2017 (10) TMI 1191 - AT - Service Tax

Enhancement of penalties - section u/s 77 and 78 of FA - Held that - the argument put forth by the ld. Commissioner (Appeals) as regards the penalty which has also been enhanced by Section 78 seems to be no ground as there is enough reasoning given by the first appellate authority. Accordingly, the enhancement of penalty to ₹ 2000/- under section 78 seems to be in consonance with the law. As regards the penalty imposed under Section 77(1) of the Finance Act, 1994, it is undisputed fact that the entire service tax demand which has arisen in the Appeal is ₹ 3604/- during the relevant period - the first appellate authority in the case in hand has not considered the provision as it was on the day of adjudication, order was passed. Be that as it may, I find that imposition of penalty of ₹ 2,49,400/- under the provision of Section 77 from the demand of ₹ 3604/- will be irrational and unacceptable. Appeal allowed in part.

Summary

Issues:
1. Contesting enhancement of penalties under Sections 77 and 78 of the Finance Act, 1994.
2. Consideration of penalty imposition by the first Appellate authority.
3. Dispute over penalty amount under Section 77.

Analysis:

1. The appeal was filed against the Order-in-Appeal passed by the Commissioner (Appeals III), Central Excise, Rajkot, contesting the enhancement of penalties under Sections 77 and 78 of the Finance Act, 1994. The Appellant had discharged the service tax liability pointed out by the audit party, paid all dues arising from the Order-in-Original, and penalties were imposed by the adjudicating authority. The Revenue appealed against the order, leading to the first Appellate authority enhancing the penalties under both sections. The Appellant challenged the penalty enhancements, leading to the present appeal.

2. The first Appellate authority had enhanced the penalties under Sections 77 and 78 after due process of law. The argument regarding the penalty enhancement under Section 78 was found to be reasonable by the Member (Judicial) presiding over the case. However, the imposition of penalties was further analyzed concerning the provisions of the Finance Act, 1994, to determine the legality and rationality of the penalties imposed.

3. The Member (Judicial) noted that the penalty imposed under Section 77(1) of the Finance Act, 1994, was disproportionate to the service tax demand of &8377; 3604/- during the relevant period. The adjudicating authority had initially imposed a penalty of &8377; 10000/- as mandated by Section 77(1)(a). The first Appellate authority did not consider the provision as it was on the day of adjudication, leading to an irrational penalty enhancement to &8377; 2,49,400/- from the original demand. The Member (Judicial) deemed this penalty enhancement unreasonable and set it aside, contesting the enhancement of penalty under Section 77.

In conclusion, the appeal was disposed of with the contestation of penalty enhancements under Sections 77 and 78 of the Finance Act, 1994. The judgment provided a detailed analysis of the penalty impositions, ensuring that the penalties were rational, legal, and in accordance with the provisions of the law.