Appellants held entitled for benefit of Sec. 80 of Finance Act, HC

Facts in Brief:

1. This case was referred to the Larger Bench by South Zonal Bench at Chennai for resolving the conflict in the views expressed by the Two Co-ordinate benches of the Tribunal on the issue of imposition of penalty under Section 76 of the Finance Act 1994 for failure to collect or pay service tax.

2. The appellants are engaged in manufacture and installation of air conditioning systems. It was alleged that during the period from October, 1998 to 2001, they provided services as Consulting Engineers but they did not got registered with the Department and pay Service tax as Consulting Engineer.

3. Show Cause notice was issued to them by the department demanding Rs. 1,28,217/-towards service tax on services provided by them during the aforesaid period. Penalty was also proposed on the appellants under Sections 76, 77 & 78 of the Finance Act, 1994 and interest on the tax not paid. On adjudication the original authority confirmed the demand of the tax with interest thereon and imposed a penalty of Rs. 100/- per day subject to maximum of Rs. 1,28,217/- under Section 76 ibid. Penalty of Rs. 1,000/- was also imposed under Section 77. On appeal, before the Commissioner (Appeals), the order of the original authority was upheld.

4. Appeal against the order of Commissioner (Appeals) was heard by Member (J) of the Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench at Chennai and he referred the matter to the Larger Bench to decide whether penalty shall be Rs. 100/- per day in absolute terms or it should be Rs. 100/- per day.

HC held as under,

5. Since this appeal itself has been referred to the Larger Bench and we have heard the ld. Advocate for the appellants as well as ld. SDR for Revenue on merit, for imposition of penalty, we are deciding the issue of imposition of penalty under Sections 76 and 77 also. We find that under Section 80 which reads as under:

"Penalty not to be imposed in certain cases. - 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."

6. There is a provision for not imposing any penalty if the assessee proves that there was a reasonable cause for the said failure. We find that the appellants, in this case, are manufacturer of Air-conditioning System. The charge is that central excise officers on scrutiny of the various documents relating to job work orders undertaken by the appellants found that they provided assistance and review in basic design criteria, including design loads for all project components including engineering calculations, estimates of main equipment capacities and sizes to M/s. GCHPL and charged fees from the client.

7. The lower authorities have held that the appellants have rendered drawing, design, technical, consultancy services and are covered by the scope of consulting engineer and accordingly, demanded service tax. The appellants have not contested the levy of service tax. They have cooperated with the Investigating officers. Since they were under the bona fide doubt regarding their activity whether covered by service tax or not, therefore, there was a reasonable cause on their part in not depositing the service tax in time.

8. Therefore, we are of the view that notwithstanding anything contained in Sections 76 and 77 of the Finance Act, 1994, the appellants are entitled for the benefit of Section 80 of the Finance Act and accordingly, we hold that no penalty should be imposed on the appellants. Accordingly, we set aside the penalties imposed under Sections 76 and 77 and allow their appeal to this extent. 

Case Reference - Eta Engineering Ltd. vs Commissioner Of Central Excise.