By TIOL News Service

MUMBAI, MAY 30, 2014: DURING the period 2006-07 to 2009-2010, the appellant was providing the services of glass wool coating to the sugar factories. At the time of audit in a sugar factory, it came to the knowledge of the department that the sugar factory has received these services from the appellant on which the appellant had not paid the service tax.

After the department pointed out the same, the appellant paid the service tax due along with interest. Later, a SCN was issued inter alia seeking imposition of penalties under section 76, 77 and 78 of the FA, 1994.

Both the lower authorities confirmed the demand of service tax along with interest and imposition of penalties under the cited sections.

So, the appellant is before the CESTAT.

It is submitted that they are not disputing the tax liability and interest but the penalties imposed, particularly the simultaneous imposition of penalty under s. 76 & s.78. They rely on the decision of the Karnataka High Court in the case of Motor World - 2012-TIOL-418-HC-KAR-ST in this regard. It is also submitted that although the appellant has paid the service tax along with interest before adjudication, as per the provisions to section 11AC of the CEA, 1944, option ought to have been given to the appellant to pay 25% of duty as penalty and therefore, penalty u/s 78 be reduced to 25% of the Service Tax.

The Revenue representative did not add much to the order of the lower authorities.

The Bench observed -

"7. As held by the Hon'ble Karnataka High Court in the case of Motor World (supra) penalties under section 76 and 78 cannot be imposed simultaneously. Therefore, penalty imposed under section 76 is dropped. Further I find that no option was given to the appellant to pay 25% of duty as penalty. As they have paid the service tax along with interest before the issuance of show-cause notice, as per the provisions of section 11AC of the Act, the penalty is reduced to 25% of duty which is to be paid within 30 days from today failing which they would be liable to pay 100% of the duty amount as penalty."

The appeal was disposed of in the above terms.

In passing: Perhaps what they mean is section 78 of the FA, 1994 and not section 11AC of the CEA, 1944. Be that as it may, in the following case 2014-TIOL-710-CESTAT-MUM , the same Bench had referred the following matter to the Larger Bench - whether penalty under section 76 & 78 of the Finance Act, 1994 is imposable simultaneously on the assessee for the period prior to 10.05.2008 or not?

(See 2014-TIOL-903-CESTAT-MUM)