SIMULTANEOUS PENALTY U/S 76 AND 78 IN SERVICE TAX
Under service tax provisions, penalty for non payment of service tax is contained in section 76. Accordingly, any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than [one hundred rupees] for every day during which such failure continues or at the rate of [one per cent.] of such tax, per months, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax. This penalty is however, restricted to fifty percent of the tax payable.
Section 78 contains penal provisions in situations where any service tax has not been paid or has been short paid by reasons of fraud, collusion, willful mis- statement or suppression of facts.
There is a controversy as to whether both the penal provisions u/s 76 and 78 can be invoked for the same offence. The department is now a days issuing notice for levy of both penalties for the period prior to May 2008. It is felt that on the principle of equity, it should not be done. The legislative intention also suggests this. Moreover, there are number of judicial pronouncement which confirm that both the penalties could not be levied simultaneously though there are some decisions to the contrary also. An attempt has bee made to analyse this dichotomy.
Legislative Intention
Amendment made by Finance Act, 2008 convey the legislative intent which cannot be ignored
Notes on Clauses to Finance Act, 2008 explain the amendment made in section 78 as under-
"Sub-clause (F) seeks to amend section 78 of the said Act so as to provide that where penalty for suppressing value of taxable service under section 78 is imposed, the penalty for failure to pay service tax under section 76 shall not be applicable."
CBEC Letter No. 334/1/2008-TRU dated 29.2.2008 explaining the Finance Bill, 2008 changes clarify as under –
"Penalty for delayed payment of service tax is levied under Section 76. Penalty under Section 78 is levied for failure to pay service tax on account of fraud, mis-declaration etc. Section 78 is being amended so as to provide that penalty for failure to pay service tax under Section 76 shall not apply where penalty is leviable under Section 78."
In Balwant Singh v. Jagdish Singh 2010 -TMI - 204330 - SUPREME COURT OF INDIA it was held that provisions of statute including every word should be given full effect keeping legislative intent in mind to ensure to achieve projected object. No provision is treatable as enacted purposelessly. Courts cannot give interpretation to provisions to render them ineffective or odious.
The court while interpreting the provisions of a statute must look at the purpose and if the purpose of a particular provision is easily discernible from the whole scheme of the Act then bear that purpose in mind.
The principle of purposive interpretation stipulates that a purposive construction of an enactment is on which gives effect to the legislative purpose by following the literal meaning of the enactment where such meaning is in accordance with the legislative purpose, or by applying a strained meaning where the literal meaning is not in accordance with the legislative purpose. Apex court applied this principle in National Insurance Co. Ltd. v. Laxmi Narain Co. Ltd. (1987) 1 SCC 424 where it was held that interpretation must depend on the text and the Context. They are the basis of interpretation. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place.
A statutory provision is to be interpreted in its context and also to advance the true intention and purpose of law [CCE, Indore v. Lloyd Insulation (India) Ltd. 2007 -TMI - 49055 - CESTAT, PRINCIPAL BENCH, NEW DELHI]
In any event, once penalty is imposed under Section 78 of the Act, no penalty can be imposed under Section 76 of the Act since failure to pay tax cannot once again be subjected to penalty under Section 78 of the Act which is specifically in respect of penalty for intention to evade payment of service tax or suppression or concealment of the value of taxable services or for furnishing inaccurate value of services. Finance Act, 2007 had inserted a proviso in section 78 w.e.f. 10.05.2008 to the effect that if the penalty is payable under section 78, the provision of section 76 shall not apply. Since no tax liability arises, the question of levy of any of the penalties in question would not arise.
Kerala High Court Adverse Ruling
On the other hand, Kerala High Court in Asstt. Commissioner of Central Excise v. Krishna Podwal 2005 -TMI - 75949 - Kerala High Court has given an advise ruling. The aforesaid judgment of Kerala High Court, however, is not applicable as it was in the different context and the revenue filed the writ petitions under article 226 of the Constitution of India. It was held that once the period of limitation has run itself out and the appellate authority does not have power to condone the delay in filing the appeals beyond the maximum period prescribed under the Act, the remedies of the appellants come to an end just like in the case of a time barred suit and the respondents cannot, by invoking the discretionary remedy under the extraordinary jurisdiction of this court under Article 226 of the Constitution of India, resurrect their unenforceable cause of action and require this court to consider their contentions against the original orders on merit. That would amount to defeating the very law of limitation which we are not expected to do under Article 226.
The attention is drawn to the following extract in para 11 of the said order which reads as under –
"….Perhaps invoking powers under Section 80 of the Finance
Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation offences. However, no circumstances are either pleaded or proved for invocation of the said Section also. ….The cumulative result of the above findings would be that the writ petitions are liable to be dismissed and we do so. However, we do not make any order as to costs."
Judgments supporting only one levy of penalty
Hon'ble Tribunal in the Opus Media & Entertainment vs CCE, Jaipur (2007 -TMI - 2921 - CESTAT, NEW DELHI) and The Financers vs CCE, Jaipur (2008 -TMI - 4599 - CESTAT, NEW DELHI) has been very clearly held that cases in which penalty are imposed under Section 78 cannot fall in respect of the same service tax evaded under Section 76. There is no scope for imposing double penalty, both under Sections 76 and 78 for the same offence. It has to fall either under Section 76 or 78 and mens rea will have to be proved Levy of penalties u/s 76 and 78 is contrary to the statutory provisions.
In CCE v. First Flight courier Ltd. 2011 -TMI - 202397 - High Court of Punjab and Haryana High Court held that penalty u/s 76 is not justified if penalty under section 78 is imposed. It held, thus as under section 76 provides for penalty for failure to pay the amount while Section 78 provides for penalty for suppressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is different, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78. The matter was considered by this Court in STA No. 13 of 2010 (Commissioner of Central Excise v. Mis. Pannu Property Dealers, Ludhiana 2010 -TMI - 78899 - PUNJAB AND HARYANA HIGH COURT) decided on 12-7-2010, wherein it was observed:
"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time.".
Punjab & Haryana High Court in CCE v. Pannu Property Dealers, Ludhiana (2011) 24 STR 173 (P&H) it was held that on facts, non-imposition of penalty under section 76 was found to be proper as penalty equal to Service Tax was imposed under section 78. It was more so as impugned amount was small and it was in consonance with 2008 amendment to section 78 of the Finance Act, 1994 that if penalty was imposed under section 78, then no penalty can be imposed under section 76. The revenue appeal was, therefore, dismissed by high court (DB). In the instant case, while the revenue based its arguments on the basis of judgment of Kerala High Court in Asstt. Commissioner of Central Excise v. Krishna Podwal 2005 -TMI - 75949 - Kerala High Court, the court considered the legislative intention to avoid double penalty under sections 76 and 78. The following extracts from the judgment are relevant –
"We are of the view that even if technically, scope of Sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under Section 78 could be taken into account for levying or not levying penalty under Section 76 of the Act. In such situation even if reasoning given by the appellate authority that if penalty under Section 78 of the Act was imposed, penalty under Section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under Section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time. Moreover, the amount involved is Rs. 51026/- only."
In CCE v. First Flight courier Ltd. 2011 -TMI - 202397 - High Court of Punjab and Haryana, high court held that even for the period prior to 10.5.2008, penalties u/s 76 and 78 are not simultaneously imposable. Section 78 provides for higher amount of penalty and is more comprehensive. Penalty under 76 is not justified if penalty is already imposed u/s 78. No question of law arises and as such revenue appeal was dismissed. Following extract is reproduced from Order dated 28.1.2011.
"4. Only point which has been urged by learned counsel for the appellant is that after 10.05.2008, there is an amendment providing that penalty under Section 76 could not be levied if penalty under Section 78 has been levied but for the period prior thereto, penalty could be levied under both sections. The Commissioner (Appeals) as well as the Tribunal erred in deleting the penalty under Section 76 by assuming that simultaneously penalty under both the provisions could not be levied for the period in dispute.
5. We are unable to accept the submission. Section 76 provides for penalty for failure to pay the amount while Section 78 provides for penalty for suppressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is different, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78. The matter was considered by this Court in STA No. 13 of 2010 (Commissioner of Central Excise v. Mis. Pannu Property Dealers, Ludhiana 2010 -TMI - 78899 - PUNJAB AND HARYANA HIGH COURT) decided on 12.7.2010, wherein it was observed:-
"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time."
In CCE, Chandigarh v. City Motors 2010 -TMI - 77182 - PUNJAB & HARYANA HIGH COURT, high court held that penalty imposed under section 78 was sufficient to cover default of Service Tax and that two penalties for same default are not imposable. In the instant case, the respondent was levied penalty under Section 76 and Section 78 of the Act for the same cause of action by the adjudicating authority. In appeal, the Commissioner reduced the penalty under Section 78 of the Act and set aside the penalty under Section 76 of the Act. The Revenue challenged the order passed by the Commissioner (Appeals) which was dismissed. The revenue appeal had no merit and same was dismissed in limine.
To Conclude
In view of the aforementioned judgments, particularly of Punjab & Haryana high court which have been pronounced in 2010-11 after the Kerala High court pronouncement, it can be said that both the penalties should not be imposed for the same default.
= = = = = = =
By: Dr. Sanjiv Agarwal
Dated: - November 30, 2011
Under service tax provisions, penalty for non payment of service tax is contained in section 76. Accordingly, any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax amount in accordance with the provisions of section 75, a penalty which shall not be less than [one hundred rupees] for every day during which such failure continues or at the rate of [one per cent.] of such tax, per months, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax. This penalty is however, restricted to fifty percent of the tax payable.
Section 78 contains penal provisions in situations where any service tax has not been paid or has been short paid by reasons of fraud, collusion, willful mis- statement or suppression of facts.
There is a controversy as to whether both the penal provisions u/s 76 and 78 can be invoked for the same offence. The department is now a days issuing notice for levy of both penalties for the period prior to May 2008. It is felt that on the principle of equity, it should not be done. The legislative intention also suggests this. Moreover, there are number of judicial pronouncement which confirm that both the penalties could not be levied simultaneously though there are some decisions to the contrary also. An attempt has bee made to analyse this dichotomy.
Legislative Intention
Amendment made by Finance Act, 2008 convey the legislative intent which cannot be ignored
Notes on Clauses to Finance Act, 2008 explain the amendment made in section 78 as under-
"Sub-clause (F) seeks to amend section 78 of the said Act so as to provide that where penalty for suppressing value of taxable service under section 78 is imposed, the penalty for failure to pay service tax under section 76 shall not be applicable."
CBEC Letter No. 334/1/2008-TRU dated 29.2.2008 explaining the Finance Bill, 2008 changes clarify as under –
"Penalty for delayed payment of service tax is levied under Section 76. Penalty under Section 78 is levied for failure to pay service tax on account of fraud, mis-declaration etc. Section 78 is being amended so as to provide that penalty for failure to pay service tax under Section 76 shall not apply where penalty is leviable under Section 78."
In Balwant Singh v. Jagdish Singh 2010 -TMI - 204330 - SUPREME COURT OF INDIA it was held that provisions of statute including every word should be given full effect keeping legislative intent in mind to ensure to achieve projected object. No provision is treatable as enacted purposelessly. Courts cannot give interpretation to provisions to render them ineffective or odious.
The court while interpreting the provisions of a statute must look at the purpose and if the purpose of a particular provision is easily discernible from the whole scheme of the Act then bear that purpose in mind.
The principle of purposive interpretation stipulates that a purposive construction of an enactment is on which gives effect to the legislative purpose by following the literal meaning of the enactment where such meaning is in accordance with the legislative purpose, or by applying a strained meaning where the literal meaning is not in accordance with the legislative purpose. Apex court applied this principle in National Insurance Co. Ltd. v. Laxmi Narain Co. Ltd. (1987) 1 SCC 424 where it was held that interpretation must depend on the text and the Context. They are the basis of interpretation. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place.
A statutory provision is to be interpreted in its context and also to advance the true intention and purpose of law [CCE, Indore v. Lloyd Insulation (India) Ltd. 2007 -TMI - 49055 - CESTAT, PRINCIPAL BENCH, NEW DELHI]
In any event, once penalty is imposed under Section 78 of the Act, no penalty can be imposed under Section 76 of the Act since failure to pay tax cannot once again be subjected to penalty under Section 78 of the Act which is specifically in respect of penalty for intention to evade payment of service tax or suppression or concealment of the value of taxable services or for furnishing inaccurate value of services. Finance Act, 2007 had inserted a proviso in section 78 w.e.f. 10.05.2008 to the effect that if the penalty is payable under section 78, the provision of section 76 shall not apply. Since no tax liability arises, the question of levy of any of the penalties in question would not arise.
Kerala High Court Adverse Ruling
On the other hand, Kerala High Court in Asstt. Commissioner of Central Excise v. Krishna Podwal 2005 -TMI - 75949 - Kerala High Court has given an advise ruling. The aforesaid judgment of Kerala High Court, however, is not applicable as it was in the different context and the revenue filed the writ petitions under article 226 of the Constitution of India. It was held that once the period of limitation has run itself out and the appellate authority does not have power to condone the delay in filing the appeals beyond the maximum period prescribed under the Act, the remedies of the appellants come to an end just like in the case of a time barred suit and the respondents cannot, by invoking the discretionary remedy under the extraordinary jurisdiction of this court under Article 226 of the Constitution of India, resurrect their unenforceable cause of action and require this court to consider their contentions against the original orders on merit. That would amount to defeating the very law of limitation which we are not expected to do under Article 226.
The attention is drawn to the following extract in para 11 of the said order which reads as under –
"….Perhaps invoking powers under Section 80 of the Finance
Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation offences. However, no circumstances are either pleaded or proved for invocation of the said Section also. ….The cumulative result of the above findings would be that the writ petitions are liable to be dismissed and we do so. However, we do not make any order as to costs."
Judgments supporting only one levy of penalty
Hon'ble Tribunal in the Opus Media & Entertainment vs CCE, Jaipur (2007 -TMI - 2921 - CESTAT, NEW DELHI) and The Financers vs CCE, Jaipur (2008 -TMI - 4599 - CESTAT, NEW DELHI) has been very clearly held that cases in which penalty are imposed under Section 78 cannot fall in respect of the same service tax evaded under Section 76. There is no scope for imposing double penalty, both under Sections 76 and 78 for the same offence. It has to fall either under Section 76 or 78 and mens rea will have to be proved Levy of penalties u/s 76 and 78 is contrary to the statutory provisions.
In CCE v. First Flight courier Ltd. 2011 -TMI - 202397 - High Court of Punjab and Haryana High Court held that penalty u/s 76 is not justified if penalty under section 78 is imposed. It held, thus as under section 76 provides for penalty for failure to pay the amount while Section 78 provides for penalty for suppressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is different, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78. The matter was considered by this Court in STA No. 13 of 2010 (Commissioner of Central Excise v. Mis. Pannu Property Dealers, Ludhiana 2010 -TMI - 78899 - PUNJAB AND HARYANA HIGH COURT) decided on 12-7-2010, wherein it was observed:
"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time.".
Punjab & Haryana High Court in CCE v. Pannu Property Dealers, Ludhiana (2011) 24 STR 173 (P&H) it was held that on facts, non-imposition of penalty under section 76 was found to be proper as penalty equal to Service Tax was imposed under section 78. It was more so as impugned amount was small and it was in consonance with 2008 amendment to section 78 of the Finance Act, 1994 that if penalty was imposed under section 78, then no penalty can be imposed under section 76. The revenue appeal was, therefore, dismissed by high court (DB). In the instant case, while the revenue based its arguments on the basis of judgment of Kerala High Court in Asstt. Commissioner of Central Excise v. Krishna Podwal 2005 -TMI - 75949 - Kerala High Court, the court considered the legislative intention to avoid double penalty under sections 76 and 78. The following extracts from the judgment are relevant –
"We are of the view that even if technically, scope of Sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under Section 78 could be taken into account for levying or not levying penalty under Section 76 of the Act. In such situation even if reasoning given by the appellate authority that if penalty under Section 78 of the Act was imposed, penalty under Section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under Section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time. Moreover, the amount involved is Rs. 51026/- only."
In CCE v. First Flight courier Ltd. 2011 -TMI - 202397 - High Court of Punjab and Haryana, high court held that even for the period prior to 10.5.2008, penalties u/s 76 and 78 are not simultaneously imposable. Section 78 provides for higher amount of penalty and is more comprehensive. Penalty under 76 is not justified if penalty is already imposed u/s 78. No question of law arises and as such revenue appeal was dismissed. Following extract is reproduced from Order dated 28.1.2011.
"4. Only point which has been urged by learned counsel for the appellant is that after 10.05.2008, there is an amendment providing that penalty under Section 76 could not be levied if penalty under Section 78 has been levied but for the period prior thereto, penalty could be levied under both sections. The Commissioner (Appeals) as well as the Tribunal erred in deleting the penalty under Section 76 by assuming that simultaneously penalty under both the provisions could not be levied for the period in dispute.
5. We are unable to accept the submission. Section 76 provides for penalty for failure to pay the amount while Section 78 provides for penalty for suppressing the taxable value. Section 78 is, thus, more comprehensive and provides for higher amount. Even if technically, the scope of Sections 76 and 78 is different, penalty under Section 76 may not be justified if penalty had already been imposed under Section 78. The matter was considered by this Court in STA No. 13 of 2010 (Commissioner of Central Excise v. Mis. Pannu Property Dealers, Ludhiana 2010 -TMI - 78899 - PUNJAB AND HARYANA HIGH COURT) decided on 12.7.2010, wherein it was observed:-
"We are of the view that even if technically, scope of sections 76 and 78 of the Act may be different, as submitted on behalf of the revenue, the fact that penalty has been levied under section 78 could be taken into account for levying or not levying penalty under section 76 of the Act. In such situation, even if reasoning given by the appellate authority that if penalty under section 78 of the Act was imposed, penalty under section 76 of the Act could never be imposed may not be correct, the appellate authority was within its jurisdiction not to levy penalty under section 76 of the Act having regard to the fact that penalty equal to service tax had already been imposed under section 78 of the Act. This thinking was also in consonance with the amendment now incorporated though the said amendment may not have been applicable at the relevant time."
In CCE, Chandigarh v. City Motors 2010 -TMI - 77182 - PUNJAB & HARYANA HIGH COURT, high court held that penalty imposed under section 78 was sufficient to cover default of Service Tax and that two penalties for same default are not imposable. In the instant case, the respondent was levied penalty under Section 76 and Section 78 of the Act for the same cause of action by the adjudicating authority. In appeal, the Commissioner reduced the penalty under Section 78 of the Act and set aside the penalty under Section 76 of the Act. The Revenue challenged the order passed by the Commissioner (Appeals) which was dismissed. The revenue appeal had no merit and same was dismissed in limine.
To Conclude
In view of the aforementioned judgments, particularly of Punjab & Haryana high court which have been pronounced in 2010-11 after the Kerala High court pronouncement, it can be said that both the penalties should not be imposed for the same default.
= = = = = = =
By: Dr. Sanjiv Agarwal
Dated: - November 30, 2011
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