Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise vs Maersk India Pvt. Ltd on 9 July, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II Appln.No.ST/CO/14/07 & ST/CO/14/08 APPEAL No.ST/191/07 & ST/183/07 (Arising out of Order-in-Original No.12/MJ/(12)/Commr/RGD/ Maersk/07-08 dated 05/09/2007 passed by Commissioner of Central Excise, Raigad) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Commissioner of Central Excise, Raigad Appellant Vs. Maersk India Pvt. Ltd., Respondent Maersk India Pvt. Ltd., Appellant Vs. Commissioner of Central Excise, Raigad Respondent Appearance:
Dr.B.S.Meena, Addl. Comm. (AR) for appellant Shri.Bharat Raichandani, Advocate for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr. Ramesh Nair, Member (Judicial) Date of Hearing : 09/07/2014 Date of Decision : /07/2014 ORDER NO Per: P.R.Chandrasekharan The two appeals, one by the appellant and the other by Revenue, and the cross-objections, are directed against order-in-original No. 12/MJ(12)/COMMR/RGD/MAERSK/07-08 dated 05/09/2007 passed by the Commissioner of Central Excise, Raigad Commissionerate. Vide the impugned order, the ld. Adjudicating authority has confirmed a service tax demand of Rs.53,66,874/- along with interest thereon for the period 1-2-2005 to 31-3-2006 apart from imposing an equivalent amount of penalty under both sections 76 and 78 of the Finance Act, 1994. The service rendered by the appellant has been classified as Storage and Warehousing services for the purposes of the confirmation of demand. The appellant M/s Maersk India Pvt. Ltd. (MIPL in short) is aggrieved of the classification and consequent confirmation of demand while the Revenue is aggrieved of the dropping of the demand for the period 16-8-2202 to 31-1-2005. Hence the appeals before us.
2. The facts relevant to the case are briefly as follows. M/s MIPL is running a container freight station (CFS) at Dronagiri Warehousing Complex, Uran, Navi Mumbai. They entered into a contract with M/s Maersk Logistics India Pvt. Ltd. (MLOG in short) for the period 2002 to 2004 for providing various services at the CFS. As per the said contract, MIPL provided to MLOG space measuring 2100 sq.mtr. in warehouse Nos.4 and 2 for keeping, storing, stuffing and consolidation of export cargo and collected monthly rental of Rs.10 lakhs for warehouse No.4 and Rs.4.35 lakhs for warehouse No.2. For the period with effect from 1-2-2005, the space provided to MLOG was 3000 sq. mtrs. for the same purpose; however, no separate fixed monthly charges were specified in the contract. However, the rates for cargo handling were substantially increased. The department was of the view that the provision of space in the warehouses by MIPL came under the category of storage and warehousing services and liable to service tax and accordingly demanded service tax vide notice dated 2-4-2007 for an amount of Rs.1,18,33,342/- for the period 16-8-2002 to 31-3-2006. The appellant contested the demand and submitted that the reservation of space was in the context of cargo-handling of export cargo which was specifically excluded from the scope of cargo handling service and hence the demand is not sustainable. The adjudicating authority, held that the reservation of space in the CFS fell under the category of storage and warehousing service and liable to service tax. However, he held that in as much as the appellant had submitted a letter dated 13-3-2003 and the fact of space reservation was clearly mentioned in the said letter, no suppression can be alleged and held the demand to be time-barred for the period prior to 1-2-2005. In respect of the agreement dated 1-2-2005, he held that the appellant had changed the terms of the contract. While they continued to perform the same services including reservation of space, they deliberately avoided mentioning of the rental for the space reservation and increased the charges for cargo-handling which amounted to deceit on the part of the appellant. Accordingly he confirmed the demand for the period 1-2-2005 along with interest and also imposed equivalent amount of penalty both under sections 76 and 78 of the Finance Act, 1994. Hence the appeals before us.
3. The ld. Counsel for the appellant made the following submissions.
3.1 The nature of the activities undertaken by the appellant consisted of cargo carting, customs examination, cargo stuffing and back to town services and the appellant is registered with the department under the taxable service category of cargo handling services since 2002. The appellant is discharging service tax in respect of such services pertaining to imported goods. However, since the said service, specifically excluded export cargo from its scope, the question of payment of service tax does not arise in respect of export cargo.
3.2 The activity of storage of export cargo at the CFS is merely incidental to the cargo handling services provided in respect of such cargo. Export cargo that enters the CFS is temporarily stored after carting before examination and stuffing of cargo and hence the essential or dominant nature of the service rendered is cargo handling and not storage or warehousing.
3.3 The CBEC vide circular 334/4/2006-TRU dated 28-2-2006 has clarified that a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. The services provided by CFS are essentially in the nature of cargo handling and the storage and warehousing services in respect of export cargo are only incidental to the main activity of cargo handling and therefore, the entire service should be deemed as cargo handling service. The Board vide circular dated 1-8-2002, at the time of inception of levy on storage and warehousing services, had clarified that such services provided by railway and bus stations would not come within the tax net as they are in the nature of passenger terminal services incidental to rail and road transport.
3.4 Reliance is placed on the decision of the honble High Court of Punjab and Haryana in the case of Dr. Lal Path Lab (P) Limited [(2007) 11 STR 307 (P&H)] wherein, in the context of technical testing and analysis service it was held that if a service is specifically excluded from the scope of the levy of a particular taxable service, the same cannot be included in some other category of taxable service for the purposes of the levy. Reliance is also placed on the decisions of the Tribunal in the case of Konkan Marine Agencies [2007-TIOL-1853-CESTAT-BANG] affirmed by the honble Karnataka High Court [2009 (13) STR 7 (Kar)] and the decision of the honble Kerala High Court in the case of Kerala State Industrial Enterprises Ltd. [2011 (28) STR 574 (Ker)] wherein it was held that cargo handling services in respect of export cargo cannot be taxed under port services and handling of export cargo/passenger baggage/mere transportation of goods in respect of cargo handling services should be liberally construed. The appellant also relies on the decision of the co-ordinate bench of this Tribunal in the case of Gujarat Chem. Port Terminal Co. Ltd. wherein it was held by a majority decision that storage and warehousing services rendered as incidental and integral part of port service cannot be classified separately and taxed accordingly.
3.5 It is also argued that the taxable value has been arrived at a notional basis of Rs.683.33 per sq. mtr./ month in respect of storage and warehousing services and there is no provision under section 67 of the Finance Act, 1994 to levy service tax on a notional basis.
3.6 As regards the allegation of suppression and invocation of extended period of time for confirmation of demand, it is submitted that the appellant vide letter dated 13-3-2003 had informed in detail the nature of the activities undertaken by the appellant and the charges collected in respect of these activities. As regards the omission of the charges for reservation of space in the contract dated 14-2-2005, there is no provision in law that an assessee should inform the department of all the contracts entered into with the clients/customers. Since the matter relates to interpretation of law where a difference in interpretation has arisen, the invocation of extended period of time for confirmation of demand and imposition of penalty is not warranted and reliance is placed on a few decisions such as K.K. Appachan [2007 (7) STR 230}, Jagriti Industires [2001 (127) ELT 841], Chloride India Limited [ 1994 (72) ELT 435] and Associated Pigments Ltd. [1993 (68) ELT 514].
In the light of the above, it is pleaded that the appeal of MIPL be allowed.
4. The ld. Addl. Commissioner (AR) appearing for the Revenue strongly opposed the contentions of the appellant and made the following submissions.
4.1 From the appendix II of the contract between MIPL and MLOG, it is evident that the former had provided 2100 sq. mtr. in warehouse Nos. 4 & 2 to the latter and the latter had paid a fixed monthly rental of Rs.10 lakhs and Rs. 4.35 lakhs to the former for this service in addition to the charges paid for cargo handling. Further. MIPLs obligation also included giving empty space on rental basis, storage, stuffing and handling of export cargo, security, loading and unloading etc. These services provided comes within the scope of storage and warehousing services, as clarified by the Board in circular No. B/11/1/2002-TRU dated 1-8-2002 and as defined in section 65 (102) of Finance Act, 1994.
4.2 The appellant assessee had suppressed the facts about the contract regarding the services provided by MIPL with MLOG and 10 other customers under the category of storage and warehousing services with intent to evade payment of service tax. As regards the letter dated 13-3-2003, the assessee did not enclose the copies of the entire contracts with the said letter but only enclosed a write up about the activities undertaken by them. Though they had mentioned about the collection of space reservation charges, it was stated that the said charge is essentially a part of the handling of export cargo and hence excluded from the scope of service tax. In other words, the assessee did not declare to the department the true scope and nature of the services rendered. Therefore, the extended period of time is rightly invokable and the entire demand is sustainable in law. The dropping of the demand for the period prior to 1-2-2005 by the adjudicating authority is, therefore, erroneous.
4.3 As per the contract dated 1-1-2002 with MLOG, read with Appendix I thereof, clause 2.1 thereof provided for proper storage and handling facilities for MLOGs export cargo. Clause 2.6 provided for complete control and supervision of containers and cargo while in MIPLs custody and possession. Clause 2.10 provided for provision of adequate labour and supervision. Clause 2.14 provided for provision of security to prevent pilferage, theft and /or fires to the MLOGs cargo. Appendix II to the contract specifically stated that MLOG will pay to MIPL a fixed monthly rental amount of Rs.10 lakhs in respect of warehouse No.4 and Rs.4.35 lakhs in respect of warehouse no.2 These amounts were in addition to the carting charges, de-stuffing/re-stuffing charges, ground rent, lift on/lift off for empty containers, stuffing and movement of export cargo/OOG cargo to JNPT/NSICT and Back to town charges. The collection of these charges separately in addition to cargo handling charges were never declared to the department . In the contract dated 14-2-2005, while all the activities/services rendered remained the same and a space of 3000 sq. mtrs. of storage space was provided to MLOG, the fixed monthly rental was omitted but the charges for cargo handling was substantially increased to avoid the tax liability. For e.g., the tariff for stuffing and movement charges were raised from the range of Rs.750/- to Rs.1400/- per container prior to 2005 to the range of Rs.4000/- to Rs.9000/- per container. Similarly, carting charges, re-working charges, lift on/lift off charges, back to town charges were raised by 50%. These substantial increases were made only to off-set the monthly rental charges which was being collected earlier Thus the manipulation made in the contract is clearly evident which evidence the mens rea on the part of the appellant to evade service tax, necessitating invocation of the extended period of time for confirmation of demand and imposition of penalties. Similar increases in the cargo handling tariffs were made in respect of other parties also who were provided with the storage and warehousing services.
In this factual scenario, the ld. AR submits that the dropping of the demand for the period prior to 1-2-2005 was an error committed by the adjudicating authority and hence, the entire demand should have been confirmed and equivalent penalties imposed on the appellant.
5. We have carefully considered the rival submissions.
5.1 From the copies of the contracts provided by the Revenue, it is evident that the appellant were rendering two types of services. In respect of all the customers, they were rendering cargo handling services such as loading, unloading, arranging for and supervision of examination of cargo, stuffing and de-stuffing of cargo, carting and back to town, movement of empty containers and so on. For these services, they collected charges for each type of service rendered either on a tonnage basis or per container basis. However, in respect of MLOG and 10 other special customers, in addition to the above, they also rendered services relating to storage and warehousing of export cargo. The question for consideration is whether such storage and warehousing services can be considered as incidental to cargo handling or not and whether service tax can be levied separately on such services.
5.2 From the Tariff for CFS operations of MIPL, it is seen that the standard period of storage for export cargo is 5 days which is rendered free of charge. For storage in excess of this period, charges are collected @ Rs.25 per sq. mtr. per week subject to a minimum charges for 5 sq. mtrs., solely at the discretion of MIPL. For specific customers such as MLOG and its clients, the contract entered into provide for earmarking of separate space in specific godowns/warehouses and the storage charges are recovered by way of monthly rentals. In respect of such warehoused goods, the appellant undertakes loading/unloading, provision of labour, security, and so on. Therefore, these activities undertaken in addition to the normal activity of cargo handling, by way of specific clauses in the agreement and for a specific consideration cannot be said to be incidental to cargo handling services.
5.3 According to Oxford Dictionary incidental means happening as a minor accompaniment to something else; occurring by chance in connection with something else. As per Macmillan dictionary, the word incidental means related to something but considered less important; accidentally happening as a result of an activity or process. Merriam Webster dictionary defines incidental as happening as a minor part or result of something else; occurring merely by chance or without intention or calculation. From the wording of the contract entered into by the appellant, it is evident that the activity of storage is not accidental or without intention. It is also not minor or less important compared to cargo handling. If it were so, it would not have been specifically mentioned in the contracts and separate charges fixed on a monthly basis. Only the normal storage for 5 days extendable on a weekly basis could come within the category incidental to cargo handling. It is a settled position in law that the substance of an agreement has to be considered and not the wording used in the agreement as held by the honble apex court in the case of Bhopal Sugar [(1977) 3 SCC 147]. Therefore, we reject the contention of the appellant that the storage and warehousing services rendered by the appellant to specific customers on specific terms and conditions are activities incidental to cargo handling in respect of export cargo and hence not liable to service tax.
5.4 Section 65 (23) of Finance Act, 1994 defines cargo handling service as loading, unloading, packing or unpacking of cargo and includes,-
(a) cargo handling services provided for freight in special containers or for non-containerised freight, services provided by a container freight terminal or any other freight terminal, for all modes of transport, and cargo handling service incidental to freight; and
(b) service of packing together with transportation of cargo or goods, with or without one or more of other services like loading, unloading, unpacking, but does not include, handling of export cargo or passenger baggage or mere transportation of goods. It is relevant to note here that storage of cargo is not specifically mentioned anywhere in the definition. If storage was an incidental activity to cargo handling, the same would have been specifically mentioned along with loading, unloading, unpacking, mere transportation. Thus from the statutory definition, it is amply clear that storage and warehousing of goods is a separate activity in itself and does not form part of cargo handling services.
5.5 Section 65 (102) of the said Finance Act defines storage and warehousing as -
storage and warehousing includes storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or any service provided by a cold storage.
In the facts of the case before us, it is not in dispute that the activity of the appellant does not fall in the exclusion clause specified in the definition for storage and warehousing services.
5.6 At the time of inception of the levy, the Board vide circular dated 1-8-2002 had clarified that storage and warehousing service for all kinds of goods are provided by public warehouses, by agencies such as Central Warehousing Corporation, Air-port authorities, Railways, Inland container depots, Container Freight stations , storage godowns and tankers operated by private individuals etc. The storage and warehousing service provider normally make arrangement for space to keep the goods, loading, unloading and stacking of goods in the storage area, keeps inventory of goods, makes security arrangements and provide insurance cover etc. Services provided in ports has already been covered under the category of port service. From the scope of the levy, as clarified by the Board, which is the apex agency of the Government implementing service tax levy, it is clear that such service rendered by a Container Freight Station is also covered within the scope of the levy. In the present case, from the contract, entered into by the appellant, it is seen that the appellant has been undertaking all these activities and therefore squarely come within the definition of storage and warehousing services. Though the clarification issued by the Board is not binding on this Tribunal, it has a persuasive value and should be given due weight as held by the honble apex court. .In K.P. Varghese vs. Income Tax Officer [1981] 131 ITR 597 (SC)], the supreme Court, based on the earlier judgment in the case of Baleshwar Bagarti vs. Bhagirathi Das [1908] ILR 35 Cal 701/703 expounding the principle of administrative construction, i.e. contemporaneous construction placed by administrative or executive officers charged with executing a statute, held that-
"It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon, it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it."
Again in the case of Collector of Central Excise, Guntur vs. Andhra Sugar Ltd. 1988 (38) ELT 564 (SC)], the hon'ble apex Court reiterated the same as follows:-
"It is well settled that the meaning ascribed by the authority issuing the Notification, is a good guide of a contemporaneous exposition of the position of law. Reference may be made to the observations of this Court in K.P. Varghese vs. The Income Tax Officer, Ernakulam. [1982] 1 SCR 629. It is well settled principle of interpretation that courts in construing a Statute will give much weight to the interpretation put upon it at the time of its enactment and since, by those whose duty has been to construe, execute and apply the same enactment."
In view of the above factual and legal position, we reject the contention of the appellant that the services rendered by him in respect of storage and warehousing of export cargo comes under the category of cargo handling services and not under storage and warehousing services.
5.7 As regards the reliance placed by the appellant in the case of Konkan Marine Agencies, Kerala State Industrial Enterprises, Gujarat Chem. Port Terminal Co. Ltd., these cases dealt with a situation where cargo handling services were sought to be taxed under the category of Port Services. In the Kerala State Industrial Enterprises, the honble Kerala High Court was concerned with a situation where retention of cargo upto 48 hours of the air cargo and passenger baggage for x-raying, for completion of customs formalities and the time taken by the airlines to lift the cargo could be considered as storage and warehousing for the purpose of levy of service tax and the court held it otherwise. In the very same decision, in para 4, the honble High Court also clearly held that however, we agree with the contention of the Standing Counsel that if charges collected by the appellant is really for storage and warehousing covered by section 65 (102), service tax could be levied on such charges. In this regard what we notice is that the appellant is not claiming complete exemption from service tax on terminal charges collected and so much of the amount collected for storage and warehousing are subject to service tax. This happens only when retention of the air cargo or passenger baggage in appellants terminal is beyond 48 hours. In fact this decision of the honble Kerala High Court supports the contention of the Revenue that service tax could be collected under storage and warehousing service, if the retention of the cargo is beyond the normal period of 48 hours. In the Konkan Marine Agency case, the question for consideration was whether stevedoring operations undertaken by the appellant would be liable to tax under port services or not. In the facts of the case it was held that the said activity would come under the category of cargo handling services and not under port services. We do not understand how the said decision would apply in the facts of the case before us. In the Gujarat Chem. Port Terminal case, the question for consideration was whether storage services undertaken in a port area is taxable separately as storage or warehousing services or as port services. This Tribunal noted that storage facility in port is a requirement of law as per section 42 of the Major Port Trusts Act, 1963 and therefore, it forms an integral part of the port services. This is not the position obtaining in the case before us. The appellant has not produced any evidence before us that storage and warehousing is a statutory requirement under any law governing container freight stations. The very fact that the appellant is providing the said service only to selected customers on collection of separate charges itself would show that this is not a statutory requirement. In these circumstances, no reliance can be placed on the said decision for the consideration of the present appeal. In the Al Noori Tobacco Products case [2004 (170) ELT 135 (SC)], the honble apex court, quoting Lord Denning in the matter of applying precedents held that -
"Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect, in deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive."
*** *** *** "Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it."
In view of the above, the reliance placed by the appellant on various case laws is of no help as the facts of those cases are different and distinguishable and hence cannot be applied to the facts of the case before us. Thus on merits, we do not find any reason to uphold the contention of the appellant for classification under cargo handling services.
5.8 The next contention of the appellant is that the demand is time barred in as much as the show cause notice was issued only in 02-04-2007 whereas the appellant had informed the activity undertaken by him vide letter dated 13-3-2003. It is also contended that there was no statutory requirement of the change made in the contract dated 14-2-2005 to the department regarding the omission in respect of payment of consideration in terms of monthly rental for the storage and warehousing services rendered. For the period prior to 1-2-2005, the adjudicating authority has concluded that in the letter dated 13-3-2003, the appellant was forthright in informing the department that they were also rendering storage services to some of their customers and therefore, the department was aware of the said fact. However, the said authority in respect of contract dated 14-2-2005 withheld the information by redrafting their agreement to give the impression that they are not charging anything for space reservation and they also started paying under protest service tax on charges collected for export loaded container ground rent. Therefore, he has concluded that the appellant suppressed the true nature of charges with the deliberate intention to evade payment of service tax. The Revenues contention is that the appellant did not enclose the contract entered into with MLOG with their letter dated 13-3-2003 and therefore, the department was unaware of the true nature of the services rendered and therefore, extended period is invocable. From the evidence on record, it is clear that in the letter dated 13-3-2003, the appellant did inform that they are collecting space reservation charges by way of fixed monthly charges from certain customers and they are not paying service tax as the said activity is part of cargo handling in respect of export cargo. The department could have very well asked for the copies of the contracts entered into by the appellant in respect of such customers. However, the department failed to take necessary action in this regard. Therefore, for the laxity on the part of the department, suppression cannot be alleged on the part of the appellant and therefore, we do not find any infirmity in the order of the adjudicating authority in dropping the demand of service tax for the period prior to 1-2-2005. However, the question is whether suppression can be alleged for the period w.e.f.1-2-2005. The conduct of the appellant really matters in this regard. Even though the services rendered by the appellant remained identical both prior to and after 1-2-2005, certain clever manipulations were resorted to by the appellant and the clauses relating to payment of monthly rental was removed even though storage and warehousing services were rendered in warehouses 2, 3 and 4. The storage area was also increased from 2100 sq. mtrs. to 3000 sq. mtrs. The various charges for handling of cargo was substantially increased as detailed in paragraph 4 (iii) above. This manipulation is very evident. Therefore, the ld. Adjudicating authority rightly observed that the appellant suppressed collection of service charges by manipulation for the period 1-2-2005 onwards and confirmed the service tax demand. The appellant is operating under the self-assessment regime and therefore, it is his responsibility to correctly assess and discharge the tax liability and reflect the transactions in the ST3 returns filed. Therefore, if there is any material change in the nature or terms and conditions of the transaction, the same should have been brought to the notice of the department which the appellant has failed to do in the instant case. Accordingly, we do not find any infirmity in the conclusions drawn by the adjudicating authority in this regard. Therefore, we uphold the findings of the adjudicating in respect of confirmation of service tax demand for the period from 1-2-2005 onwards. Once the demand for service tax is upheld, confirmation of demand towards interest is automatic and consequential.
5.9 The last issue for consideration concerns imposition of penalty equal to the service tax demand confirmed both under sections 76 and 78 of the Finance Act, 1994. While penalty under section 76 is for default in payment of service tax due and no mens rea is required to be proved, penalty under section 78 is imposable only when mens rea is involved. The honble High Court of Kerala in the case of Krishna Poduval [2006-TIOL-77-HC-KERALA-ST] held as follows:-
The penalty imposable under section 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of section 68 and the rules made thereunder, whereas section 78 relates to penalty for suppression of the value of taxable service. Of course, these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the person liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above sections, especially since the ingredients of the two offences are distinct and separate. In Chairman, SEBI Vs Shriram Mutual Fund and another [2006-TIOL-72-SC-SEBI], the honble Apex Court held that mens rea is not an essential element for imposing penalty for breach of civil obligations.
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws."
In M/s Gujarat Travancore Agency, Cochin vs. C.I.T. , 1989 (3) SCC 52, the honble Apex Court held that -
The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision."
In the light of these decisions, the penalty imposed under section 76 of the Finance Act, 1994 is fully justified in the facts of the present case. However, with respect to the penalty imposed under section 78, in our considered view the same is not warranted as the issue related to a classification dispute and it is well settled that in classification matters, imposition of penalty is not required. Accordingly we set aside the penalty imposed under section 78.
6. In view of the factual and legal analysis as discussed above, we sum up our decision as follows:-
6.1 We uphold the classification of the service rendered under the category of storage and warehousing services as defined in section 65 (102) of the Finance Act, 1994 and the consequential confirmation of service tax demand of Rs.53,66,874/- along with interest thereon against the appellant M/s Maersk India Pvt. Ltd. under the provisions of section 73 and 75 of the said Finance Act.
6.2 We uphold the imposition of penalty of equivalent amount under section 76 of the said Finance Act.
6.3 We set aside the penalty of equivalent amount imposed under section 78 of the said Finance Act.
7. Thus the appeal of the appellant M/s Maersk India Pvt. Ltd. is partly allowed and that filed by the Revenue is dismissed. The Cross-objections filed by both the parties are also disposed of.
(Pronounced in the Court on ) (Ramesh Nair) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 23