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2011 Supreme(Kar) 925
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
N. Kumar and Ravi Malimath, JJ.
Commissioner of Service Tax, Service Tax Commissionerate — Appellant
Vs.
Motor World — Respondent
Central Excise Appeal Nos. 1 TO 15 of 2009
Decided on : 21-04-2011
Advocate Appeared:
Mr. B. Pramod, for the Appellant.
Mr. K.S. Ravishankar, N. Anand, Ashok Deshpande, K.S. Naveen Kumar, for the Respondent.
Headnote:FINANCE ACT, 1994 - Sections 76 & 78: [N. Kumar & Ravi Malimath, JJ] Failure to pay/collect service tax and suppression of value of taxable service - Imposition of penalty - Held, Sections 76 and 78 are mutually exclusive. If penalty is payable under Section 78, Section 76 is not attracted - Therefore, no penalty can be imposed for the same failure under both the provisions.
FINANCE ACT, 1994 - Sections 76, 77, 78 & 80: [N. Kumar & Ravi Malimath, JJ] Failure to pay/collect service tax and failure to furnish prescribed return - Imposition of penalty - Held, The imposition of penalty under the Act is not automatic. The ingredients mentioned in the Section should exist. In respect of Sections 76, 77 and 78 of the Act, not only the ingredients of those Sections should exist, but also there should be absence of reasonable cause for the said failure.
Section 80 is emphatic in terms of text that no penalty shall be imposable on the assessee for any failure referred to in Sections 76, 77, 78 and 79, if the assessee proves that there was a ’reasonable cause’for the said failure. Therefore, mere failure to comply with the requirements of the Section does not vest any power in the adjudicating or assessing authority to impose penalty. Once, the failure of the requirements of the said provisions is established, in view of the non-obstante clause in Section 80, the authority has to find out whether there was any ’reasonable cause’ for the assessee for such failure to comply with the requirement of law. If the assessee makes out a reasonable cause, Section 80 mandates that no penalty shall be imposable on the assessee. Therefore, the sine qua non for the authority to impose penalty is as follows: (a) existence of ingredients mentioned in Sections 76, 77 and 78; (b) failure on the part of the assessee to comply with the requirements of the said provisions; (c) absence of ’reasonable cause’ for the failure to comply with the requirement of law.
Even after holding that the ingredients stipulated in Section 76 and 78 exist, and there is no reasonable cause shown for failure to comply with the said provisions, the authority has the discretion regarding the quantity of the penalty to be imposed. However, the penalty to be imposed cannot be less than the minimum, or more than the maximum prescribed under the Statute.
FINANCE ACT, 1994 - Sections 84 & 80: [N. Kumar & Ravi Malimath, JJ] Imposition of penalty - Exercise of revisional jurisdiction - Scope - Held, If penalty imposed is not less than minimum prescribed under law revisional authority has no power to enhance amount of penalty on ground that it is less. When assessing authority, in its discretion has held that no penalty is leviable, by virtue of Section 80 of Act revisional authority cannot invoke its jurisdiction and impose penalty for first time.
N. Kumar, J.—In these batch of cases, the power of the authorities to impose penalties and the power of the revisional authority to enhance penalties and scope of Sections 76, 78 and 80 of the Finance Act, 1994 is involved. Therefore, all these appeals are taken up for consideration together and disposed of by this common order. The Appellate Tribunal in its order has set out the facts of each case at length. Therefore, we do not propose to restate the facts in this judgment.
2. As the controversy between the parties revolves around the interpretation to be placed on the various provisions dealing with penalties, the substantial question of law framed in these cases viz., whether the Tribunal was correct in setting aside the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994 (hereinafter for short referred to as 'the Act') would cover all aspects and therefore after hearing the learned counsel for the parties at length we have formulated the following substantial questions of law for consideration: -
Substantial Questions of Law
(1) Whether the penalty imposable under the Finance Act, 1994 is automatic?
(2) Whether Sections 76 and 78 of the Act are mutually exclusive?
(3) Even if the ingredients stipulated Sections 76 and 78 of the Act are established, if "reasonable cause" is shown for the failure, whether the authorities have power to impose penalties given the explicit discretion in Section 80 of the Act?
(4) If after holding that all the ingredients under Sections 76 and 78 exist and no reasonable cause is made out by the assessee, whether the imposition of penalty as prescribed under these two provisions is automatic or whether any discretion is left in the authority in 'the matter of imposing penalty?
(5) If the order passed by the assessing authority is within the four corners of law, in other words within the parameters prescribed under the aforesaid statutory provisions, whether the revisional authority by virtue of the power conferred under Section 84 of the Act, can suo motu revise the order of the assessing authority and enhance the penalty? (In other words what is the scope of reversionary power under Section 84 of the Act?)
(6) Whether the revisional authority has jurisdiction to impose penalty for the first time when it has not been imposed by the adjudicating or assessing authority by invoking Section 80?
Concept of Service Tax
3. The Apex Court in the case of All India Federation of Tax Practitioners and Others Vs. Union of India and Others, AIR 2007 SC 2990 explaining the meaning of service tax held as under: -
The source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act 1994. The Central Government derived its authority from the residuary entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of article 268A in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003 which stated that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that "service tax" is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax as it is borne by the client.
Chapter V of the Finance Act, 19
