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Judgment
Heard Mr. Sridharan, learned counsel for the petitioner/appellant and Mr. Jetly, learned counsel for the respondents-Revenue. Perused writ petition as well as appeal.
Rule, returnable forthwith.
Mr. Jetly waives service for the respondents.
By consent of parties, writ petition together with appeal are taken-up for final hearing.
By Central Excise Appeal No. 48/2010, M/s. Riya Travels & Tours (I) Private Limited has invoked the appellate jurisdiction of this Court u/s 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994 ("Act" for short) to challenge the order dated 17th April, 2009 [ (2009) 18 STJ 77 ] passed by the Customs Excise and Service Tax Appellate Tribunal, West Zonal Bench, Mumbai ("Tribunal" for short) and, by Writ Petition No. 4975/2010, also invoked writ jurisdiction of this Court under Article 226 of the Constitution of India to challenge the order dated 16th November, 2009 passed by the Tribunal [ 2010 (18) S.T.R. 444 ], whereby and where-under the prayer for rectification of mistake in the final order dated 17th April, 2009 was rejected by the Tribunal.
The facts and the issues involved in the appeal as well as writ petition being common and identical, they were heard together and are being disposed of by this common order on the factual backdrop sketched hereinbelow :
Factual Backdrop:
M/s. Riya Travels & Tours (I) Private Limited (hereinafter referred to as "appellant-assessee"/ "petitioner-assessee" for short) is an air travel agent. They issue air tickets for domestic as well as international flights to the passengers. The petitioner-assessee is registered with the Service Tax Department under taxable head of ''Air Travel Agent'' service. The petitioner-assessee are paying service tax.
A show cause notice dated 21st September, 2005 was issued to the petitioner-assessee, inter alia, alleging that the petitioner-assessee had short-paid service tax amounting to Rs. 23,84,597/- for the period from April, 2000 to March, 2004. Further, vide show cause notice dated 17-10-2005, it was alleged-that the petitioner-assessee had short-paid service tax amount of Rs. 8,06,24,422/-for the period from April, 2001 to August, 2006. Accordingly, demand for service tax was enhanced. The said show cause notice also proposed to demand service tax amounting to Rs. 2,99,76,848/- for the period from September, 2001 to August, 2006 provided from another branch office of the petitioner-assessee. The show cause notices also proposed to impose penalty on the petitioner-assessee under Sections 76 and 78 of the Act.
The petitioner-assessee filed detailed replies to the aforesaid show cause notices and appeared for personal hearing before the respondent-Commissioner of Service Tax. It is relevant to mention that the petitioner-assessee had paid service tax amounting to Rs. 8,44,73,819/- voluntarily even before the issuance of show cause notice. The respondent confirmed the demand of service tax amounting to Rs. 7,67,05,441/- for the period from April, 2001 to March, 2006 vide its order dated 3rd September, 2007. The respondent imposed a penalty of Rs. 100/- per day during which failure to pay service tax continued u/s 76 of the Finance Act, 1994. Furthermore, the Respondent imposed penalty of Rs. 10,00,00,000/- u/s 78 of the Act.
Aggrieved by the reduction in demand, of service tax, the Revenue filed Appeal No. ST/08/2008 before the Tribunal. The petitioner-assessee filed a cross appeal/cross objection No. ST/CO-39/2008 contesting the imposition of penalty on the petitioner-assessee u/s 76 and 78 of the Act. The said appeal and cross appeal were heard on 30th September, 2009 by the Tribunal. After hearing both sides, orders were reserved.
The Member (Judicial), vide his order dated 11th December, 2008, upheld the demand of service tax and allowed the Revenue''s appeal to that extent. However, the demand of service tax was ordered to be recomputed after considering the submission of the petitioner-assessee on correct rate of service tax, cenvat credit etc. He upheld the demand of interest as well as the penalty imposed u/s 76 of the Act, however, reduced the penalty imposed on the petitioner-assessee u/s 78 of the Act to Rs. 50,00,000/-. On the other hand, the Member (Technical) agreed with the finding recorded by the Member (Judicial) in respect of the confirmation of demand of service tax, interest and imposition of penalty u/s 76. However, in so far as reduction of the penalty imposed u/s 78 is concerned, there was a difference of opinion. The Member (Technical) held that the penalty imposed by the respondent on the petitioner-assessee u/s 78 amounting to Rs. 10 crore is correct and there was no reason to reduce the same.
The above difference of opinion was referred to the third member. The third Member (Judicial) agreed with the Member (Technical) and upheld the imposition of penalty of Rs. 10 crore on the petitioner-assessee u/s 78. In view of the majority order, final Order was passed on 17th April, 2009.
The petitioner-assessee, however, chose to file application No. 3T/ROM-335/2009 for clarification/modification of the aforesaid final order passed by the Tribunal on the ground that in terms of first proviso to Section 78, the petitioner-assessee is liable to pay penalty only to the extent of 25% of the service tax demanded u/s 73(2), which already stands deposited by the petitioner-assessee.
The Revenue also filed an application No. ST/MA(ORS) 1397/2009 seeking rectification of mistake in the aforesaid final order dated 17th April, 2009 on the ground that the Tribunal should not have confirmed the penalty amount of Rs. 10 crores in as much as on remand, the demand of service tax would be well over Rs. 10 crore. Hence, according to the Revenue, the "equivalent penalty u/s 78 could be more than Rs. 10 crore.
After hearing both parties, vide Order dated 16th November, 2009, both the aforesaid applications came to be dismissed by the Tribunal.
Being aggrieved by the aforesaid orders, the appellant-assessee has filed appeal being Central Excise Appeal No. 48/2010 to challenge the order dated 17th April, 2009 as also Writ Petition No. 4975/2010 to challenge the order dated 16th November, 2009 refusing to rectify the final order dated 17th April, 2009.
Rival Submissions
In appeal:
Mr. Sridharan, learned counsel for the petitioner-assessee submits that the impugned order dated 17th April 2009 is ex facie erroneous and has been passed in gross violation of principles of natural justice. The Tribunal has overlooked binding precedents of this Court while passing the impugned order. Hence, the impugned order is liable to be set aside on this ground alone. So far as penalty is concerned, he submits that no penalty at all can be imposed on the appellant-assessee u/s 78 of the Act since they had paid the entire amount of service tax not only prior to determination of the liability by the Respondent but even before the issuance of the show cause notice. It is submitted that once there is no service tax "due" from the appellant-assessee u/s 73(2), no penalty can be imposed on the appellant-assessee u/s 78 and the impugned order is liable; to be set aside.
Mr. Sridharan further submits that in terms of Section 80 of the Act, no penalty could be imposed on the appellant-assessee. He submits that the appellant-assessee has been in air travel agency business for the past 20 years and has more than 20 branches located all over the country. There is no demand of service tax pending against the appellant-assessee. The appellant-assessee has been paying service tax to the tune of Rs. 20 crore annually. The appellant-assessee has paid the entire amount of service tax along with interest even before issuance of the show cause notice voluntarily, which proves the bona fides of the appellant-assessee. In this factual scenario, the provisions of Section 80 should have been invoked and no penalty should have been imposed on the, appellant-assessee. Mr. Sridharan, in support of his submission relied upon the opening phrase appearing in Section 80 of the Act reading as "Notwithstanding anything contained in the provisions of Sections 76, 77 and 78....." He also relied upon the judgment of this Court in the case of SK Babbu v. Sayeda Masarat Begum - (1999) 3 Mh LJ 465, wherein it is held that the term "notwithstanding" means "irrespective of" and should be interpreted accordingly.
Mr. Sridharan submits that a non obstante clause confers benefits to the exclusion of contents of the other provisions of the act/rules/sub-rules, which were specifically over ridden by the said clause. In the instant case also, Section 80 allows benefit of no penalty, to the exclusion of power to impose penalty under Sections 76, 77 and 78. According to him, if the finding of the Tribunal that in case of suppression of facts, no waiver from penalty can be granted to such a person is to be accepted as correct, it would lead to redundancy of the provision of Section 80. It is well settled that any interpretation that leads to redundancy of a provision of law needs to be avoided. He submits that had the intention of the Legislature not been to grant immunity from penalty to a person who is guilty of suppression of facts, there was no need to specify Section 78 in Section 80. Further, this position exists since inception of the service tax levy in 1994.
Mr. Sridharan submits that service tax is a new levy. There is no clarity in the mind of the assessee as well as the Revenue officers. Section 80 is a benevolent provision introduced under the Act. There is no such pari materia provision under the Central Excise Act, 1944 or the Customs Act, 1962 or the Income Tax Act, 1962 or the Central Sales Tax Act, 1956 or under any of the Local VAT laws. Section 80 overrides the provisions of Sections 76, 77 and 78. Section 80 provides for scope of non-imposition of penalty even in case where Sections 78 is attracted. Thus, even in case where a person suppresses the facts with an intent to evade payment of service tax, no penalty can be imposed on such a person u/s 80 if a reasonable cause for such failure is shown. In his submission, this fact of the matter has been overlooked by the Tribunal. Hence, the impugned order is liable to be set aside.
Mr. Sridharan further submits that Section 80 provides for non-imposition of any penalty if reasonable cause is shown. Hence, inherent in Section 80 is the power to reduce the penalty, if any, imposed under Sections 76, 77 and 78 of the Finance Act, 1994. In support of his submissions he relied upon C.C.E. v. Punjab National Bank, 2009 (14) S.T.R. 302 (All); C.C.E. v. Ashish Vasantrao Patil, 2008 (10) S.T.R. 5 (Bom.); C.C.E. v. Vinay Bele and Associates, 2008 (9) S.T.R. 350 (Bom.). According to him, the Tribunal has grossly erred in holding that penalty can either be "nil" u/s 80 or Rs. 10 crore u/s 78. Hence, the impugned order is liable to be set aside.
Without prejudice to the above, Mr. Sridharan submits that no penalty is imposable even if minimum penalty is prescribed. In support of his submission he relied upon the decisions in Hindustan Steel Ltd. Vs. State of Orissa, and State of Madhya Pradesh and others Vs. Bharat Heavy Electricals, .
In the alternative and without prejudice to the above submissions, Mr. Sridharan submits that in terms of the first proviso to Section 78, where the service tax as determined u/s 73(2) and the interest payable u/s 75 is paid within 30 days of communication of the order, the amount of penalty liable to be paid by such person shall be 25% of the service tax so determined. Thus, the penalty amount is reduced to 25% of the service tax amount upon satisfaction of the said conditions. In other words, the Tribunal has upheld the penalty imposed on the appellant-assessee and held that the appellant-assessee is liable to pay the same. The only clarification, if any, not provided by the Tribunal in this regard in the order is that penalty shall be payable as per law. However, this is inherent. The operation of law as declared by the Parliament will have force over any order passed by the Appellate Tribunal. Hence, the appellant-assessee is entitled to benefit of proviso (1) to Section 78, even without any clarification in this regard by the Tribunal. In support of the above submission, Mr. Sridharan relied on a decision of the Hon''ble Andhra Pradesh high Court in the case of Techno Pack Ltd. Vs. Assistant Collector of Central Excise, .
Mr. Sridharan submits that the judgment of the Supreme Court in the case of Union of India (UOI) and Others Vs. Dharamendra Textile Processors and Others, shall not apply in the facts of the present case. In that case, the Supreme Court was concerned with the provisions of Section 11AC of the Central Excise Act, 1944. In absence of any pari materia provision like Section 80 of the Act in the Central Excise Act, 1944, the said decision will have no application in the present case.
Without prejudice to the above, Mr. Sridharan submits that once penalty u/s 76 has been imposed on the appellant-assessee, no penalty u/s 78 can be imposed. In other words, penalty u/s 76 and 78 cannot be imposed simultaneously. This is clear from a plain and cumulative reading of both the sections. He, thus, prayed that the impugned orders be quashed and set aside.
In Writ Petition :
Mr. Sridharan further submits that the respondent No. 2 was in error in rejecting the application of the petitioner-assessee on the ground that factual verification of payment of duty and interest and 25% of penalty is required before extending benefit of proviso to Section 78. According to him, this could hardly be a ground to deny benefit of a statutory provision. If the petitioner''s contention required verification of facts, it could have been easily done by seeking confirmation from the Revenue or by calling for the reports from the respondents. The factual verification of payment was capable of being done and non-consideration of benefit flowing from the statutory provision is an error apparent on the face of the record.
Without prejudice to the above submission, Mr. Sridharan submits that in terms of the first proviso, to Section 78, where the service tax as determined u/s 73(2) and the interest payable u/s 75 is paid within 30 days of communication of the order, the amount of penalty liable to be paid by such person shall be 25% of the service tax so determined. Thus, the penalty amount is reduced to 25% of the service tax amount upon satisfaction of the said conditions.
He submits that in the instant case, the service tax amount determined by the Respondent is Rs. 7,67,05,449/- and the appellant-assessee have already paid service tax, interest and penalty of Rs. 1,91,76,362/- (i.e. 25% of Rs. 7,67,05,449/-) within 30 days from the date of passing of the order. Hence, under no circumstances, the penalty imposed on the appellant-assessee can be Rs. 10 crore. Even in the worst case scenario, the penalty imposed on the appellant-assessee can be Rs. 1,91,76,362/- only and not beyond that. He, thus, submits that this is a protective action. The appellant-assessee need net ''even challenge the impugned order passed by the Tribunal. However, the Revenue should not raise an argument tomorrow that the appellant-assessee are liable to pay penalty of Rs. 10 crore.
Per Contra:
Per contra, Mr. Jetly, learned counsel for the Revenue canvassed his submission in consonance with the allegations made in the show-cause-notice and the findings recorded by the adjudicating authority, the Commissioner of Service Tax. He took us through the entire order of the adjudicating authority together with the order of the Tribunal to urge that the view taken by the Tribunal is a reasonable and possible view based on the material available; on record. He submits that short payment of service tax. for the relevant period was never disputed by the petitioner-assessee and that the concurrent findings of fact are recorded by the Tribunal that the service tax liability on the appellant-assessee was correctly calculated. According to him, the appeal does not involve any substantial question of law warranting consideration by this Court.
So far as challenges set up in the writ petition to the order of rectification is concerned, Mr. Jetly submits that at no point on time, the benefit of proviso to Section 78 was claimed by the petitioner-assessee, not even in the cross-objection filed before the Tribunal. Even the essential facts necessary for claiming such benefit were never pleaded by the petitioner-assessee nor even in the cross-objection filed before the Tribunal. It being a question of fact ought to have been pleaded and proved by the petitioner-assessee. He further submits that this Court not being a Court of appeal is not expected to consider the issue de novo unless the view taken by the Tribunal is found to be perverse. In his submission, if the view taken by the authorities below is found to ''be reasonable and possible, it need not be interfered with. He, thus, submits that the order dated 16th November, 2009 rejecting rectification application is legal and proper.
Consideration:
Having heard rival parties and having perused the record and the impugned orders in the appeal as well as writ petition, the submission made by Mr. Jetly deserves acceptance. The Adjudicating Authority in the order in original has graphically sketched the picture how the liability to pay service tax was sought to be evaded by the appellant-assessee. The Tribunal has considered each and every challenge set up in the appeal and dealt with the contentions raised by the petitioner/appellant-assessee. Under these circumstances, so far as the findings with regard to penalty are concerned, no case is made out by the appellant-assessee to entertain this appeal for want of substantial question of law.
At the cost of repetition, we may refer to the relevant part of the adjudication order depicting the conduct of the appellant/petitioner-assessee sketched in the impugned order and relied upon by Mr. Jetly in support of his submissions. The aforesaid findings confirmed in appeal by no means can be said to be perverse or ''without application of mind, if one goes through the facts and circumstances leading to issuance of show cause notice and investigation thereof which, ultimately, culminated in the impugned order. The relevant findings read as under:
4.12. The Noticees have not disputed their liability to pay taxes. However, they not only failed to declare correct value of their services in the ST-3 Returns and discharge their legitimate service tax liability from time to time but they fraudulently misdeclared the value of the service and their liability at the time of enquiry which resulted in issue of ''Notice 5''. It is, therefore, conclusively proved that the Noticees had fraudulently short paid the tax with intent to evade the payment of tax. Their pleading about certain aspect of service tax not being clear, in the initial period or that they could not pay the tax due to tight financial position or intense competition in the market are of no avail. They did not come clean even when an enquiry was initiated against them. Even at that time they supplied wrong information to the Investigating Agency with intent to evade the payment of tax. One who demands justice should have come before the law with clean hands. Having failed to come before the law with clean hands on various occasions they cannot demand clemency when they have been caught by the Investigating Authority. Their omissions and commissions are not ingenuous but insidious. Behind these omissions and commissions there always was an iniquitous intention of not paying or short paying the service tax. The Noticees are therefore liable to penalty both under Sections 76 and 78 of the Act.
4.13. The Noticees have pleaded that without prejudice to their contention that they are not liable to any penalty under Sections 76 or 78 of the Act, the provisions of Section 76 underwent a change w.e.f. 18-4-2006 and their case relates to period prior to April 2006. The plea of the Noticee is partially accepted. It has already been held that they are liable to penalty but the penalty shall be imposed as per law existing at the time of the omissions and commissions on the part of the Noticees.
(Emphasis supplied)
So far as the contention raised by the appellant-assessee revolving around Section 80 of the act is concerned, the same is devoid of any substance. Section 80 of the Act is reproduced hereinbelow for immediate reference :
Penalty not to be imposed in certain cases.
Notwithstanding anything contained in the provisions of Section 76, Section 77 or Section 78, no penalty shall be imposable on the assessee for any failure referred to in the said provision if the assessee proves that there was reasonable cause for the said failure.
The contention revolving around above Section 80 was also raised by the appellant-assessee before the Adjudicating Authority as well as before Tribunal. The findings of the Adjudicating Authority read as under :
4.14 The Noticees have relied on the decision on honourable Supreme Court in the case of Akbar Badrudin Jiwani of Bombay Vs. Collector of Customs, Bombay, and have stated that they were under bona fide belief that they were liable to pay tax on part of the commission retained by them. This plea is totally irrelevant to the facts of the case. The Noticees have opted to pay tax on the basic fare hence there was no question of having any contrary bona fide belief. After citing decision of M/s. Hindustan Steel v. State of Orissa, 1978 (2) E.L.T. J159 (S.C.) they have pleaded that there was no deliberate defiance of law or dishonest conduct on their part hence penalty cannot be imposed on them. The conduct of the Noticees has been reprehensible right from the beginning. They had software which was capable, of calculating the tax payable by them but still they chose to declare less value by them than the correct value of their services and paid less tax on such services. They did not come clear in the previous enquiry. It is not open to them to say that they are not guilty of dishonest intention or there was no deliberate defiance of law. The facts of case go against them even with respect to rulings in other two cases, M/s. Godrej Soaps Limited v. Commissioner Central Excise, Mumbai, 2004 (170) E.L.T. 201 and 2005 (98) ECC 771 , pleaded by them.
(Emphasis supplied)
The aforesaid findings were confirmed by the Tribunal. We have independently examined the conduct of the appellant-assessee. We find that the view taken by both the authorities below is in consonance with the evidence available on record. The perusal of the show cause notice and the order-in-original is sufficient to demonstrate that the action against the appellant-assessee was initiated on the basis of Intelligence Report from the Mumbai Zonal unit of the Director General of Central Excise Intelligence; wherein evasion of service tax in respect of travel agent service rendered by the appellant-assessee in respect of international air ticket booking was reported. Had there been no intelligence report, the appellant-assessee would have gone scot-free in spite of evasion of service tax. In view of this, it is not possible to hold that the impugned order is perverse warranting interference at the hands of this Court or that the omission on the part of the appellant-assessee as bona fide.
Having said so, next question relating to benefit of proviso to Section 78 needs consideration. The relevant part of Section 78 of the Act reads as under:
Penalty for suppressing value of taxable service.
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) wilful mis-statement; or
(ci) suppression of facts; or
(d) contravention of any of the provisions of this Chapter or of the rules made thereunder with 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 not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded.
Provided that where such service tax as determined under sub-section (2) of section 73, and the interest, payable thereon u/s 75, is paid within thirty days from the date of communication of order of the Central Excise Office determining such service tax, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent of the service tax so determined.
If one goes through the provision of Section 78, one would find that where service tax is determined under sub-section (2) of Section 73 and the interest payable thereon u/s 75 is paid within thirty days from the date of communication of order of Central Excise Officer determining such service tax, the amount of penalty liable to be paid by such person under this section shall be 25% of the service tax so determined.
In the instant case, the petitioner-assessee claims to have paid service tax much prior to the determination of its tax liability under sub-section (2) of Section 73. At this stage, it is not necessary for us to go into the detailed factual matrix and record positive finding since the matter is remanded by the Tribunal to the Adjudicating Authority for recalculation of correct service tax liability. Unless correct quantification of tax liability with interest payable thereon by the appellant is done, it is not possible to record positive finding on the issue raised. However, prima facie; petitioner-assessee seems to be entitled to the benefit of the first proviso to Section 78.
The order of the Tribunal impugned in the writ petition stands set aside in the facts and circumstances of this case and the matter is remanded for consideration afresh with an opportunity to the assessee to establish its contention on this count. Needless to mention that, even-though the contention relating to the benefit of first proviso to Section 78 was not raised before the Tribunal, the said question could have been left open by the Tribunal for consideration since the matter was to go back to the Adjudicating Authority for quantification afresh.
Be that as it may, since the matter is being remanded to the adjudicating authority, it can take a fresh look at the matter with regard to entitlement of petitioner-assessee to the benefit of proviso to Section 78 of the Act.
In the above premises, we direct the Adjudicating Authority to consider the question whether or not the petitioner-assessee has discharged its tax liability in terms of the first proviso to Section 78 of the Act. On proper and correct quantification of tax liability under the Act with relevant dates of payments, if the Adjudicating Authority comes to the conclusion that the petitioner-assessee is entitled to the benefit of the first proviso to Section 78, the Adjudicating Authority shall grant the benefit to the petitioner-assessee while quantifying its tax liability.
In the result, appeal is dismissed. Rule is partly made absolute in writ petition in terms of this order with no order as to costs.