2/21/2011 WAIVER OF PENALTY ARISES IF NON P…

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WAIVER OF PENALTY ARISES IF NON PAYMENT IS DUE TO BONAFIDE REASON

Section 80 of the Finance Act, 1994 provides that notw ithstanding anything contained in the provisions of Section 76,
Section 77 or Section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the
assessee proves that there w as reasonable cause for the said failure. Section 76 provides penalty for failure of to pay service
tax. This section imposes a penalty w hich shall not less than tw o hundred rupees for every day during w hich such failure
continues or at the rate of tw o per cent of such tax per month w hichever is higher, starting w ith the first day after the due date till
the date of actual payment of the outstanding amount of service tax. The total amount of the penalty payable in terms of this section
shall not exceed the service tax payable. Section 77 provides for penalty for contravention of Rules and provisions of Act for
w hich no penalty is specified elsew here. This section imposes penalty w hich may extend to five thousand rupees. Section 78
provides for penalty for suppressing the value of taxable service. This section imposes penalty w hich shall not be less than but
w hich shall not exceed tw ice the amount of service tax so not levied or paid or short levied or short paid or erroneously refunded.

Section 80 provides the assessee w ith an opportunity to defend himself against the penalties imposed on him. He is to
prove to the satisfaction of the Central Excise Authorities that failure on his part w as due to reasonable cause.

In 'Commissioner of Central Excise, Ludhiana V. Star Cargo Consultant' - [2009 -TMI - 34134 - CESTAT, NEW DELHI] the
tribunal held that w aiver of penalty arises if non payment is due to bona fide reason. In this case the respondents have service tax
registration for Cargo Handling Services since 2003. In the balance sheet for the year 2004-05 of the respondents it w as found by
the Central Excise Officers that a receipt of the amount of Rs.4,23,393/- w as show n as rebate. This amount is received from
custodian/contractors as compensation for not performing certain jobs w hich ultimately had been performed by the respondents.
The Department took the view that this amount is to be treated as their receipt for providing the taxable service. The respondent
deposited the service tax along w ith the interest. The Department subsequently issued a show cause notice for confirming the
demand of service tax. The Dy. Commissioner vide order-in-original besides confirming the service tax and interest imposed
penalty equal to service tax confirmed under Section 76, penalty of Rs.1,000 under Section 77 and equal amount of service tax
under Section 78. The Commissioner (Appeals) set aside the imposition of penalty under Section 76, 77 and 78 on the ground that
the entire amount of service tax had been paid prior to the issue of show cause notice.

The Revenue filed appeal against the order of Commissioner (Appeals) before tribunal. The follow ing pleadings are put forth
by the Department:

> The only provision for w aiving the penalty under Section 76 or 78 is Section 80 for w hich assessee has to show that there w as
genuine reason for delay in payment of service tax on non payment of service tax against w hich has not been invoked in this case
by the Commissioner (Appeals);

> The payment of service tax prior to the issue of show cause notice cannot be ground for setting aside the penalty;

> There is no automatic w aiver of the penalty w hen the service tax has been paid prior to the issue of show cause notice.

The respondent pleaded the follow ing:

> This amount had not been received from the client to w hom the Cargo Handling Service w as provided but had been received from
the contractors custodian as compensation for not doing certain jobs w hich they w ere supposed to perform, as a result of w hich
those jobs had to be performed by the respondent and for this reason, only this amount had not been declared in the returns and
no service tax has been paid;

> The service tax w as paid immediately on pointing out by the Department;

> In the course of hearing before the Asst. Commissioner the reason as to w hy the service tax has not been paid on the amount
had been explained;

> In view of the above penalty may not be imposed;

> It is a fit case for invoking Section 80 of the Finance Act, 1994

The tribunal considered the submissions from both the sides. The factual position that the amount has been received from
the contractors/custodian and not from the clients is not in dispute. As per the Department interpretation, the amount has to be
treated as amount received for taxable service provided by the respondent to their clients as w hen the respondent received this
amount as compensation from the contractors/custodian for failure to perform certain jobs, those jobs had been performed by
them. The contention of the respondent is that there w as confusion as to w hether this amount w ould attract service tax or not and
for this reason only they did not pay the service tax on this amount. The tribunal is of the view that on this case w aiver of penalty
in terms of the provisions of Section 80 of the Finance Act, 1994 should have been considered by the low er authority but there are
no findings on this point in the impugned order. The tribunal agrees that w aiver of penalty cannot be granted just because the
service tax had been paid prior to the issue of show cause notice. But if the non payment of service w as due to some bona fide

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2/21/2011 WAIVER OF PENALTY ARISES IF NON P…
reason on the part of the assessee and the assessee on being pointed out paid the service tax, the w aiver of penalty under
Section 76, 77 or 78 w ould be merited. The same has not been considered in the impugned order and therefore the tribunal
remanded the matter to the Commissioner (Appeals) for considering as to w hether in view of the facts of the case, w aiver of
penalty under Section 76, 77 & 78 w as w arranted under Section 80 of the Finance Act.

About the Author: -

Mr. M. GOVINDARAJAN
55 RAJARAM STREET, JAWAHAR NAGAR, TIRUMANGALAM - 625 706

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