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TMI Blog2012 (6) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... tting aside the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994 (hereinafter for short referred to as 'the Act') would cover all aspects and therefore, after hearing the learned counsel for the parties at length we have formulated the following substantial questions of law for consideration:- SUBSTANTIAL QUESTIONS OF LAW 1) Whether the penalty imposable under the Finance Act, 1994 is automatic? 2) Whether Sections 76 and 78 of the Act are mutually exclusive? 3) Even if the ingredients stipulated in Sections 76 and 78 of the Act are established, if "reasonable cause" is shown for the failure, whether the authorities have power to impose penalties given the explicit discretion in Section 80 of the Act? 4) If after holding that all the ingredients under Sections 76 and 78 exist and no reasonable cause is made out by the assessee, whether the imposition of penalty as prescribed under these two provisions is automatic or whether any discretion is left in the authority in the matter of imposing penalty? 5) If the order passed by the assessing authority is within the four corners of law, in other words within the parameters prescribed under the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck-broker to an investor in connection with the sale or purchase of securities listed an a recognised stock exchange: services rendered to a subscriber by the telegraph authority: and services rendered by an insurer to a policy holder. Under the Act, it was clarified that words and expressions not defined in Chapter V but used therein shall bear the same meaning as given in the Central Excise Act, 1944. Section 66 stated that service tax shall be levied at the rate of five per cent of the value of taxable services provided to any person by the service provider who was responsible for collecting the service tax. It was similar to section 3 of the Central Excise Act, 1944. Section 67 dealt with collection and recovery of service tax, Section 71 dealt with assessment. Section 72 dealt with best judgment assessment. Section 73 dealt with value of taxable services escaping assessment. Section 83, inter alia, stated that Section 9C, 9D, 11B, etc., of the Central Excise Act shall apply also to collection and recovery of service tax. The administration of service tax is given to the authorities under the Central Excise Act." 5. For the first time when service tax was introduced in India i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied that any person has, with intent to evade payment of service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service, he may direct that such person shall pay by way of penalty, in addition to service tax and interest, if any, payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of income tax sought to be evaded by reason of suppression or concealment of the value of taxable service or the furnishing of inaccurate value of such taxable service. SECTION 80. Penalty not to be imposed in certain cases - Notwithstanding anything contained in the provisions of section 76, section 77, section 78 or section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure." 7. Section 77 deals with penalty for failure to furnish prescribed return, Section 79 deals with penalty for failure to comply with notice. 8. From the aforesaid provisions, it is clear that a person who is liable to pay tax under the Finance Act, 1994, is under a legal obligation to get himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 76 and 78 stand, unless, the ingredients mentioned in both the sections exist. those sections are not attracted. After those ingredients are held to be in existence and the sections are attracted, even then the imposition of penalty is not automatic. 11. Section 80 is emphatic in terms of text that no penalty shall be imposable on the assessee for any failure referred to in Sections 76,77,78 and 79, if the assessee proves that there was a "reasonable cause" for the said failure. Therefore, mere failure to comply with the requirements of the Section does not vest any power in the adjudicating or assessing authority to impose penalty. Once, the failure of the requirements of the said provisions is established, in view of the non-obstante clause in Section 80, the authority has to find out whether there was any "reasonable cause" for the assessee for such failure to comply with the requirement of law. If the assessee makes out a reasonable cause. Section 80 mandates that no penalty shall be impossable on the assessee. Therefore, the sine qua non for the authority to impose penalty is as follows:- a) existence of ingredients mentioned in Section 76,77 and 78: b) failure on the par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cuase which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be as regards the reason for failure was on account of reasonable cause. "Reasonable cause" as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described a probable cause. It means an honest belief founded upon reasonable grounds of the existence of a state of circumstances which assuming them to be true would reasonably lead any ordinarily prudent and cautions man placed in the position of the person concerned to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it found to be frivolous without substance or foundation, the prescribed consequences follow." 13. Therefore, given the language of Section 80 of the Act, which confers discretion on the service tax authorities not to impose penalty if there is reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Apex Court held as under:- "Section 18(1) empowers the officer under the Act to impose penalty on a person in certain contingencies. As per the sub-section if the Wealth Tax Officer. Appellate Assistant Commissioner or Appellate Tribunal in the course of any proceedings under the Act is satisfied that any person has without reasonable cause failed to furnished the returns which he is required to furnish or has without reasonable cause failed to furnish within the time allowed or without reasonable cause failed to comply with a notice under section 16 (2) or (4). or has concealed the particulars of any assets or furnished inaccurate particulars of any assets or debts such officer may direct that such person shall pay by way of penalty, the amount specified respectively in three clauses set out therein. Section 18-B confers power on the Commissioner to reduce or waive such penalty in certain contingencies, if he is satisfied that such person has made full and true disclosure of his net wealth and has also cooperated in any enquiry relating to the assessment of his net wealth and has either paid or made satisfactory arrangement for the payment of any tax or interest payable in co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty either less than the minimum or in excess of the maximum that is prescribed by the Statute. In this regard no discretion is left to the adjudicating authority. The discretion is within those two parameters. What exactly is the quantum of penalty to be imposed is a matter left to the authority having regard to the facts of that particular case. 16. In this connection, it was also pointed out by counsel that the word one hundred rupees has to be read with the words "per day". This was also a subject matter of interpretation before the Tribunal as well as this Court. The Tribunal in the case of SMITHA SHETTY VS CCE, reported in 2003 (156) ELT 841 (T), at Para 12, held as under:- "I have carefully considered the matter. The Departments contention is the words 'everyday' appearing after 'rupees two hundred' qualify the expression' rupees one hundred' also. In other words, the Revenue's stand is that Sec. 76 prescribes the minimum penalty as 'rupees one hundred' for everyday and lays down the maximum limit of rupees two hundred per day. It was emphatically argued that since there was no comma after the words 'rupees one hundred' like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no ambiguity or doubt in arriving at the meaning of the wordings of the relevant section. On a plain reading of the Section it can be understood that the Section has laid down minimum penalty of Rs. 100/- and maximum penalty of Rs. 200/- for every day delay. The ruling given by the Apex Court in the case of Hindustan Steel Vs. State of Orissa (Supra) is relevant in this context. It was held therein an order imposing penalty for failure to carry out the statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contentious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances. Even if a minimum penalty is prescribed the authority competent to impose penalty will be justified in refusing to impose penalty. When there is a technical or judicial breach of the provisions of the Act or where the breach flows from a bonafide belief ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her different field. But even if as a matter of fact, it is established that the assessee has suppressed or concealed the value of taxable service and has furnished inaccurate value of such taxable service the imposition of penalty is not automatic. The intention is clear from the words used in the said provision to the effect that he may act according to the provisions while imposing penalty. 20. However, this provision is also made subject to Section 80. Therefore, even if there is a suppression or concealment of the value of taxable service of inaccurate value as mentioned in the returns filed, if that is on account of a bonafide mistake or any cause which constitutes "reasonable cause", no penalty is leviable. Therefore, the argument that once acts of suppression, concealment and furnishing inaccurate particulars are established the penalty follows as a matter of course or in other words is automatic is without any substance as it runs counter to the express provision contained in Sections 78 and 80 of the Act. When once it is held that there is no reasonable cause, then the authority is empowered to impose penalty as prescribed under Section 78, for such failure. Here the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said section also. In any event we are not satisfied that an assessee who is quility of suppression deserves such sympathy. As such we are of opinion that the learned Single Judge was not correct in directing the 1st appellant to modify the demand withdrawing penalty under Section 76. Therefore, the judgement of the learned Single Judge to the extent it directs the first appellant to modify Ext. P1 by withdrawing penalty levied under section 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However we do not make any order as to costs". 22. With due respect, we are of the view that said judgment runs counter to the express provisions contained in Sections 76 and 78 in fact, in support of our contentions, we would like to point out that by Finance Act 2008 (18 of 2008) which came into force from 10.5.2008, the Parliament has made the legal position clear by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, merely because there is no indication under what circumstances such power could be exercised it cannot be contended that no power was vested with the revisional authority. If it is contended as such the said provision would become ultra-vires the Constitution. Therefore in order to save the said provision from vires of the unconstitutionality, we can take a clue from the word used in the head note. The power of revision is well understood by various pronouncements of the courts. 26. The Apex Court had a occasion to consider this power of revision under the Income Tax Act, 1961 as contained in Section 263 in MALABAR INDUSTRIAL CO LTD vs CIT reported in 2000 (243) ITR 83 (SC). After extracting the aforesaid provision the Supreme Court held as under: "A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions namely. (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example when an Income tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income tax Officer has taken on view with which the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v CIT (1968 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v CIT (1973) 88 ITR 323 (SC)." 27. The Delhi High Court in the case of ADDL. CIT VS. SUDERSHAN TALKIES reported in (1993) 2000 ITR 153 (Del.) again dealing with the revisional power under the income tax law held as under:- "A similar question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty proceedings under section 271 (1)(C) do not render the assessment made dated January 16, 1989, erroneous or prejudicial to the interests of the Revenue and consequently the Commissioner of Income tax is not justified in assuming under section 263, is therefore answered in favour of the assessee and against the Revenue:" 29. The learned counsel for the revenue submitted that all the judgments referred to by the counsel for the respondent-assessee are rendered under the income tax law. Whether the provision which falls for interpretation under the Act is similar to the provision in the Income Tax is to be seen. It is true that as we have pointed out, wordings of Section 263 in the Income Tax is not in parimateria with Section 84 of the Finance Act, 1994. In Section 263 the two grounds on which a revisional authority could exercise jurisdiction are briefly explained, i.e, the order is erroneous and when the order is prejudicial to the interest of the revenue. Both these words are missing in Section 84. As pointed out earlier. If there is no indication of the scope of power of revisional authority under the Act, it is liable to be struck down as violative of Article 14 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to interfere with an order passed by the lower authority. When the lower authority imposes a penalty, which is more than the minimum, the revisional authority has no jurisdiction in exercise of power under Section 84 to interfere with such power and enhance the penalty. Of course, when the penalty is more than, minimum, the aggrieved person would certainly challenge the order on the ground that the penalty imposed is on the higher side. Though it is more than the minimum and is less than the maximum the revisional authority certainly cannot interfere with the discretionary order passed by the assessing or adjudicating authority which has been vested with the power and discretion to impose such penalty. 32. While imposing penalty, if the authority imposes a penalty invoking a wrong provision i.e. in a case which is covered under Section 78, he invokes power under Section 76 or in a case which is covered under Section 76, he invokes power under Section 78 and imposes penalty, that by itself is not conclusive. The Court has to apply its mind to find out first whether the case falls under Section 76 or 78 and only then can penalty be imposed in accordance with the statutory provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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