CESTAT Directs Re-computation of Penalty for Non-payment of Service Tax prior to period 08.04.2011 in Accordance with Section 78(1) of Finance Act [Read Order]

The New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) directed re-computation of the penalty which was imposed on the assessee for non-payment of service tax before the period of 08.04.2011 under section 78(1) of the Finance Act,1994. 

Export Inspection Agency, the appellant assessee was a body created under Section 7 of the Export (Quality Control and Inspection) Act, 1963, and works under the administrative and technical control of the Export Inspection Council the assessee was in the field organization of the Export Council under Free Trade Agreement executed between India and foreign nation’s products, eligible for Certificate of Origin required for preferential treatment in exporting countries. 

The assessee appealed against the service tax demand passed by the Commissioner (Appeals) on the services rendered by the assessee and for the imposition of a penalty. 

Alok Yadav and Nilotpal Shyam, the counsels for the assessee contended that the assessee had the bona fide belief that they were not liable to pay tax on their income generated from these services based on the previous circulars of the Government and the larger period was not liable to be invoked as the non-payment was not intending to evade tax. 

Further, for the same reason, no penalty could be imposed under Section 78 of the Finance Act. 

Harshvardhan, the counsel for the department relied on the decisions made by the lower authorities and contended that the penalty imposed on the assessee for non-payment of service tax was as per the law and liable to be sustained. 

The Bench observed that the plain reading of the provisions of Section 78 of the Finance Act before the amendment makes it clear that the quantum of penalty to be imposed shall be equal to 100% of the amount of such service tax. 

The two-member bench comprising Rachana Gupta (Judicial) and Hemambika Priya (Technical) directed re-computation of penalty and held that penalty for the period before 08.04.2011, shall be equal to the service tax not paid by the assessee and for the period post 08.04.2011, the benefit of the amended penal provision was extended to the assessee. 

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