Penalty imposed u/s 77 & 76 of finance Act was set aside by HC.

Facts in Brief:

1. Penalty of Rs. 4,500/- has been imposed under Section 77 of the Finance Act, 1994 (F.A. 94) for late filing of the returns. In addition, a penalty of Rs. 34,500/- has been imposed for late payment of the service tax under Section 76 of F.A. 94.

2. The amount has been calculated apparently in an adhoc manner and not on the basis of the number of days of delay.

3. In respect of Appeal No. ST/23/03, penalty of Rs. 500/- has been imposed under Section 75A of F.A. 94 for failure to take registration in addition to penalty of Rs. 27,194/- under Section 76 of F.A. 94 for failure to pay service tax and penalty of Rs. 1,000/- under Section 77 for failure to file the return.

4. The appellants mainly challenge the penalty of Rs. 27,194/- which has been imposed on the basis of Rs. 100/- per day of delay limited to the amount of tax.

HC held as under,

5. The construction of Section 76, as has been interpreted by some of the Tribunal Benches, clearly requires that the penalty shall not be less than one hundred rupees. The law as such does not require the amount of penalty to be read as one hundred rupees for every day of delay. The language of the section does not warrant the expression "for every day during which such failure continues" to qualify one hundred rupees since such expression has been put only after the words "but which may extend to two hundred rupees." Since the said section provides for payment of tax as well as the interest to take care of any pecuniary advantage gained by the tax payer by delayed payment of tax, it is understandable that the minimum penalty prescribed is Rs. 100/- only and not Rs. 100/- per day which would be draconian in its effect. The rationale for prescribing a minimum penalty of Rs. 100/- is also understandable as a smaller amount than that would be a paltry amount not worth the effort of collecting it. I, therefore, hold that the minimum penalty prescribed under the said Section 76 of F.A.94 is Rs. 100/- only and not Rs. 100/- per day of delay.

6. Coming to the question whether there is a discretion with the Adjudicating authorities not to impose the minimum penalty under the said Section 76 for delay in paying the service tax and also for imposition of penalty for non-registration and delay in filing return, I find that some of the earlier decisions of the Tribunal have looked at case laws relating to other legislations. I am of the view that such recourse is not necessary in view of Section 80 of the F.A. 94 which reads as under:-

"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. This section clearly authorizes the Adjudicating authorities to exercise their discretion in not imposing any penalty for delay in payment in service tax and delay in filing return if the assessee proves that there was reasonable cause for the said failure. However, no such discretion has been allowed in respect of penalty for failure to make an application for registration under Section 75A for which a small amount Rs. 500/- has been prescribed.

8. Accordingly, I hold that the Adjudicating authorities have discretion not to impose any penalty for delay inlaying service tax and for delay in furnishing return in terms of Section 80 of F.A. 94, but they have no such discretion for not imposing penalty for failure to apply for registration.

9. In view of my findings as above on various issues raised in these appeals, I set aside the impugned orders and remand these cases to the original authorities for re-decision in the light of the above finding after affording a reasonable opportunity of hearing to the appellants.

10. Appeals are allowed by way of remand. 

Case Reference - Mr. R.B. Bahutule, Pharma Chem ... vs Commissioner Of Central Excise.