Commissioner of Central Excise Vs. Mankodi Enterprises - Court Judgment

Excerpt:
1. this appeal is filed by commissioner of central excise, bhopal against the impugned order dropping the penalty imposed on the respondent under sections 75a, 76,77 & 78 of the finance act, 1994.2. the respondent m/s. mankodi enterprises, jabalpur are clearing and forwarding agent of m/s. exide industries ltd. since 1998 and they were liable to pay tax from 1-9-1999 onwards and filed st-3 return. the respondent took registration of service tax in october, 2003 and filed service tax return. show cause notice was issued to them demanding service tax and imposing penalty. show cause notice was adjudicated by the deputy commissioner, central excise who demanded service tax and imposed various penalties. the commissioner (appeals) in the impugned order upheld the levy and payment of service tax but he dropped the penalties imposed under sections 75a, 76, 77 and 78 on the ground that under circular f. no. 137/39/2004-cx. 4, dated 23-9-2004, a new voluntary disclosure schemes for voluntary disclosure was circulated by the government, according to which, if service provider makes declaration to the department with regard to the past liability towards service tax and interest payable, the departmental authorities will accept the declaration and on the spot give a registration to the service provider and penal proceedings against the person approaching under this scheme will be completely waived.3. it was argued for the revenue that the respondents were required to take out service tax registration from 1999 and were required to file service tax return and pay the service tax regularly. they neither took service tax registration nor filed return nor paid tax during that period till october, 2003. when the department asked them to pay service tax then they took registration and paid service tax and submitted the return in october, 2003. service tax was paid by them only after adjudication of the proceedings. therefore, they are not covered by the voluntary disclosure scheme and the commissioner (appeals) has wrongly dropped the penalties. it was also stated that they do not have bona fide belief that they were not liable to pay tax as they were recovering the amounts from the exide industries limited.there is no provision of waiving penalty under section 75a. therefore, the order of the commissioner (appeals) waiving the imposition of penalties may be set aside.4. on behalf of the respondents, it was pleaded that earlier the tax was being paid by m/s. exide industries ltd. who were recipient of this service. from 1999, the service provider becomes liable to pay service tax. the respondents were a small service provider as their total service tax liability for more than four years is rs. 32,387/- which works out slightly more than rs. 8,000/-per year. therefore, they were under the impression that m/s. exide industries ltd. may be paying taxes and they may be filing return. however, when the department pointed out, they took registration and submitted st-3 return. they voluntarily paid an amount of rs. 25,000/- and interest of rs. 10,000/- before adjudication. they immediately complied with the letter of the department received in september, 2003 by taking registration, filing return and paying service tax in october, 2003. this shows that there has been bona fide belief on their part for the earlier period when they did not file return that they were not liable to service tax but when as soon as the department has pointed out they paid service tax.it was pleaded that larger bench of the tribunal in the case of eta engineering ltd. v. cce, chennai - has held that "the appellants have not contested the levy of service tax. they have co-operated with investigating officers. since they were under the bona fide doubt regarding their activity whether covered by service tax or not, therefore, there was a reasonable cause on their part in not depositing the service tax in time. therefore, we are of the view that notwithstanding anything contained in the provisions of sections 76 & 77 of the finance act, 1994, the appellants are entitled for benefit of section 80 of the finance act and accordingly, we hold that no penalty should be imposed on the appellants." they also relied on the decision of the tribunal in catalyst capital services pvt. ltd. v. cce, mumbai-iv, appellants had already deposited the service tax and as there was no mala fide intention in making the delayed payment, the penalty imposed thereof i.e. rs. 7,105/- is hereby set aside." it was also pleaded that under the ministry's extraordinary tax payer friendly scheme circular no. 137/39/2004-cx. 4, dated 2-9-2004, when the benefit is being given to those service provider who had not come forward for registration and who have not paid service tax, then the present respondents should also be given benefit of non-levy of penalty.5. i have considered the submissions of both the sides and i find that the commissioner (appeals) in the impugned order has dropped the penalty on the ground that under circular f. no. 137/39/2004-cx. 4, dated 20-9-2004 when the assessees who did not at all comply with the service tax law can be given immunity provided they pay the service tax with appropriate rate of interest, there is no tangible and logical reason as to why the law abiding assessee who had got himself registered more or less in time and had also started paying the service tax in time, much before the new scheme became operational, should be denied the benefit of waiver of penalty. i find that immunity from imposition of penalty under circular dated 20-9-2004 was only in respect of those service provider who had earlier failed to register themselves due to ignorance or for any other reason and who came forward and paid the past liability within the period prescribed under this circular. therefore, this circular was not applicable for those persons who had already taken registration or were paying service tax.therefore, waiving penalty on the basis of this circular was not correct on the part of the commissioner (appeals).6. the second plea taken by the respondents is that earlier the service receiver was paying service tax and the position was changed from 1-9-1999 when the service provider became liable for tax. since the respondents in this case, were a small clearing and forwarding agent, they were earlier under the impression that the service receiver may be paying the service tax and filing the return and they did not take notice of the change. however, when it was pointed out to them by the department in september, 2003, they immediately complied with the registration in october, 2003 and also filed return and paid voluntarily the service tax and interest which they thought, was payable by them. however, when the department issued show cause notice and certain amount received by them out of the tax was not paid due to their bona fide belief that tax is not payable, they paid the balance amount with interest also within one month from the date of the adjudication order. i find that the respondents were a small clearing and forwarding agent as their transactions were not substantial. the respondents who were providing service to exide industries ltd. cannot remain ignorant for about five years about their liability to service tax and not getting the registration. i, therefore, find that the order of the commissioner (appeals) in dropping the penalty imposed under sections 75a, 76, 77, 78 is not correct. i, therefore, set aside the order of commissioner (appeals) as far as it relates to dropping of penalties. considering the facts and circumstances of the case, i uphold the order of adjudicating authority imposing penalties but modify penalties imposed on respondents as under: 7. the appeal and the cross objections filed by the respondents stand disposed of accordingly.

Judgment:
1. This appeal is filed by Commissioner of Central Excise, Bhopal against the impugned order dropping the penalty imposed on the respondent under Sections 75A, 76,77 & 78 of the Finance Act, 1994.

2. The respondent M/s. Mankodi Enterprises, Jabalpur are Clearing and Forwarding Agent of M/s. Exide Industries Ltd. since 1998 and they were liable to pay tax from 1-9-1999 onwards and filed ST-3 return. The respondent took registration of service tax in October, 2003 and filed service tax return. Show cause notice was issued to them demanding service tax and imposing penalty. Show cause notice was adjudicated by the Deputy Commissioner, Central Excise who demanded service tax and imposed various penalties. The Commissioner (Appeals) in the impugned order upheld the levy and payment of service tax but he dropped the penalties imposed under Sections 75A, 76, 77 and 78 on the ground that under Circular F. No. 137/39/2004-CX. 4, dated 23-9-2004, a new Voluntary Disclosure schemes for voluntary disclosure was circulated by the Government, according to which, if service provider makes declaration to the department with regard to the past liability towards service tax and interest payable, the departmental authorities will accept the declaration and on the spot give a registration to the service provider and penal proceedings against the person approaching under this scheme will be completely waived.

3. It was argued for the Revenue that the respondents were required to take out service tax registration from 1999 and were required to file service tax return and pay the service tax regularly. They neither took service tax registration nor filed return nor paid tax during that period till October, 2003. When the department asked them to pay service tax then they took registration and paid service tax and submitted the return in October, 2003. Service tax was paid by them only after adjudication of the proceedings. Therefore, they are not covered by the Voluntary Disclosure scheme and the Commissioner (Appeals) has wrongly dropped the penalties. It was also stated that they do not have bona fide belief that they were not liable to pay tax as they were recovering the amounts from the Exide Industries Limited.

There is no provision of waiving penalty under Section 75A. Therefore, the order of the Commissioner (Appeals) waiving the imposition of penalties may be set aside.

4. On behalf of the respondents, it was pleaded that earlier the tax was being paid by M/s. Exide Industries Ltd. who were recipient of this service. From 1999, the service provider becomes liable to pay service tax. The respondents were a small service provider as their total service tax liability for more than four years is Rs. 32,387/- which works out slightly more than Rs. 8,000/-per year. Therefore, they were under the impression that M/s. Exide Industries Ltd. may be paying taxes and they may be filing return. However, when the department pointed out, they took registration and submitted ST-3 return. They voluntarily paid an amount of Rs. 25,000/- and interest of Rs. 10,000/- before adjudication. They immediately complied with the letter of the department received in September, 2003 by taking registration, filing return and paying service tax in October, 2003. This shows that there has been bona fide belief on their part for the earlier period when they did not file return that they were not liable to service tax but when as soon as the department has pointed out they paid service tax.

It was pleaded that Larger Bench of the Tribunal in the case of ETA Engineering Ltd. v. CCE, Chennai - has held that "the appellants have not contested the levy of service tax. They have co-operated with investigating officers. Since they were under the bona fide doubt regarding their activity whether covered by service tax or not, therefore, there was a reasonable cause on their part in not depositing the service tax in time. Therefore, we are of the view that notwithstanding anything contained in the provisions of Sections 76 & 77 of the Finance Act, 1994, the appellants are entitled for benefit of Section 80 of the Finance Act and accordingly, we hold that no penalty should be imposed on the appellants." They also relied on the decision of the Tribunal in Catalyst Capital Services Pvt. Ltd. v. CCE, Mumbai-IV, appellants had already deposited the service tax and as there was no mala fide intention in making the delayed payment, the penalty imposed thereof i.e. Rs. 7,105/- is hereby set aside." It was also pleaded that under the Ministry's Extraordinary tax payer friendly scheme Circular No. 137/39/2004-CX. 4, dated 2-9-2004, when the benefit is being given to those service provider who had not come forward for registration and who have not paid service tax, then the present respondents should also be given benefit of non-levy of penalty.

5. I have considered the submissions of both the sides and I find that the Commissioner (Appeals) in the impugned order has dropped the penalty on the ground that under Circular F. No. 137/39/2004-CX. 4, dated 20-9-2004 when the assessees who did not at all comply with the Service Tax Law can be given immunity provided they pay the service tax with appropriate rate of interest, there is no tangible and logical reason as to why the law abiding assessee who had got himself registered more or less in time and had also started paying the service tax in time, much before the new scheme became operational, should be denied the benefit of waiver of penalty. I find that immunity from imposition of penalty under Circular dated 20-9-2004 was only in respect of those service provider who had earlier failed to register themselves due to ignorance or for any other reason and who came forward and paid the past liability within the period prescribed under this Circular. Therefore, this circular was not applicable for those persons who had already taken registration or were paying service tax.

Therefore, waiving penalty on the basis of this circular was not correct on the part of the Commissioner (Appeals).

6. The second plea taken by the respondents is that earlier the service receiver was paying service tax and the position was changed from 1-9-1999 when the service provider became liable for tax. Since the respondents in this case, were a small Clearing and Forwarding Agent, they were earlier under the impression that the service receiver may be paying the service tax and filing the return and they did not take notice of the change. However, when it was pointed out to them by the department in September, 2003, they immediately complied with the registration in October, 2003 and also filed return and paid voluntarily the service tax and interest which they thought, was payable by them. However, when the department issued show cause notice and certain amount received by them out of the tax was not paid due to their bona fide belief that tax is not payable, they paid the balance amount with interest also within one month from the date of the adjudication order. I find that the respondents were a small Clearing and Forwarding Agent as their transactions were not substantial. The respondents who were providing service to Exide Industries Ltd. cannot remain ignorant for about five years about their liability to service tax and not getting the registration. I, therefore, find that the order of the Commissioner (Appeals) in dropping the penalty imposed under Sections 75A, 76, 77, 78 is not correct. I, therefore, set aside the order of Commissioner (Appeals) as far as it relates to dropping of penalties. Considering the facts and circumstances of the case, I uphold the order of adjudicating authority imposing penalties but modify penalties imposed on respondents as under: 7. The appeal and the cross objections filed by the respondents stand disposed of accordingly.