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Were Section 76 and 78 Always Mutually Exclusive?

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     on  07 March 2012    

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Where a person is liable to pay service tax u/s 68 and fails to credit the tax or any thereof to the account of the Central Government within the prescribed time limit then he shall be liable to pay taxes along with applicable interest under section 75 and face penal consequences under section 76, 77 and 78.

 

Interest under section 75 is mandatory and automatic. The assessee is required to pay interest along-with the service tax or before filing of service tax return. He is not supposed to wait for a show cause notice from the department. The interest is liable to computed on day to day basis.

 

 Section 76 - Penalty for failure to or 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 a penalty which shall not be less than one hundred rupees for every day during which such failure continues or at the rate of one 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 fifty per cent of the service tax payable.

 

Section 78 - Penalty for suppressing, etc., of value of taxable services

 

(1) 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) willful mis-statement; or

 

(d) suppression of facts; or

 

(e) contravention of any of the provisions of this Chapter or of the rules made there under with the 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 be equal to the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:

 

Provided further that if the penalty is payable under this section, the provisions of section 76 shall not apply.

 

It is pertinent to note that the above proviso has been inserted vide Finance Act, 2008 and clearly suggests that Section 76 and section 78 penalty cannot be imposed simultaneously.

 

As we see the show cause notice received by various assesses, we find that the period in dispute can belong to period prior to 10th May,2008 so, can it be said that such demand notice can levy penalty both under section 76 and section 78 simultaneously? The aim of the article is to discuss that whether levy of penalties under section 76 and 78 simultaneously for period prior to 10.5.2008 Justified?  

 

Relevant Judgments – Suggesting penalty under Both Sections Justified

 

1. Bajaj Travels Ltd. Versus Commissioner of Service-tax (Delhi HC)

 

Issue to Decided: Whether the Amendment in Section 78 by the Finance Act, 2008 operate retrospectively being a beneficial peace of legislation which provides that in case where penalty for suppressing the value of taxable service under Section 78 is imposed, penalty for failure to service tax under Section 76 shall not apply, therefore, in another words, simultaneous penalties under both Sections 76 and 78 could not have been imposed by the authorities below? Whether the benefit of this Amendment in Section 78 should also be applied to the present case as there should not be two separate penalties for the same alleged offences?

 

Held that Section 76 and Section 78 imposable simultaneously for period prior to 10.5.2008 (Para 15 & 16)

 

“15. By their very nature, Section 76 and 78 of the Act operate in two different fields. In the case of Asstt. CCE v. Krishna Poduval [2006] 3 STT 96 the Kerala High Court has categorically held that instances of imposition of penalty under Section 76 and 78 of the Act are distinct and separate under two provisions and even if the offences are committed in the course of same transactions or arise out of the same act, penalty would be imposable both under Section 76 and 78 of the act. We are in agreement with the aforesaid rule.

 

16. 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. 10th 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. “

 

2. Commissioner of Central Excise Versus Pannu Property Dealers

 

In the judgment it was held by Punjab and Haryana HC that Section 76 and Section 78’s scope are distinctly different and shall be seen independent of each other for the purpose of levy.

 

“We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct”

 

Relevant Judgments – Suggesting penalty under Both Sections not Justified

 

1. CCE versus First Flight Courier Ltd. (P&H HC)

 

Issue to Decided: Whether the Ld. CESTAT was right in not imposing penalty under section 76 of the Finance Act, 1994 for the period prior to 10.5.2008 by holding that penalty under Section 76 and 78 of the Act is not imposable simultaneously, particularly when these sections became mutually exclusive from 10.5.2008 after amendment of section 78 of the Finance Act, 1994?"

 

Held that Section 76 and Section 78 not imposable simultaneously even for period prior to 10.5.2008 (Para 5)

 

"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time."

 

2. CCE, CHANDIGARH Versus M/s KRISHNA AUTOMOBILES

 

Held that

 

“18. It is noticed that the order-in-original imposes penalty both under section 76 and 78 of Finance Act 1994. Since 10.5.2008, it is expressly provided in section 78 that penalties under section 76 and 78 cannot be imposed at the same time. Since these penalties are substantially for the same offence there is no reason to impose both the penalties even prior to that period. Therefore penalty under section 76 is waived. Penalty under section 78 will be equivalent to the tax liability as revised in terms of para 16 above.”

 

3. The Financers v. CCE, Jaipur (2007) 8 STR 7 (Cestat, New Delhi)

 

It was held that both the penalties u/s 76 and 78 can not be imposed (The relevant period is prior to 12.05.2008). The following extracts are relevant –

 

“Section 76 of the Act provides that if any person, liable to pay Service tax fails to pay it, he will have to pay in addition to the tax and interest thereon, a penalty which shall not be less than Rs. 100/-, but which may extend to Rs. 200/- for every day during which such failure continues subject to the maximum of Service tax that he failed to pay. Section 76, therefore, is a provision which does not require a guilty mind and deals with a case where the liability to pay service tax is not discharged under the provisions of the Act. In contrast, Section 78 of the Act, specifically deals with cases of evasion of payment of Service tax with a guilty mind.

 

Under the said provision, if any person has, with intent to evade payment of Service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of taxable service, such person shall pay by way of penalty in addition to Service tax and interest thereon, a sum which shall not be less than, but shall not exceed twice the amount of service tax sought to be evaded by reason of suppression of concealment of the value of taxable service or furnishing of inaccurate value of such taxable service. 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 Sections 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.”

 

Other Relevant Judgments

 

Hon’ble Tribunal in the Opus Media & Entertainment Vs CCE, Jaipur 2007 -TMI - 2921 – (CESTAT, NEW DELHI) has been very clearly held that cases in which penalty are imposed under Section 78 cannot fall in respect of the same service tax evaded under Section 76. There is no scope for imposing double penalty, both under Sections 76 and 78 for the same offence. It has to fall either under Section 76 or 78 and mens rea will have to be proved Levy of penalties u/s 76 and 78 is contrary to the statutory provisions.

 

Conclusion

 

The conflicting judgments by the judiciary clearly indicate the reason why the amendment was brought by Finance Act, 2008 in this context. Contesting cases with mutual levy of S.76 and S.78 for disputed period prior to May, 2008 can be a question of how skillfully the plea is pleaded. 

 

About the Author

CA Ankit Gulgulia

 

The Author is a Practicing Chartered Accountant based in New Delhi. Specialising in Indirect Taxes, Corporate Laws, Internal Audits & Assurance. He can be reached at Ankitgulgulia@gmail.com

Published in Service Tax
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Views : 5878

Other Articles by CA.Ankit Gulgulia (Jain)




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