By TIOL News Service

MUMBAI, NOV 11, 2013: ACTING on intelligence, the officers of DGCEI, Vadodara initiated investigation regarding the Service Tax payments made by the appellant in respect of security services provided by the said firm. Comparison of the figures declared by the said unit for the purpose of Service Tax payments in the ST-3 Returns filed by them with the Bank statements and Bill-Registers of the appellant firm, revealed that the appellant had grossly undeclared the value of taxable services rendered by them.

In his statement the Managing Director categorically admitted that the appellant firm had deliberately not declared the correct value of security services.

On completion of the investigation, a SCN was issued to the appellant demanding the Service Tax of Rs.1,46,88,455/-for the period April, 2001 to March,2006. The SCN also proposed to appropriate the amount of Rs.1,12,13,143/- deposited by the appellant towards part payment of the Service Tax liabilities and also an amount of Rs.8,21,356/- deposited by them towards interest on delayed payment of Service Tax.

The demand was confirmed by the CCE, Pune-III along with imposition of penalties of Rs.1,45,20,096/- each on the appellant firm as also on its Managing Director u/s 78 of FA, 1994; imposition of interest and penalty u/s 76 of FA, 1994. The adjudicating authority also directed the appellant to furnish detailed calculation sheets to the Superintendent-in-charge of Service Tax for the verification of arithmetical mistakes alleged by the appellant in the computation of Service Tax demand.

The appellant is before the CESTAT and submits -

+ The order is in grave error inasmuch as the same directed the Superintendent to re-quantify the Service Tax amount, after confirming the demand, in the same breath. Even if the Superintendent comes to a conclusion that lesser amount of tax is required to be paid by the appellant, since higher demand already stands confirmed, the verification, until the impugned order is quashed and set aside, could be of no avail.

+ The appellant had received substantial expenses over and above the service charges and this would constitute “reimbursement” and the Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. vs. UOI - (2012-TIOL-966-HC-DEL-ST) has taken a view that reimbursements would not attract any Service Tax levy.

+ In the order it is stated that the appellant had collected and not paid Service Tax on time, therefore, proceedings ought to have been initiated under Section 73A of the Finance Act,1994 and not under Section 73 and, therefore, the impugned order deserves to be quashed and set aside. If the demands are confirmed under Section 73A then no penal proceedings would ensue under Sections 76, 77 and 78 of the Finance Act, 1994.

+ No simultaneous penalty under Section 76 and 78 ought to have imposed on the appellant, even for the period prior to 16.5.2008 in view of the decisions of this Tribunal in the case of CCE vs. Green Line Housing Finvest Ltd. - (2013-TIOL-194-CESTAT-DEL), CCE Vs.Mittal Tenopack P. Ltd. - (2012-TIOL-1507-CESTAT-KOL), CCE Vs. First Flight Courier Ltd. - (2011-TIOL-67-HC-P&H-ST). Penalty under Section 78 is not imposable on the appellant inasmuch as the appellant had made periodical payments towards Service Tax liability during the continuation of investigation and when the tax stood paid before the issue of show-cause notice, no penalty under Sections 76, 77 and 78 should have been imposed and relies on the decisions in - (2007-TIOL-502-CESTAT-BANG), and (2007-TIOL-465-CESTAT-BANG).

+ Imposition of penalty on the Managing Director under Section 78 of the FA, 1994 is impermissible in law, inasmuch as the said section is for levy of penalty on the ‘person liable to pay Service Tax' and no personal penalty can be imposed under this provision on any Director/employee of the assessee.

+ The option to pay 25% of the penalty was not given by the adjudicating authority, which needs to be exercised now.

The Revenue representative justified the order of the adjudicating authority.

On the submissions made by the appellant, the following is what the Bench held -

Direction to Superintendent to quantify demand -

Contention that such an order is not tenable is rejected as although the impugned order was passed on 16.3.2007 and more than six years have lapsed since then and inspite of such a long period, the appellant has not shown or produced any evidence in support of their claim that there are errors in computation of Service Tax demand. Therefore, the contention of the appellant remains a mere allegation without any supporting evidence.

Submission that demand ought to have been confirmed u/s 73A of FA, 1994 -

While Section 73 deals with short-levy or short-payment, non-levy or non-payment or erroneous refund Section 73A deals with payment of tax collected to the credit of the Central Govt. There is substantial difference between the two provisions. Section 73 provides for assessment of tax and thereafter, payment of tax. Demand under Section 73A does not require any assessment of tax at all. Thus, Section 73 and 73A deal with altogether different situations.

The charge against the appellant is that the appellant has mis-declared the value of the services rendered and consideration received as evident from the show-cause notice, the relevant extracts of which is reproduced below:-

Therefore, in the present case, the issue involved is short levy and short payment of service tax and therefore, it is the provisions of Section 73, which are attracted. Therefore, the confirmation of demand under Section 73 is correct in law and accordingly, we uphold the same.

Penalty imposed u/s 76 of FA, 1994 -

Penalty u/s 76 is imposed for default in payment of tax and, no mensrea is required to be proved for imposing such penalty. For mere default and delay in payment of tax, the liability to penalty arises.

Penalty u/s 78 of FA, 1994 on company -

In the present case, the appellant had suppressed the value of the taxable service received by them in their ST-3 Returns and in respect of the year 2004-05 and 2005-06, the appellant did not file any return at all. It has also been admitted in the statements recorded u/s 14 of the CEA by the Managing Director of the appellant firm that they mis-declared the value so as to evade payment of Service Tax. Therefore, imposition of penalty under Section 78 on the appellant is in accordance with law. However, for the period after 10.5.2008, only penalty under Section 78 would be sustainable, as the provisions of Section 78 were amended w.e.f. 10.5.2008 that if the penalty is payable under Section 78, then the provisions of Section 76 shall not apply. Therefore, for the period prior to 10.5.2008 while provisions of both the Section 76 and 78 would apply, for the period on or after 10.5.2008, penalty under Section 78 alone shall apply.

Penalty u/s 78 of FA, 1994 on Managing Director -

The appellant has contended that imposition of penalty on the Managing Director under Section 78 is not sustainable in law. There is merit in this argument. Section 78 provides for penalty on the ‘person liable to pay tax' and since the person liable to pay tax is the appellant firm and not the Managing Director, imposition of penalty on the Managing Director is not sustainable in law and accordingly, we set aside the same.

Benefit of 25% penalty imposed u/s 78 - option thereof -

The adjudicating authority has not explicitly mentioned the availability of this option. There are contrary views on this issue. However, the Bombay High Court of Bombay in the case of Commissioner of Central Excise, Raigad Vs. Castrol India Ltd. - (2012-TIOL-464-HC-MUM-CX) considered this issue and held that when the liability to pay 25% penalty under the first and the second proviso to Section 11AC is required to be paid within thirty days from the date of communication of the order of the Central Excise Officer determining duty under Section 11A(2), it would not be open to the appellate authority or the Court to direct the assessee to pay 25% penalty beyond the date stipulated in the first and the second proviso to Section 11AC. Being the jurisdictional High Court, the Bench is bound to follow this decision and, therefore, the appellant is not eligible for the benefit of reduction in penalty.

The appeal was disposed of in above terms.

Check & mate!

(See 2013-TIOL-1679-CESTAT-MUM)