2018 (2) TMI 234 - AT - Service Tax

Penalty u/s 78 - cleaning services - grievance of the department is that the Commissioner did not impose penalty (Rs.3,53,35,047/-) equal to that of the service tax demand - Held that - it is seen that the respondent had raised strong contentions explaining for failure to discharge the service tax within due time. It was submitted by them that they could not make timely payment due to financial hardship as they had to first make payment to their employees. This was not considered by the adjudicating authority as a reasonable cause for invoking Section 80 of the Finance Act, 1994. From the counter filed by the respondent, it is seen that they had already paid the balance of demand of ₹ 7,25,444/- as well as the penalty imposed under Section 77. It is their case that they have not been given the option of reduced penalty in terms of proviso to Section 78 of the Finance Act, 1994. It is correct that the Commissioner has not given the benefit of reduced penalty (25% of the demand of service tax) to the respondent. The penalty imposed under Section 78 needs to be reconsidered for which we deem it fit to remand the matter to the Commissioner - appeal allowed by way of remand.

Summary

Issues involved:
1. Imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:
1. The Department filed an appeal against the order of the Commissioner, challenging the imposition of a reduced penalty under Section 78 of the Finance Act, 1994. The respondent, a registered entity under the category of "Cleaning Services," had not discharged their service tax liability for a specific period. The Commissioner confirmed the demand for service tax, interest, and penalties, but limited the penalty under Section 78 to an amount lower than the total demand. The Department contended that the penalty should be equal to the entire service tax demand, as the respondent had collected the tax but failed to remit it to the Government.

2. The respondent had made substantial payments before the issuance of the Show Cause Notice (SCN), which the Department argued should not have resulted in a reduced penalty under Section 78. The respondent, on the other hand, claimed that they had paid a significant amount before the SCN and had also explained the delayed payments due to financial constraints. The respondent asserted that they were not given the option of reduced penalty as per the proviso to Section 78. The respondent proposed a reduced penalty amount based on the total payments made, including the demand and interest, which they had already settled.

3. Upon review, the Tribunal found that the adjudicating authority did not consider certain aspects, including the respondent's financial difficulties leading to delayed payments. The Tribunal noted that the respondent had paid the balance of the demand and penalty imposed under Section 77. It was observed that the respondent had not been afforded the benefit of reduced penalty as per the proviso to Section 78. Therefore, the Tribunal decided to remand the matter back to the Commissioner for reconsideration of the penalty imposed under Section 78 and to grant the respondent the opportunity for reduced penalty as per the proviso to Section 78.

4. In conclusion, the Tribunal allowed the appeal by remanding the case to the adjudicating authority for a reassessment of the penalty under Section 78, directing a review of the imposition of penalties and granting the respondent the chance for a reduced penalty as per the provisions of the Finance Act, 1994.