2008 (7) TMI 134 - AT - Service Tax

In the case of Advance Securities, the Revisional Authority was satisfied with the reasonable cause furnished by the assessees in not depositing the tax in time. Therefore, the non-imposition of penalty in both the cases is justified. While in the case of other appeals, enhancing penalty by the Revisional Authority is not justified - In case of non maintenance of separate accounts for exempted goods and dutiable goods, if credit is reversed, assessee is not required to pay 8 % of the value

Summary

Issues Involved:
1. Justification of penalties imposed by the Revisional Authority.
2. Non-imposition of penalties by the Original Authority.
3. Applicability of Section 80 of the Finance Act, 1994.
4. Compliance with Rule 6 of Central Excise Rules and reversal of credit.

Detailed Analysis:

1. Justification of Penalties Imposed by the Revisional Authority:
The Revisional Authority found that the non-imposition of penalties or imposition of lesser penalties by the Original Authority was not justified. It imposed and enhanced penalties under Section 78 of the Finance Act, 1994, arguing that the appellants had not proven sufficient cause for waiver of penalties. The Revisional Authority emphasized that when suppression of facts is established, penalties could be as high as twice the service tax sought to be evaded.

2. Non-Imposition of Penalties by the Original Authority:
The Original Authority, after examining the reasons for failure to pay the Service Tax on time, exercised discretion in dropping or reducing penalties. This decision was based on the appellants' actions, such as paying the service tax along with interest before the issuance of show-cause notices, which demonstrated a willingness to comply with the law.

3. Applicability of Section 80 of the Finance Act, 1994:
Section 80 provides that no penalty shall be imposed if the assessee proves that there was reasonable cause for the failure. The Tribunal found that in most cases, the appellants had a reasonable cause, such as ignorance of the law or bona fide belief that the service was not taxable. This was evident as the appellants paid the tax and interest promptly upon being informed of their liability. The Tribunal referenced previous judgments, including Majestic Mobikes (P.) Ltd. v. CCE, which supported the view that penalties should be waived under Section 80 when reasonable cause is proven.

4. Compliance with Rule 6 of Central Excise Rules and Reversal of Credit:
In Appeal No. 228/2007, the issue was whether the appellant was required to pay 8% of the value of exempted goods for not maintaining separate accounts as per Rule 6 of the Central Excise Rules. The appellant argued that they had reversed the credit, thus negating the need to pay 8%. The Tribunal found that the issue was settled by the Supreme Court in Chandrapur Magnet Wires (P.) Ltd. v. CCE, which held that reversal of credit suffices, and there is no need to pay 8% of the value of exempted goods.

Conclusion:
The Tribunal set aside the orders of the Revisional Authority, restoring the orders of the Original Authority in most cases. It found that the appellants had shown reasonable cause for their failures and had complied with the law once informed of their obligations. The Tribunal emphasized the evolving nature of service tax law and the government's intention to encourage voluntary compliance. In the specific case of compliance with Rule 6 of the Central Excise Rules, the Tribunal upheld the appellant's contention that reversal of credit was sufficient, following the precedent set by the Supreme Court.