This appeal filed by the Department is directed against non-imposition of penalty on the respondent under Section 76 of the Finance Act, 1994. The respondent is engaged in the manufacture of excisable products since August, 1995. They used to avail the services of Goods Transport Agents (GTA) for bringing inputs to their factory and transporting final products from the factory. Under Rule 2(1)(d)(v) of the Service Tax Rules, 1994 read with Section 68(2) of the Finance Act, 1994, the respondent was liable to pay service tax on the GTA services qua recipient thereof, w.e.f. 01/01/2005. They ought to have got themselves registered with the Department for that purpose also. However, the respondent failed to obtain such registration nor to file service tax returns or to make service tax payments. On 28/04/2009, a show-cause notice was issued to them demanding service tax for the period from 01/01/2005 to 31/03/2008 with interest thereon and proposing penalties under Sections 76 to 78 of the Finance Act, 1994. As, by that time, the respondent had paid service tax with interest thereon, the show-cause notice proposed to appropriate the same. In a brief reply to the show-cause notice, the party furnished the particulars of ST-3 returns filed by them as also all the payments of service tax with interest. They also pleaded that the non-payment of service tax in due time was not wilful and, therefore, no penalty should be imposed on them. After giving them a personal hearing, the original authority passed an order confirming the demand of service tax with interest against the assessee, appropriating aforesaid payments towards such demand, imposing a penalty equal to service tax under Section 78 with an option for payment of 25% thereof within 30 days, imposing separate penalty of Rs.1000/- under Section 77 of the Act. With reference to Section 76 of the Act, the adjudicating authority expressed the view that a penalty under this provision could be waived as the assessee had paid service tax with interest and a penalty under Section 78 stood imposed on them. This part of the Order-in-Original was reviewed in the Department and an appeal filed before the Commissioner(Appeals). The appellate authority rejected their appeal after observing that there was a reasonable cause for the assessees failure to pay service tax in due time. In other words, the appellate authority granted the benefit of Section 80 of the Act to the party. Hence the present appeal of the Department.
2. The learned Superintendent(AR) submits that neither the ignorance of law pleaded by the assessee nor the factum of their having paid service tax and interest prior to the issuance of the show-cause notice can be a reasonable cause for not imposing a penalty under Section 76 of the Finance Act. The grounds for imposing a penalty under Section 78 and those for imposing one under Section 76 are independent and mutually exclusive. Therefore, according to the learned Superintendent(AR), Section 76 penalty on the respondent cannot be done away with on the facts and circumstances of this case. In this connection, he claims support from the Hon’ble Kerala High Court’s judgment in A.C. of Central Excise vs. Krishna Poduval [2006(1) STR 185 (Ker.)]. Reliance is also placed on Quality Welding Works vs. CCE, Ludhiana [2011(21) STR 187 (Tri. Del.)] and Mohammad Mustkeen vs. CCE, Chandigarh-II [2011(22) STR 170 (Tri. Del.)].
3. The authorized representative for the respondent reiterates the plea that they were not aware of the relevant service tax provisions. They became aware of the provisions in 2009 and obtained registration with the Department and have been paying service tax since then. The service tax and interest for the period from January 2005 to March 2008 was paid as soon as the liability was brought to the notice of the respondent prior to issuance of the show-cause notice. In such circumstances, it is argued, the Department’s prayer for penalty under Section 76 should not be acceded to. The authorized representative further claims that the penalty under Section 78 of the Act imposed by the original authority was duly paid by them. However, no proof of this payment has been brought on record.
4. After giving careful consideration to the submissions, I am not impressed with the plea of ignorance of law particularly when such plea comes from a corporate entity which is engaged in the manufacture of excisable products since August 1995. A corporate recipient of GTA service became ‘a person liable to pay service tax’ w.e.f. 01/01/2005 by virtue of the aforesaid rule made by the Central Government and notified to the public under Section 68 of the Finance Act, 1994. Such provisions were in the public domain since 01/01/2005. It is not the case of the respondent that they were not liable to pay service tax on the freight paid by them for bringing inputs to their factory and/or clearing their final products from their factory. Apparently, they suppressed the factum of having availed GTA service for such purpose over a period of time. It was under compulsion by the Department in 2009 that the respondent paid up the tax and interest and took steps for getting registered with the Department. This conduct of the respondent occasioned the issuance of the subject show-cause notice wherein, apart from the proposal to appropriate the above payments towards demand of service tax and interest thereon, the penal provisions of the Act were also invoked. Section 76 was invoked for their failure to pay service tax; Section 77 was invoked for their failure to file service tax returns; Section 78 was invoked for the more serious offence of having suppressed the material facts before the Department. From this, it is abundantly clear that the reason for invoking Section 76 and the one for invoking Section 78 were different and independent. Nevertheless, the original authority held to the contra and refrained from imposing Section 76 penalty on the respondent. This erroneous view was shared by the appellate authority as well. The judgment of the Hon’ble High Court is apposite to this context. Para 11 of the judgment reads as follows:-
11. As regards the second ground of challenge is concerned, Section 80 of the said Act provides that, ‘Notwithstanding anything contained in the provisions of Section 76, 77 or 78, no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure.’ In other words, the assessee has to establish reasonable cause for the failure which could otherwise attract penalty under the said provisions of law. The letter dated 24th August, 2006 merely informs the Department that the appellants were not aware of the statutory provisions. Ignorance of law can never be an excuse. Besides, the provisions of law are in force since 1994. No doubt there were some amendments to Section 78 in the year 2004, but that was not relating to the main substance of the said provision of law which deals with the penalty aspect. Besides, the records nowhere disclose that in the statement dated 13th September, 2005 of Shri Balwinder Singh, Proprietor of the appellant firm, had disclosed about absence of knowledge of law to him. Obviously, the letter dated 24th August 2006 appears to be an afterthought. Even otherwise, as observed above, mere ignorance of law cannot be an excuse.
The only reason stated by the party in their reply to the show-cause notice, against imposition of penalty, was that the non-payment of service tax was not wilful. The reason presently stated by their authorized representative is that they were unaware of the relevant legal provisions. It is idiomatic that ignorance of law is no excuse. If that be so, the non-payment of service tax was wilful. No other reason has been stated by the respondent for their failure to pay service tax in due time.
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In this scenario, there is no question of giving the benefit of Section 80 of the Act to the respondent. The Hon’ble High Court’s judgment is in full support of this view. 5. Though it has been claimed that Section 78 penalty was also paid by the respondent, no evidence is forthcoming. The respondent has not challenged that penalty either. In the circumstances, it may not be unreasonable to think that the respondent has not come with clean hands to oppose the proposal for imposition of Section 76 penalty. 6. In the result, it is held that a penalty is liable to be imposed on the respondent under Section 76 of the Act also. The original authority is directed to determine the quantum of this penalty in accordance with the provisions after giving them a reasonable opportunity of being heard. 7. The appeal is disposed of in the above terms.