Dhandayuthapani Canteen vs Customs, Excise and Service Tax Appellate Tribunal and Others

R. Sudhakar, J.—Aggrieved by the order of the Appellate Tribunal in dismissing the appeal filed by it, the assessee is before this Court challenging the said order by filing the present appeal. This Court, vide order dated 05.02.09, framed the following substantial questions of law for consideration:-

"1) Whether the penalty is imposable where the tax is paid before issuance of show cause notice?

2) Whether lower authorities were right in not exercising their power under Section 80 of the Finance Act?"

The appellant is a service provider, more particularly outdoor catering service. A show cause notice was issued, which was agitated and a demand for service tax of Rs.2,60,225/- was passed together with education cess of Rs.5,204/- totaling to Rs.2,65,429/- for the period 10.9.04 to 30.6.06 under proviso to Section 73(1) of the Finance Act, 1994. In addition to the above, penalty of Rs.10,000 /- under Section 76, Rs.1,000/- under Section 77 and Rs.10,000/- under Section 78 of the Act were also imposed on the assessee. The demand of interest on tax was also confirmed in terms of Section 75 of the Act. The order of adjudication was accepted by the party and no appeal has been filed and, therefore, it remained unchallenged.

The department, however, was of the view that penalty imposed under Section 78 of the Act was not in terms of the Act, when there is a finding of wilful suppression, and that the amount of penalty levied should have been equal to the tax liability as provided under Section 78 and, therefore, the jurisdiction authority, exercising the power under Section 84 by way of revision, passed the following order : -

"(i) I impose a penalty of Rs.200/- per day on the noticee in respect of the period from 10.09.2004 to till the date of payment of service tax due, not exceeding the service tax payable under the provisions of Section 76 of Finance Act, 1994.

(ii) I appropriate the amount of Rs.10,000 /- already paid by the noticee as penalty under Section 76, and adjust towards the penalty imposed against Sl. No.(i).

(iii) I impose a penalty of Rs.2,65,429 /- (Rupees Two Lakh Sixty Five Thousand Four Hundred and Twenty Nine only) on the noticee under Section 78 of the Finance Act, 1994.

(iv) I appropriate the amount of Rs.10,000 /- already paid by the noticee as penalty under Section 78 and adjust towards the penalty imposed under Sl. No.(iii) above."

Against the said order, the assessee went on appeal to the Tribunal and the Tribunal, on the issue of penalty under Section 78, recorded a finding that there is wilful suppression and, therefore, mandatory penalty is leviable under Section 78 of the Act. For better clarity, the relevant portion of the order is quoted hereunder : -

"4. After considering the submissions, I have to accept the plea made by the learned SDR in relation to the penalty imposed on the appellant by the Commissioner under Section 78. The order of adjudication contains a clear finding to the effect that the assessee had wilfully suppressed and concealed the value of taxable service provided by them. This finding was accepted by the party inasmuch as they did not file any appeal against the said order. Wilful suppression is one of the ingredients of Section 78 ibid and, if it is established, the assessee invites action under Section 78 in full vigour. This would mean that penalty equal to tax (including cess) has to be imposed on the party, which was not done by the original authority, but rightly done by the revisional authority."

On the penalty of Rs.1000/- imposed under Section 77 of the Act, the Tribunal confirmed the same. However, insofar as the penalty of Rs.10,000 /- imposed under Section 76 of the Act is concerned, the Tribunal remanded the matter back to the Commissioner for redetermination of the penalty. The relevant portion of the order is as under : -

"7. In the result, the appeal is dismissed in relation to the penalty imposed on the appellant by the revisional authority under Section 78 of the Finance Act, 1994 and is allowed by way of remand as regards the penalty under Section 76 of the Act. The learned Commissioner shall pass fresh order on the question as to what amount of penalty is liable to be imposed on the assessee under Section 76 of the Finance Act, 1994. It goes without saying that before doing so, the Commissioner shall give the assessee a reasonable opportunity of being heard."

Aggrieved against the said order of the Tribunal, the present appeal has been filed by the assessee.

Heard the learned counsel appearing for the appellant and the learned counsel appearing for the respondents and also perused the documents as also the relevant sections of the Finance Act, 1994.

For the first question of law, the answer lies within the said provision itself. The appellant is not able to state under what provision of law penalty can be withheld or not imposed if tax is paid before issuance of show cause notice under the provisions of the Finance Act, 1994.

In any event, the said issue now stands resolved by a Larger Bench decision of the Supreme Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, , wherein it was held that penalty under Section 11AC of the Central Excise Act is mandatory and there is no element of discretion. The relevant portion of the said decision reads as under:

"26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.

Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff''s case (supra) was not correctly decided but Chairman, SEBI''s case (Supra) has analysed the legal position in the correct perspectives. The reference is answered...."

Similar view was taken by the Supreme Court in Union of India (UOI) Vs. Rajasthan Spinning and Weaving Mills, . It is apposite to refer to paragraphs (23) to (25) of the said decision, which read as under:

"23. The decision in Dharamendra Textile must, therefore be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides.

It must, however, be made clear that what is stated above in regard to the decision in Dharamendra Textile is only in so far as Section 11AC is concerned. We make no observations (as a matter of fact there is no occasion for it!) with regard to the several other statutory provisions that came up for consideration in that decision.

In the light of the discussion made above it is evident that in both the appeals, orders were passed by the Tribunal on a wrong premise. In both the appeals, therefore, the impugned orders passed by the Tribunal are set aside and the matters are remitted to the respective Tribunals for fresh consideration, in accordance with law, and in the light of this judgment...."

This issue was also considered by this Court in Commissioner of Central Excise Vs. Eurotherm Del India Ltd., , wherein it was held as under:

"4. The Department''s contention before the Tribunal was that whether the lower appellate authority was right in setting aside the mandatory penalty under Rule 57-1(4) of the Central Excise Rules, 1944 and Section 11AC of the Central Excise Act, 1944 for the entire period subsequent to 28-9-1996. The Tribunal did not venture to examine this question but merely stated that it need not interfere with the decision of the lower appellate authority.

We have perused the grounds of appeal filed by the Revenue before the Tribunal, from which it is seen that the Department has contested the matter regarding imposition of penalty prior to the date of introduction of the said provision, viz., 57-1(4) of the Central Excise Rules, 1944 and thereafter. Therefore, the Revenue having raised such a ground before the Tribunal, the Tribunal ought to have considered the issue and rendered a finding. Without doing so, the Tribunal merely observed that they need not interfere with the decision of the lower appellate authority as regards the penalty for the brief period from 23- 7-1996 to 28-9-1996 when the contention of the Department that post 28-9-1996 also the Department was entitled to levy penalty and that the period covered for adjudication was from 1-4-1994 to 30-9-1998. Hence, this question requires consideration of the Tribunal.

Accordingly, the matter is remitted back to the Tribunal directing it to consider the question of levy of penalty under Rule 57-1(4) of the Central Excise Rules, 1944 for the period post 23-7-1996 in accordance with law after giving opportunity to both sides."

Following the decision of the Supreme Court in Dharamendra Textile Processors and others, referred supra, this Court in Commr. of C. EX., Chennai-I Vs. Drums and Barrels Madras Pvt. Ltd., held as under:

"3. The issue raised in the appeal is directly and substantially covered by the recent decision of the Hon''ble Apex Court in Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others,

In the instant case, the Tribunal after having found that the respondent company has accepted the removal of inputs, without expunging the credit, proceeded to reduce the monetary penalty imposable under Rule 173Q of Central Excise Rules, 1944. The Hon''ble Apex Court in the decision cited supra held that it is a well settled principle in law that the Court cannot read anything into a statutory provision or a stipulated condition which is plain and unambiguous and the language employed in a statute is the determinative factor of legislative intent. The Rule provides for mandatory penalty equivalent to amount of duty which cannot be interfered with and the Apex Court has further held that there is no discretion vested with the authority. The order-in-original confirms.

(i) the demand of Rs. 1,64,687/- under Rule 57-I of Central Excise Rules, 1944, the demand of Rs. 1,91,681/- against the clearances Modvat credit availed capital goods i.e. Mobile crane, to their de-coiling plant situated outside their manufacturing premises under Rule 57U of Central Excise Rules, 1944;

(iii) impose a total penalty of Rs. 2,86,368/- as equal to the sum total of the above confirmed demands under Rule 57-I & 57U of Central Excise Rules, 1944;

(iv) impose a penalty of Rs. 25,000/- under Rule 173Q of the Central Excise Rules, 1994 on M/ s.Drums and Barrels (Madras) Pvt. Limited and

(v) direct the assessees to pay interest at appropriate rates as provided in the Modvat Rules.

While 173Q providers for discretion with the authority with regard to the quantum of penalty. In the same case, the Supreme Court observed in Paragraph 7 that, where the outer limit of penalty is fixed, which indicates the scope of discretion, Rules 57-I provides for imposition of a penalty equal to the credit so dissolved and therefore, as regards the imposition of penalty under Rule 57-I in a sum of Rs. 1,64,687 /- could not have been reduced. Whereas, since the discretion is vested with the authority to reduce the penalty under Section 173Q, that is not interfered with. The civil miscellaneous appeal is allowed to the extent indicated above."

In the light of the law enunciated in the decisions referred supra, we hold that penalty is imposable even in cases where tax is paid before issuance of show cause notice. The first question of law is answered against the assessee and in favour of the department.

Insofar as the 2nd question of law is concerned, we find that the provisions of Section 80 of the Finance Act empowers the authority not to impose penalty, if the assessee proves that there was reasonable cause for the said failure. For better clarity, Section 80 of the Finance Act is extracted hereinbelow : -

"80. Penalty not to be imposed in certain cases

Notwithstanding anything contained in the provisions of section 76 [section 77 or [first proviso to sub- section (1) of section 78]], no penalty shall be imposable on the assessee for any failure referred to in said provisions, if the assessee proves that there was reasonable cause for the said failure."

A reading of Section 80 of the Finance Act clearly shows that it applies with equal force to Sections 76, 77 and 78 of the Act.

From a perusal of the records it is clear that the original authority, as has been observed by the Tribunal, and extracted by this Court above, in para-4 of its order has clearly held that there is a case of wilful suppression and concealment of value of taxable services. Therefore, the plea of reasonable cause has been negatived by the original authority and the same has not been challenged by the appellant. In such circumstances, there can be no question of invocation of Section 80 of the Act. In view of the above, the Tribunal is fully justified in upholding the penalty order passed under Section 78 of the Act. On the facts of the case, if there is a finding of wilful suppression and concealment of value, there is no question of invocation of Section 80 of the Act. The lower authority rightly declined to exercise the power under Section 80 of the Act and the Commissioner was correct in seeking revision of that order and in the light of the said provision of law the order of the Tribunal is fully justified in the facts of the case. In view of the above, the second substantial question of law is answered against the assessee/appellant and in favour of the Revenue.

However, on the contention of bar of imposition of penalty under Section 76 when penalty is imposed under Section 78 of the Finance Act, the issue is left open to the appellant to agitate before the Commissioner on the order of the Tribunal on remand.

Accordingly, warranting no interference with the order passed by the Tribunal, this appeal is dismissed. However, there shall be no order as to costs.