By TIOL News Service

MUMBAI, MAY 06, 2014: THE short issue involved in the matter is whether penalty under section 76 & 78 of the Finance Act, 1994 for the period prior to 10.05.2008 can be imposed simultaneously on the assessee or not.

Whereas the appellants relied on the Karnataka HC decision in United Communication Udupi favourable to them, the Revenue representatives countered the same by citing the Kerala & Delhi High Court decisions in the cases of Krishna Poduval & Bajaj Travels respectively.

In the case of United Communication Udupi - 2011-TIOL-802-HC-KAR-ST, the Karnataka High Court inter alia held thus -

" …it is now well settled that the liability cannot be imposed both under Section 76 and 78 . Therefore, in this case the liability to pay penalty is only under Section 78. In fact the proviso to Section 78 makes it very clear that if penalty is payable under this Section, the proviso to Section 76 shall not apply. Thereby no penalty could be imposed both under Sections 76 as well as 78. Therefore, in this case the penalty is to be construed under Section 78. To that extent the appeal succeeds."

However, the Kerala High Court in the case of Krishna Poduval - 2006-TIOL-77-HC-KERALA-ST held -

"The penalty imposable under section 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of section 68 and the rules made thereunder, whereas section 78 relates to penalty for suppression of the value of taxable service. Of course, these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service the person liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above sections, especially since the ingredients of the two offences are distinct and separate."

The same view has been taken by the Delhi High Court in the case of Bajaj Travels Ltd. - 2011-TIOL-896-HC-DEL-ST. The High Court observed -

"No doubt, Section 78 of the Act has been amended by the Finance Act, 2008 and the amendment provides that in case where penalty for suppressing the value of taxable service under Section 78 is imposed, the penalty for failure to pay service tax under Section 76 shall not apply. With this amendment, the legal position now is that simultaneous penalties under both Section 76 and 78 of the Act would not be levied. However, since this amendment has come into force w.e.f. 16th May, 2008, it cannot have retrospective operation in the absence of any specific stipulation to this effect. Going by the nature of the amendment, it also cannot be said that this amendment is only clarificatory in nature."

The Single Member (Judicial) held that in view of the contrary decisions of the different High Courts, it would be appropriate to refer the matter to the Larger Bench of the Tribunal to decide the issue.

The Registry was directed accordingly.

(See 2014-TIOL-710-CESTAT-MUM )