Customs, Excise and Gold Tribunal - Tamil Nadu
Inma International Security Academy ... vs Cce on 17 November, 2004
Equivalent citations: 2005(180)ELT107(TRI-CHENNAI), 2006[3]S.T.R.457
ORDER P.G. Chacko, Member (J)
1. Examined the records and heard both sides.
2. The appellants were engaged in the activity of training people for security services during the material period. Security service had become a service exigible to service tax in 1998. It appears that the appellants were not aware of this fact. The department found that, between 1999 and 2001, the appellants rendered security service for monetary consideration but did not pay tax thereon, nor had they got themselves registered as security service-provider or filed the requisite service tax returns. On the basis of this finding, a show-cause notice was issued on 4.4.2002 covering four spells of non-payment of service tax between October 1999 and September 2001. The notice proposed to recover service tax for the said periods under Section 68 with interest under Section 75 as also to impose penalties on the party under Section 76 & 77 of the Finance Act 1994. The noticee made part-payment of service tax within three months from the date of the show-cause notice. The balance amount of tax was paid later on, before the case was adjudicated by the original authority. The said authority in its order confirmed the demand of service tax amounting to Rs.1,75,443/- for the entire period covered by the show-cause notice and appropriated the above payments towards such demand. It also charged interest at the rate of 1.5% per month upto 15.7.2001, 24% per annum from 16.7.2001 to 15.8.2002 and 15% per annum for the period from 16.8.2002, totalling to Rs.87,083/-. The authority also imposed a penalty of Rs.1,75,443/- on the assessee under Section 76 and another penalty of Rs.4,000/- on them under Section 77, the former for the delay of payment of tax and the latter for the delay of filing of service tax returns. This decision of the original authority was upheld by the Commissioner (Appeals). Hence the present appeal.
3. Ld. Counsel for the appellants submits that, as the entire amount of service tax was paid before the order of adjudication was passed, it was not just on the part of the original authority to levy interest or impose penalty equal to the amount of tax. It is submitted that the delayed payment of tax was occasioned only by the fact that the assessee was not aware of "security service" having fallen in the net of service tax. There was no mens rea on their part. These facts and circumstances should have weighed with the authorities in determining the quantum of penalty under Section 76. Ld. Counsel, in this connection, relies on the Supreme Court's Judgement in State of Madhya pradesh v. Bharat Heavy Electricals, 1998 (99) ELT 33 (SC), wherein the expression "shall be liable to pay penalty equal to ten times the amount of entry tax" occurring in Section 7(5) of a Madhya Pradesh Act of 1976 was interpreted by their lordships and it was held that the assessing authority had the discretion to levy a lesser amount of penalty. After drawing a parallel between the above provision of the Madhya Pradesh Act and the Provisions of Section 76, Ld. Counsel argues that the lower authorities ought to have considered the facts and circumstances of the case and to have exercised discretion in determining the quantum of penalty to be imposed under Section 76. It is also pointed out by Counsel that no speaking order has been passed by the lower appellate authority. Ld. Counsel has also advanced arguments with regard to the penalty imposed under Section 77 and the interest charged under Section 75.
4. Ld. SDR has argued in defence of the impugned order.
5. after carefully considering the submissions, I find that the lower appellate authority has upheld the order of the original authority, with a cryptic observation "Delayed payment of tax on accounting of the Appellant's administrative problems cannot be a valid ground for vacating penalty and interest. The Appeal is devoid of merits". The impugned order, however, does not contain anything to indicate that the merits of the assessee's appeal filed before the Commissioner (Appeals) were considered at all. Such an order cannot be sustained. Had I not found justification for final disposal of the case, I would have remanded the case to the lower appellate authority.
6. The entire service tax demanded has been paid by the assessee. This payment was prior to passing of the Order-in-Original. The question, now, is whether the party should be called upon to pay interest on the service tax amount in terms of Section 75 of the Finance Act 1994. The assessee's plea of ignorance does not appear to be appealing inasmuch as it is common main's knowledge that delayed payment of dues will normally carry interest. The interest charged in this case is in terms of Section 75 ibid. Apparently, this provision of law levied interest at the rate of 1.5% per month (18% per annum) for a period upto 15.7.2001 and, in terms of amendments brought to the said Section, the rate of interest chargeable was 24% per annum from 17.6.2001 and 15% per annum from 16.8.2002. The liability to pay interest at these rates for the respective periods is inescapable as the provision of law does not confer any discretion in the matter of levying interest. The interest charged by the lower authorities is, therefore, sustained. As regards the penalty imposed under Section 75, however, Ld. Counsel appears to have made a valid point on the strength of the apex Court's ruling in the case of Bharat Heavy Electricals (supra). While construing the expression "shall be liable to pay penalty equal to ten times the amount of entry tax," their lordships held that a lesser amount of penalty could be levied by the assessing authority in exercise of its discretion in the facts and circumstances of the case. The expression considered and interpretted by the apex Court is one which was couched in mandatory language. Section 76 of the Finance Act 1994, as it stood during the material period, reads as under:
Section 76. Penalty for failure to collect or pay service tax:
Any person, liable to pay service tax in accordance with the provisions of Section 68 or the rules made thereunder who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of Section 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay.
This provision prescribed a minimum and a maximum and further limited the maximum to an amount equal to the amount of service tax paid belatedly. Therefore, the quantum of penalty leviable under Section 76 should be between the minimum and maximum limits prescribed thereunder. Obviously, there is an element of discretion in-built in the provision. This discretion, however, has to be exercised on sound judicial principles in the facts and circumstances of the case. The original authority did not even attempt this exercise, thinking that the penalty was mandatory and did not admit of discretion. The lower appellate authority evaded the issue and passed a non-speaking order. After taking into account the fact that the entire amount of tax was paid before the adjudication of the case and no evidence has been brought out to indicate that the assessee had intent to evade payment of tax, I am of the view that the maximum penalty (equal to tax) imposed by the lower authorities is neither appropriate nor reasonable. I reduce it to Rs.10,000/- in the facts and circumstances of the case.
7. As regards the penalty of Rs.4,000/- imposed on the assessee under Section 77 of the Act, the position, however, is different. Like the provision for interest, this provision for penalty for non-filing of service tax returns does not admit of any flexible considerations. Section 77 prescribed a penalty of Rs.1,000/- for each instance of non-filing of tax return. In the instant case, admittedly, there are four such instances. Hence the penalty of Rs.4,000/-, which is sustained.
8. In the result, the order of the lower authorities will stand affirmed except in respect of the penalty under Section 76, which will stand reduced to Rs.10,000/- as ordered above. The appeal is disposed of accordingly.