Service Tax: Penalty under sections 76 & 78 mutually exclusive: Discretion regarding quantity of penalty is between minimum and maximum prescribed. Revision to enhance the penalty/to impose the penalty for the first time not permissible.
Facts: Tribunal set aside penalties imposed under sections 76, 77 & 78 of the Finance Act, 1994.
The Honourable High Court after hearing both the parties at length, formulated the following questions of law:
? Whether the penalty under the Finance Act, 1994, is automatic?
? Whether sections 76 and 78 of the Act are mutually exclusive?
? Even if the ingredients stipulated in sections 76 and 78 are established but if “reasonable cause” is shown, whether the authorities have power to impose penalties given in the explicit discretion in section 80 of the Act?
? 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?
? If the order passed by the assessing authority is within the four corners of law, i.e. within the parameters prescribed under the aforesaid statutory provisions, whether revisional authority by virtue of power conferred under Section 84 of the Act, can suo motu revise the order of the Assessing authority and enhance the penalty?
? Whether the revisional authority has jurisdiction to impose penalty for the first time when it has not been imposed by the adjudicating authority by invoking section 80?
The Hon. High Court observed that for imposition of penalty, the following is required to be examined:
a. existence of ingredients mentioned in sections 76, 77 and 78.
b. failure of the assessee to comply with the law.
c. Whether there exists “reasonable cause” for failure to comply with the requirement of law.
Reliance was also placed on Woodward Governer India P Ltd vs. Commissioner of Income Tax 2002 (253) ITR 745 (Delhi) which contains a provision conferring discretion on the income-tax authorities not to impose penalties when there is a reasonable cause shown by the assessee. According to the Court, the intention of the Parliament appears clear from the wordings of section 78 by which a discretion “may levy penalty” is conferred on the authority to impose or not to impose penalty. High Court also stated that analogy can be drawn from CCE vs. Sunitha Shetty 2006 (3) STR 404 (Karn) that the minimum penalty under section 76 cannot be read as Rs.100/- per day but read as Rs.100/-. The legislature amended the law w.e.f. April 18, 2006 after the above judicial pronouncement.
Section 78 applies to a case where a person has registered himself under the Act and failed to file prescribed return and in a return filed, he has suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service. Therefore, section 78 operates in altogether different field. However, this provision is made subject to section 80. Thus, even if there is a suppression or concealment of the value of taxable service or 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. Once the ingredients of section 78 are established and there is no reasonable cause for failure, section 80 is not attracted. Then the authority has to impose a minimum penalty of the amount of service tax sought to be evaded and the maximum is double the said amount. Here, no discretion is vested with the authority.
Further, it was concluded that penalty cannot be imposed both under sections 76 and 78 as they are mutually exclusive. It should also be further noted that the Finance Act 2008 also introduced a proviso to section 78 as “provided also that if the penalty is payable under this section, the provision of section 76 shall not apply.”
If there is no reasonable cause shown, the authority has the discretion to quantify the penalty to be imposed. Still, the penalty to be imposed cannot be less than the minimum or more than the maximum prescribed under the statute.
If the penalty imposed is not less than the minimum prescribed under law, the revisional authority has no power to enhance the amount of penalty on the ground that it is less.
When the assessing authority, in its discretion has held that no penalty is leviable, by virtue of section 80 of the Act, the revisional authority cannot invoke its jurisdiction and impose penalty.
