Judgment:
1. After examining the records and hearing both sides, I am of the view that the appeal itself requires to be finally disposed of at this stage. Accordingly, after dispensing with predeposit, I take up the appeal.
2. During the period of dispute (25.05.2004 to 05.06.2005), the appellants were rendering taxable services to their clients but not paying tax thereon. Upon realizing their liability, they paid the Service Tax for the above period in two instalments, the first on 06.06.2005 and the second on 27.07.2005. Interest on these amounts of tax was also paid in two instalments, the first on 27.07.2005 and the second on 31.07.2005. The department issued a show-cause notice on 18.01.2006 for imposing penalties on the party under Sections 76 and 77 of the Finance Act, 1994 for not having paid Service Tax in time and not having filed Service Tax returns. The proposal to impose such penalties was contested. The Deputy Commissioner, in adjudication of the dispute, imposed penalties of Rs. 1,08,077/- and Rs. 500/- respectively under Sections 76 and 77. The decision of the original authority was sustained by the first appellate authority. Hence this appeal.
3. It appears from the records and submissions that the appellants are claiming the benefit of Section 80 of the Finance Act, 1994, which reads as under: Penalty not to be imposed in certain cases. 80. - Notwithstanding anything contained in the provisions of Section 76, Section 77, Section 78 or Section 79, 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.
It is the appellant's case that they had no intention to evade payment of Service Tax and that, the moment they realized their liability, they paid it up. The delay was due to bona fide belief that they were not rendering any taxable service. It is pointed out by learned Consultant that the original authority was also satisfied to this effect. Learned Consultant has relied on the Tribunal's Larger Bench decision in ETA Engineering Ltd. v. Commissioner of Central Excise, Chennai 2006 (3) S.T.R. 429 (Tri.-LB), wherein the assessee, who had defaulted payment of Service Tax, was found to have entertained a bona fide doubt regarding taxability of their activity under the Finance Act, 1994 and, accordingly, the benefit of Section 80 of the Act was given to them.
Reliance is also placed on the Tribunal's decision in Catalyst Capital Services Pvt. Ltd. v. Commissioner of Central Excise, Mumbai-IV , wherein the delayed payment of Service Tax by an assessee was held to be without mala fide intention and, accordingly, penalty under Section 76 of the Finance Act was vacated. Learned SDR reiterates the findings recorded in the impugned order.
4. As rightly pointed out by learned Consultant, the original authority ruled out intention on the part of the assessee to evade Service Tax vide para 12 of its order. This finding of the original authority, which is equivalent to saying that the assessee had been maintaining a bona fide belief that they were not liable to pay Service Tax on the services in question, was not challenged by the Revenue and, therefore, it was not open to learned Commissioner (Appeals) to substitute his 'satisfaction' for the 'satisfaction' recorded by the lower authority for purposes of Section 80 of the Finance Act. Once it was found by the original authority that there was reasonable cause for the failure of the assessee to pay Service Tax in time, the proposal to impose penalties on them under Sections 76 and 77 should have been dropped inasmuch as the assessee had, by showing such reasonable cause for the failure to pay tax in time, established a case for exoneration from penalty under Section 80. On the facts of the case, the Tribunal's Larger Bench decision cited by learned Consultant seems to be supportive of the appellant's case.
5. In the result, the impugned order is set aside and this appeal is allowed.