessee had paid service tax for a subsequent period, demonstrating a genuine effort to comply despite the challenges faced by the company. The Court found no reason to interfere with the CESTAT's order and consequently dismissed the Civil Miscellaneous Appeal without imposing any costs.

In conclusion, the Madras High Court, through the judgment delivered by Ms. Chitra Venkataraman and K.B.K. Vasuki, JJ., upheld the decision of the CESTAT to delete the penalty imposed on the assessee for non-payment of service tax, considering the financial constraints and the reasonable cause shown for the delay in payment due to the company being declared a sick industry. The Court emphasized the importance of assessing each case on its merits and found no grounds to disturb the CESTAT's order, thereby dismissing the appeal.