Service Tax Provisions do not permit levy of Double Penalty

RS Sharma Advocate

Imposition of Double Penalty under Section 78 and Section 76 of the Finance Act, 1994 for non-payment of service tax is illegal as Penalty under Section 76 can not be levied when Penalty has been levied under Section 78.

                Though Show Cause notices as well as Adjudication Orders issued by the Service Tax Authorities continue to propose and levy Penalty under both Section 76 as well Section 78 of the Finance Act 1994; the law does not permit levy of such double penalty because of the prohibition in Proviso 7 of the Section 78.

Section 78 of the Finance Act 1994 provides as under:

SECTION 78. Penalty for suppressing value of taxable service.—

Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of —

(a)   fraud; or

(b)   collusion; or

(c)   wilful mis-statement; or

(d)   suppression of facts; or

(e)   contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,

                the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded :

                Provided that where such service tax as determined under sub-section (2) of section 73, and the interest payable thereon under section 75, is paid within thirty days from the date of communication of order of the Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent. of the service tax so determined :

Provided further that the benefit of reduced penalty under the first proviso shall be available only if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :

                Provided also that where the service tax determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purposes of this section, the service tax as reduced or increased, as the case may be, shall be taken into account :

                Provided also that in case where the service tax determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of service tax so increased, the interest payable thereon and twenty-five per cent. of the consequential increase of penalty have also been paid within thirty days of communication of the order by which such increase in service tax takes effect.

                Provided also that if the penalty is payable under this section, the provisions of section 76 shall not apply. (vide Finance Act 2008)

Explanation. – For the removal of doubts, it is hereby declared that –

(1) the provisions of this section shall also apply to cases in which the order determining the service tax under sub-section (2) of section 73 relates to notices issued prior to the day on which the Finance Bill, 2003 receives the assent of the President;

(2) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.

Section 76 of the Finance Act, 1994 as amended stipulates as under:

SECTION 76.Penalty for failure to pay service tax

        Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to  such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than two hundred rupees for every day during which such failure continues or at the rate of two per cent. of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax:

        Provided that the total amount of the penalty payable in terms of this section shall not exceed the service tax payable.

Illustration

        X, an assessee, fails to pay service tax of Rs. 10 lakhs payable by 5th March. X pays the amount on 15th March. The default has continued for 10 days. The penalty payable by X is computed as follows:—

2% of the amount of default for 10 days = 2 x 10, 00, 000 x 10/31= Rs. 6,451.61

Penalty calculated @ Rs. 200 per day for 10 days =Rs. 2,000

Penalty liable to be paid is Rs. 6,452.00. (vide Finance Act,2006)  

                In view of above said statutory provisions cases involving fraud; or collusion; or wilful mis-statement; or suppression of facts; or contravention of any of the provisions of the Finance Act 1994 or of the service tax rules etc with intent to evade payment of service tax, fall under Section 78 of the Finance Act.

The cases which do not fall within the ambit of Section 78 fall within the provisions of Section 76 of the Finance Act, 1994 wherein penalty can be levied for non-payment of service tax.

                This issue was also dealt by CESTAT in case of AIT-2007-359-CESTAT wherein it was held as under:

“Cases in which penalties are imposed under Section 78 cannot fall in respect of the same Service tax evaded for a double penalty under Section 76 also, these two provisions are mutually exclusive and the cases where guilty mind does not exist will fall under section 76 while those where such mens rea is required, will fall under section 78. Therefore, there is no scope for imposing double penalty, i.e., both under Section 78 and Section 76, when a person is found guilty of evasion by reason of suppression or concealment etc. and penalty is imposed under Section 78. In cases where penalty under Section 78 is imposed, therefore, no penalty can be imposed also under section 76 of the Act. “

                The imposition of double penalty under Section 76 as well as Section 78 of the Finance Act, 1994 is, therefore, illegal even for the period prior to the amendment of Section 78 vide the Finance Act, 2008.

(Writer is an Advocate & Consultant based in Delhi and is counted amongst Top Indirect Tax Experts of India. He is advising several MNCs, PSUs & Indian Coporates on service tax, excise & customs issues. He can be mailed at rssharma@gmail.com)

 

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(Source: Allindiantaxes)

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