1. This application for stay of the impugned order of the Commissioner (Appeals) made on 21-4-2005 has come before us. In this application, the applicant states that they are engaged as EPABX Operator under the licence given by the Department of Telecommunications. A demand of service tax to the tune of Rs. 1,55,000/- was made by the department in a show cause notice dated 3-9-2003 charging interest and contemplating penal action under Sections 76, 77, 78, 71 and 75A of the Act.
Eventually, the demand of service tax made under Section 11D of the Central Excise Act was dropped by the Assistant Commissioner on the observation that during the material period, Section 11D cannot be invoked as the same was made applicable to service tax matters only w.e.f. 16-8-2002. However, the learned Assistant Commissioner imposed a penalty of Rs. 1,000/- under Section 77, Rs. 3,30,000/- under Section 78, Rs. 500/- under Section 75A and Rs. 77,500/- under Section 79 of the Act.
2. When the matter was taken up before the Commissioner (Appeals), he dropped the penalty imposed under Section 79 but retained the rest.
3. Aggrieved by the order of the Commissioner (Appeals), the matter has come before us. The learned Counsel for the appellants has argued that no penalty could be imposed in view of the fact that the entire tax demanded itself stands dropped by the authorities. According to him, penalty imposed on him under Section 78 should necessitate demand under Section 73 which is not covered here. He relies upon the following citations to drive home the point that heavy penalties are not imposable in cases where the appellant is working under bona fide belief: Bharti Cellular Ltd. v. CCE 2006 (2) S.T.R. 255 (Commr. Appl.) : 1999 (106) E.L.T. 564 (Commr. Appl).
4. The learned Authorized Representative for the appellants has argued that the appellant had a licence from the Department of Telecommunication and he was fully covered under the definition of 'taxable service'. It was further stressed that though demand raised under Section 11D of the Central Excise Act could not be confirmed, the liability of the appellants to pay service tax demanded, continues to remain so. On this ground, it cannot be contended that heavy penalties were imposed on the appellant. A plain reading of Section 78 as it existed at the relevant time is as follows: 78. Penalty for suppressing value of taxable service.- If the Central Excise officer in the course of any proceedings under this Chapter is satisfied that 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 such taxable service, he may direct that such person shall pay by way of penalty, in addition to service tax and interest, if any, payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of serviced tax sought to be evaded by reason of suppression or concealment of the value of taxable service or the furnishing of inaccurate value of such taxable service: Provided that if the value of taxable service (as determined by the Central Excise Officer on assessment) in respect of which value has been suppressed or concealed or inaccurate value has been furnished exceeds a sum of twenty-five thousand rupees, the Central Excise officer shall not issue any direction for payment by way of penalty without the previous approval of the Commissioner of Central Excise.
5. From the above reading of Section 78 as it existed at the relevant time, it is apparent that value of taxable service plays a role in determining the penalty imposable under the Act. Admittedly, in this case, the value of taxable service has not been determined in the order of the lower authorities. There is no allegation of suppression or concealment of the value of taxable service by the appellant. It was argued before us on behalf of the Revenue that in this case, service tax that is payable, is not recoverable by them and hence the penalty arrived at by them is justifiable in terms of the provisions of Section 78. We are not much impressed with this argument, as it appears to us that if a tax is not recoverable, the same cannot be held as imposable in the garb of a penalty. Penalty has to be commensurate to a specific offence or violation. It cannot, in our opinion, work as a substitute for tax, which is not enforceable by the law.
6. Heard both sides. In view of the facts and circumstances of the case, we therefore direct that there shall be an interim stay of the impugned order till the matter comes up for final hearing. The penalty determined under the impugned order is therefore, waived till the appeal is taken up for final hearing. The application stands disposed of accordingly. The appeal shall come up for hearing in its due course.