Karnataka High Court
M/S V K Niranjan And Co vs The Commissioner Of Service Tax on 14 December, 2023
Bench: P.S.Dinesh Kumar, V Srishananda
RP No.384/2022
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 14TH DAY OF DECEMBER, 2023
PRESENT
THE HON'BLE MR. JUSTICE P.S. DINESH KUMAR
AND
THE HON'BLE MR. JUSTICE V. SRISHANANDA
REVIEW PETITION No.384 OF 2022
IN C.E.A.No.21/2018
BETWEEN:
M/S. V.K. NIRANJAN AND CO,
REPRESENTED BY ITS
MANAGING PARTNER
SHRI NIRANJAN V.K
NO.202 & 204, KURUBARA
SANGHA BUILDING
KANAKADASA CIRCLE
KALIDASA MARG, GANDHINAGAR
BANGALORE
PIN:560009 ...PETITIONER
(BY SHRI. S.S. NAGANAND, SENIOR ADVOCATE A/W
SHRI. VAIBAV M. IYENGAR, ADVOCATE)
AND:
THE COMMISSIONER OF
SERVICE TAX
BENGALURU SERVICE TAX-I
1ST TO 5TH FLOOR, TMC BUILDING
ABOVE BMTC BUS STAND, DOMLUR
BANGALORE
PIN:560 071 ...RESPONDENT
(BY SHRI. JEEVAN J. NEERALGI, ADVOCATE)
RP No.384/2022
2
THIS REVIEW PETITION IS FILED UNDER SECTION 114 R/W
ORDER 47 RULE 1 OF CPC, PRAYING TO ALLOW THIS PETITION
AND CONSEQUENTLY REVIEW THE ORDER DATED 11.02.2021
PASSED BY THIS HON'BLE COURT IN CEA No.21/2018 AND TO
PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT
DEEMS FIT TO GRANTED IN THE FACTS AND CIRCUMSTANCES OF
THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.
THIS REVIEW PETITION, HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 17.11.2023 COMING ON FOR
PRONOUNCEMENT OF ORDERS THIS DAY, V.SRISHANANDA, J.,
PRONOUNCED THE FOLLOWING:-
ORDER
The present Review Petition is filed by the appellant/
petitioner under Section 114 r/w Order XLVII Rule 1 of the Code of
Civil Procedure r/w Section 35G of the Central Excise Act, 1944,
seeking review of the Order dated 11.02.2021 passed in
C.E.A.No.21/2018.
2. The facts which are utmost necessary for disposal of the
present Review Petition are as under:
The Review Petitioner is a registered Chartered Accountant
firm and therefore, was required to adhere to the terms of the
registration and responsibilities, thereof. The Review Petitioner
was appointed as internal auditor for Karnataka State Financial
Corporation ('KSFC' for short), a State Government undertaking
vide work order dated 14.11.2005. Petitioner firm appointed 45
persons for carrying out the audit work with KSFC and KSFC were
required to pay salary for 45 persons engaged in the said activity
of audit work. KSFC delayed making the payment. During the
period under consideration, which is subject matter of the present
case, petitioner firm was required to pay service tax, only on
receipt of service tax from KSFC.
3. The petitioner, in view of delay in receipt of payments from
KSFC, made delayed payment of service tax with interest.
However, the Department issued a show cause notice which was
received by the petitioner on 08.08.2007 without there being any
details of specific work attracting the service tax. The show cause
notice was duly replied by letter dated 01.10.2007 and despite said
reply, petitioner was served with the summons dated 18.09.2007
and the same was replied.
4. The show cause notice covered the period from April 2005 to
September 2007. The Department acknowledged the payment of
service tax by the petitioner on 16.08.2007 and 17.08.2007 and
also acknowledged ST-3 returns on 20.08.2007 pertaining to the
period from 2005-06 to 2006-07.
5. However, Department, not satisfied with the reply, a further
show cause notice was issued by the Department invoking the
proviso to Section 73(1) of the Finance Act, 1994 ('Act' for short),
i.e., the extended period of limitation by stating that there was
suppression of material facts by the petitioner and thereby,
petitioner firm contravened the provisions of the Act and Rules with
an intent to evade the payment of service tax, in time.
6. It is further contended by the petitioner that in the show
cause notice, the Department was of the prima facie opinion that
there was suppression of value of taxable services rendered with
an intent to evade payment of service tax. Therefore, the assessee
rendered themselves liable to imposition of penalty under Sections
76, 77 and 78 of the Act. The show cause notice also mentioned
that there was payment of service tax in a sum of Rs.10,12,433/-
and interest in a sum of Rs.78,205/-.
7. The second show cause notice was also duly replied by the
petitioner on 20.12.2008 explaining the delay in payment of
service tax and petitioner further submitted that there was no
suppression of material facts and requested the Department not to
take the extreme step of levying penalty under Section 78 of the
Act. However, without appreciating the explanation offered by the
petitioner and without affording sufficient opportunity for the
petitioner, learned Additional Commissioner of Service Tax decided
the case ex parte and passed an Order in original vide
C.No.IV/16/140/2008 ST Adj.20040/09 OIO No.141/2009 dated
30.10.2009.
8. In paragraph 9.3 of the said Order, learned Additional
Commissioner of Service Tax has remarked that assessee has
accepted the service tax liability and made payment of service tax
and interest thereon before issuance of show cause notice.
9. Review Petitioner contended that, it is incorrect to state that
evasion of service tax has come to the notice of the Department
only after detailed investigation of the assessee account.
10. Petitioner further contended that when once the service tax
with interest is paid, there is no scope for invoking the extended
period. It is further contended that in the order in Original, penalty
was levied on the ground that assessee has not filed ST-3 return
nor paid service tax suppressing the very fact from the
Department.
11. Petitioner also contended that the said statement in the order
in original is incorrect inasmuch as in the very show cause notice
itself there is a mention that ST-3 returns has been filed by the
petitioner and payment of service tax with interest. Therefore, it
was the case of the assessee that levy of penalty under Section 78
of the Act is contrary to the facts of the case.
12. The Order levying the penalty was challenged before the
Commissioner of Central Excise Appeals, Hon'ble Customs, Excise
and Service Tax Appellate Tribunal. But the Review Petitioner
failed to get the order of imposition of penalty, set aside.
Ultimately, Review Petitioner challenged the order of imposition of
penalty before this Court in CEA No.21/2018. This Court taking
note of the fact that there was a letter issued by the KSFC, though
the service tax was paid before issuance of show cause notice, it is
the duty of the petitioner to pay the service tax in time, passed an
order on 11.02.2021 whereby CEA No.21/2018 came to be
dismissed and substantial questions of law framed by the Court
were answered in favour of the Department and against the
assessee.
13. Being aggrieved by the same, present Review Petition has
been filed on the following grounds:
This Hon'ble Court in para 2 of the order recorded a finding
that the Petitioner failed to respond to the notices and finally
show cause notice was issued to the assessee on 18.09.2008
which is contrary to the facts of the case. In fact the
Petitioner filed a reply to the communication of the
department dated 08.08.2007 vide reply dated 01.10.2007
and in response to the summons dated 18.09.2007 the
Petitioner filed the reply vide dated 01.10.2007.
The Petitioner respectfully submits that due to diverse
reasons the decisions of the Hon'ble Supreme Court in the
case of Kushal Fertilisers (P) Ltd Vs. Commissioner of Cus &
C.Ex., Meerut 2009 (238) E.L.T. 21 (SC), this Hon'ble Court
decisions in the case of CCE., Mangalore Vs. Shree Krishna
Pipe Industries 2004 (165) ELT 508 (Kar), CCE., Vs. Geneva
Fine Punch Enclosures Ltd 2011 (267) ELT 481 (Kar), CCE.,
Vs. Powerica Ltd 2012 (276) ELT 302 (Kar) which have not
been informed to the Court and these decisions have a
bearing on the case and thus they constitute formidable
ground for review which may be considered for the
advancement of substantial cause of justice and thus in our
respectful submission it is well within the power of this court
to recall the order dated 11.02.2021 for fresh hearing or
modify the order for advancement of substantial cause of
justice.
Respectfully, this Hon'ble Court is erred in holding that the
present case has a distinguishable feature and hence the
decision of this Hon'ble Court relied by the Petitioner were
not applied to the facts of the case of the petitioner.
This Hon'ble Court is incorrect in holding that the assessee
suppressed the facts and made willful-mis-statement before
the Assessing Officer and in those circumstances the benefit
of section 74, 78 was not extended to it. There is no
allegation of willful-mis-statement in the show cause notice,
order-in- original, Order-in-Appeal, Tribunal order and
consequently this Hon'ble Court holding that the Petitioner
has made willful mis- statement for the first time is beyond
the scope of the allegation made in the show cause notice as
well the authorities below. Consequently, the denial of
benefit under section 73(4) of the Act on the ground that the
Petitioner made willful mis-statement being one of the
ingredients under section 73(4) of the Act is not in
accordance with law.
This Hon'ble Court ought to have appreciated that the
petitioner has not suppressed the facts of providing the
services under the classification of practicing chartered
Accountant. The Petitioner was registered with the
department. The Service tax department is having
knowledge about the activity of the Petitioner. Once if it is
held that the petitioner has not suppressed the facts then the
provisions of section 73(3) of the Act is applicable and the
show cause notice cannot be issued in respect of the
payments already made.
The registration obtained by the Petitioner and the entire
payment of Service tax along with interest for the dispute
period is paid before issue of show cause notice.
Consequently, there is no suppression of facts and there is
no intention by the Petitioner to evade payment of tax. Even
on this count the extended period of limitation cannot be
invoked on the facts of the case of the Petitioner.
The Petitioner places reliance on CCE vs. Triveni sheet glass
works (2005) 5 RC 612(SC) for the proposition that in the
event all the facts are disclosed to the department and
brought to the knowledge of the department the extended
period is not available.
The Petitioner places reliance on the decision of the Hon'ble
Supreme Court in the case of Kushal Fertilisers (P) Ltd Vs.
Commissioner of Cus & C.Ex., Meerut 2009 (238) E.L.T. 21
(SC).
The Petitioner has not suppressed the facts and consequently
the proviso to Section 73(1) of the Act is not applicable on
the facts of the case of the Petitioner and the show cause
notice issued therefore is bad in law.
The Petitioner places reliance on the decision of this Hon'ble
Court in the case of CCE., Mangalore Vs. Shree Krishna Pipe
Industries 2004 (165) ELT 508 (Kar), wherein the Hon'ble
Court held that the disputed tax has been paid by the party
even before the issue of show cause notice and this would
show that there was no question of fraud, mis-representation
or suppression of facts.
The Petitioner has not suppressed the facts and not
contravened the provisions of the Act and Rules,
consequently the proviso to Section 73(1) of the Act is not
applicable on the facts of the case of the Petitioner and the
show cause notice issued is bad in law and liable to be
quashed on the facts and circumstances of the case.
The Petitioner is not liable to pay penalty under section 77
and 78 of the Act in view of reasonable cause as prescribed
under section 80 of the Finance Act, 1994 on the facts and
circumstances of the case.
i. The Petitioner reproduced the provisions of
section 80 of the Act as follows:
"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
provisions, if the assessee proves that there
was reasonable cause for the said failure.
ii. The Petitioner has collected the service tax with
delay from the KSFC and the Petitioner is liable
to pay service tax only after receipt of the
service tax. The Petitioner, due to financial
difficulty made the payment to salaries to the
staff who are involved in the said KSFC work
and later paid the service tax with interest
voluntarily.
iii. The Petitioner paid the entire service tax along
with interest which only demonstrates the bona-
fide conduct on the part of the Petitioner.
iv. The entire payments were made along with
interest 13 months prior to the issue of show
cause notice.
v. Without prejudice it is settled position of law
that even in case where suppression is proved,
the recourse to reasonable cause under section
80 is not prohibited.
The authorities below failed to appreciate that issuing
the show cause notice in respect of the service tax
payments along with interest made by the petitioner
before issue of show cause notice is not maintainable
on the facts and circumstances of the case.
a. The Petitioner has paid service tax and interest
amount much before issue of show cause notice for
the service rendered by the Petitioner and the details
of payments are also intimated to the department.
b. As per legislative provisions, show cause notice can be
issued ONLY & ONLY wherever the taxes have not
been levied or not been paid or has been short levied
or short paid or erroneously refunded. In the instant
case of the Petitioner:
(i) The service tax has been paid much before the
date of issue of notice;
(ii) The amount paid is intimated to the
department.
And consequently the essential ingredients for issue of
notice do not exist on the facts of the case.
c. As per Section 73(3) of the Act the Petitioner paid the
service tax on the basis of their own ascertainment
before the Service of notice under sub-section (1) of
section 73 of the Act and duly intimated the said facts
to the Central Excise Officer. The fact that the notice is
issued subsequent to the date of payment and due
intimation by the Petitioner, the same is bad in law, in
contravention of the provisions of Section 73(3) of the
Act and is without jurisdiction.
d. Reliance is placed on the parity of reasoning of the
following decisions for the proposition that a notice,
when issued after the date of payment of service tax,
is bad in law:
i) The decision of this Hon'ble Court in the case of
CCE., Vs. Powerica Ltd 2012 (276) ELT 302 (Kar).
"In other words, if duty and penalty is paid even
before the issue of show cause notice and the said
fact is informed to the proper Officer, he shall not
initiate any proceedings to recover the duty and
interest, much leas for imposition of penalty.
Therefore, the order imposing penalty is illegal."
The Commissioner of Customs vs. Powerica Ltd.
(22.09.2011 - KARHC) : MANU/KA/1230/2011
ii) CCE Vs. Galaxy Constructions Pvt Ltd 2017 (48)
STR 37 (Bom).
The issue before the Hon'ble Court was "The
question that fell for consideration before the
Tribunal and also falls for consideration in this
appeal is whether the assessee was liable to pay
the penalty on the delayed payment of service tax,
when the assessee had discharged the entire
liability of payment of service tax and interest
thereon before issue of show cause notice".
The Hon'ble Court held that since no substantial question of
law arises in this Central Excise Appeal, the same was
dismissed.
The authorities below failed to appreciate that the
petitioner is not liable to pay penalty under section 78 of
the Act a sum of Rs.10,12,433/- on the facts and
circumstances of the case.
a) The Petitioner has not suppressed the facts and
consequently the levy of penalty under section
78 of the Act is bad in law on the facts and
circumstances of the case.
b) Without prejudice, the Petitioner submits that
the entire payment of service tax and interest
was paid before issue of show cause notice and
consequently no demand exists and levy of
penalty of Rs.10,12,433/- is not in accordance
with law.
c) The department is having knowledge about the
activities of the Petitioner when the Petitioner
got registered with the service tax department
for the services under the classification of
Practicing Chartered Accountant services.
Consequently, the Petitioner has not suppressed
the facts.
d) In support of this submission the Petitioner
places reliance on the decisions of the Hon'ble
Supreme Court in the case of Kushal Fertilisers
(P) Ltd Vs. Commissioner of Cus & C.Ex.,
Meerut 2009 (238) E.L.T. 21 (SC).
e) The authorities below erred in imposing the
penalty under section 78 of the Finance Act,
1994 and failed to consider that there is a
reasonable cause for waiver of penalty as per
provisions of section 80 of the Act.
Consequently, the Petitioner is not liable for
penalty under section 78 of the Finance Act,
1994.
f) The Petitioner places reliance on the decision of
this Hon'ble Court in the case of Commissioner
of Service tax Vs. Motor world & Ors (2012) 79
DTR (Kar) 151.
g) The Petitioner places reliance on the decision of
the Hon'ble Supreme Court in the case of
Hindustan Steel Limited Vs. State of Orissa
(1972) 83 ITR 26 (SC). The Hon'ble Court
observed that "even if a minimum penalty is
prescribed, the authority competent to impose
the penalty will be justified in refusing to
impose penalty, when there is a technical or
venial breach of the provisions of the Act or
where the breach flows from a bona fide belief
that the offender is not liable to act in the
manner prescribed by the statute". There is a
total absence of the requisite conditions in the
Petitioner's case, in order to levy penalty.
h) As per Section 78 of the Act, the penalty arises
only after determination of service tax liability
under section 73(2) of the Act. In the instant
case the Petitioner has paid the service tax 13
months before determination of service tax
payable under section 73(2) of the Act and
hence to that extent no demand is payable by
the Petitioner, the question of determination
under Section 73(2) of the Act does not arise.
i) The Petitioner places reliance on the decision of
this Hon'ble Court in the case of CCE., Vs.
Geneva Fine Punch Enclosures Ltd 2011 (267)
ELT 481 (Kar). The Hon'ble Court observed as
follows:
The determination of liability to pay duty is
a condition precedent for imposing penalty. If
after demand of duty if the assessee without
contesting the claim voluntarily pays the duty and
interest payable thereon for the delay in payment
of duty on the stipulated day, the question of
officer determining the duty payable would not
arise.
The Tribunal held that the entire duty and
interest was paid voluntarily on being pointed out
in the investigation, no case for imposing the
penalty is made out.
The Hon'ble Court also held that no
substantial question of law involved in this appeal
that arises for consideration.
j) In the instance where there is no demand
payable to that extent of service tax paid by the
Petitioner the question of penalty proceedings
does not survive.
k) The Petitioner places reliance on the decision of
this Hon'ble Court in the case of CCE.,
Mangalore Vs. Shree Krishna Pipe Industries
2004 (165) ELT 508 (Kar).
Without prejudice, the penalty under section 78 of the Act
shall be levied only 25 percent of the service tax
determined i.e., Rs.2,53,108/- (25 percent of
Rs.10,12,433/-) as per first proviso to section 78 of the
Act on the facts and circumstances of the case.
i) As per proviso to section 78(1) of the Act where such
service tax as determined under sub section (2) of
section 73, and interest payable thereon under
section 75 is paid within thirty days from the date of
communication of order of the Central Excise Officer
determining such service tax, the amount of penalty
liable to be paid by such person under this section
shall be twenty five percent, of the service tax so
determined.
ii) In the present case the entire service tax and
interest as determined under section 73(2) of the Act
in the Order- In-Original is paid much before issue of
show cause notice itself and consequently the above
first proviso to section 78 of the Act is applicable on
the facts and circumstances of the case.
iii) The learned Additional Commissioner has not
intimated the availability of the said benefit to the
Petitioner in the order-in-Original passed vide dated
30.10.2009. The Petitioner respectfully states that it
can produce any number of order-in-original wherein
the adjudicating authority specifically mentioned
about this in the order- in-original. Consequently,
the present order-in-original passed is bad in law.
iv) As per the second proviso to section 78 of the Act
the benefit of the reduced penalty under the first
proviso shall be available only if the amount of
penalty so determined has also been paid within the
period of 30 days referred to in that proviso. Without
prejudice, the Petitioner submits that if the same
was mentioned in the order-in-original the Petitioner
ought to have availed the said benefit by paying only
25 percent of the penalty.
v) Without prejudice the matter may be remitted back
to the Adjudicating authority to give opportunity to
the Petitioner since the order-in-original was passed
ex-parte and the benefit of the second proviso has
not been considered in the order-in-original.
vi) In view of above submissions, without prejudice to
the contention of the Petitioner that the petitioner is
not liable to pay penalty under section 78 of the Act,
the penalty under section 78 of the Act shall be
restricted to 25 percent i.e., a sum of Rs. 2,53,108/-
on the facts and circumstances of the case.
It is submitted that as substantial question of law has
been answered by this Hon'ble Court, in our respectful
view without taking note of the above submissions and
the Petitioner case falls within order 47 rule 1, the
Petitioner is preferring this review for the advancement of
substantial cause of justice."
14. Sri S.S.Naganand, learned Senior Advocate representing the
Review Petitioner by reiterating the grounds urged in the Review
Petition, contended that the petitioner tried to lay hands on to the
alleged letter issued by the KSFC, whereunder, KSFC having
confirmed the payment of service charges whereby, there was an
obligation on the part of the petitioner to pay the service taxes.
But, despite best efforts made by the petitioner, no such
correspondence has been traced by the petitioner company nor
there was any payment made by the KSFC in time so as to fasten
the liability on the petitioner in willfully evading the timely payment
of service tax.
15. Sri S.S.Naganand, also contended that when once the service
tax with interest is paid before issuance of show cause notice,
which is an admitted fact in the case, penalty proceedings under
Section 78 of the Act would be per se not maintainable and sought
for allowing the Review Petition.
16. In support of his arguments, he has placed reliance on the
following judgments:
Power of review may be exercised on the discovery
of new and important evidence which was not within
the knowledge of the party seeking review.
1. State of West Bengal and others v. Kamlesh
Sengupta and another, (2008) 8 SCC 612.
2. District Board, Muzaffarnagar v. The upper
India Sugar Mills Limited, Khatauli, AIR 1957
AII 527.
3. Commissioner of C. Ex., Mangalore v. Shree
Krishna Pipe Industries, (2004) 165 ELT 508."
17. The contentions urged on behalf of the petitioner was
emphatically denied by the respondent and contended that the
factual aspects cannot be gone into by this Court, that too, in the
review jurisdiction and sought for dismissal of the Review Petition.
18. The Department maintained their stand that the Order came
to be passed by the Additional Commissioner of Service Taxes on
appreciating the material facts in a proper manner and the letter
issued by the KSFC clearly mentions that service charges were paid
by KSFC to the petitioner firm in time and therefore, there is willful
evasion of payment of service tax in time, resulting in the
Department initiating action as is contemplated under the
provisions of the Act and levied penalty in accordance with law.
Therefore, sought for rejection of review petition.
19. After hearing the parties, this Court granted time for the
Department to place on record the correspondence made by the
KSFC whereby, service charges payable to the petitioner firm for
the internal audit work carried out by petitioner firm has been paid
in time.
20. Sri Neeralgi, learned counsel representing the Department
submitted before the Court that despite best search, said
correspondence is not available having regard to the time lapse.
21. Sri S.S.Naganand, learned Senior Advocate submitted in
writing that despite best efforts including filing an application under
Right to Information Act, KSFC is unable to place on record the
correspondences whereby KSFC has paid the service charges to the
petitioner firm, in time.
22. As an alternative submission, petitioner has filed an affidavit
on 26.10.2023. Relevant portion of the contents of the said
affidavit is culled out herein for ready reference:
"2. For purported delay in payment of service tax, a show
cause notice was issued by the Commissionerate of
Service Tax, Bengaluru proposing inter alia to levy a
penalty under Section 76 of the Finance Act, 1994 for
failure to pay service tax in time. Even before the said
notice was issued, the Petitioner had paid service tax
and education cess of Rs.10,12,433/-. By order dated
30.10.2009, the Adjudicating Authority appropriated the
payment of Rs.10,12,433/- made by the Petitioner
towards service tax and also appropriated Rs.78,205/-
towards interest already paid by the Petitioner. In
addition, penalties were imposed under Sections 76, 77,
and 78 of the Finance Act amounting to Rs.10,12,433/-.
The said order having been affirmed by the
Commissioner of Central Excise Appeals, Hon'ble
Customs, Excise and Service tax Appellate Tribunal and
by this Hon'ble Court in C.E.A. No.21/2018, this review
petition is filed.
3. It is pertinent to state herein that I am a senior citizen
and in order to give a quietus to the dispute as I am a
senior citizen, invoking the provisions of Section 76 of
the Finance Act, as amended on 14.05.2015, I am
agreeable to pay a sum of Rs.2,53,109/-, being 25%
percent of the penalty of Rs.10,12,433/-. I pray that
TARY this Hon'ble Court may kindly take into
consideration the extenuating circumstances and the
fact that tax and interest was paid even before the
issuance of the show cause notice and accordingly
modify the order levying penalty."
23. The said affidavit was opposed by the Department by filing
counter, which reads as under:
The Respondent submits as follows:
1. The Respondent submits that the affidavit filed by
the petitioner is legally and factually untenable. The Final
Order No.22268/2017 dated 25/09/2017 passed by the
CESTAT and the Order-In-Appeal No.168/2012 and the
Order-In-Original No.141/2009 have clearly brought out
the circumstances for levy of penalty and confirmed by
this Hon'ble Court in CEA No.21/2018. Neither there is a
factual error nor has legal infirmity in passing the orders
been demonstrated by the petitioner to entertain the
present Review Petition.
2. The Respondent submit that the penalty was
imposed under the provisions of Section 78 of the Finance
Act, 1994 as existing in the statute at the relevant point
of time. The Petitioner after having collected the service
tax from his clients neither discharged nor declared the
same to the Department by filing ST-3 Returns before
initiation of proceedings by the Respondent/Revenue. The
undisputed facts clearly demonstrate that the petitioner
has deliberately suppressed the fact of collection of
service tax from the Department and the service tax
evasion has come to the notice of the Department only
after detailed investigation was conducted. If the
Department had not initiated the proceedings, the
petitioner would have been successful in evading the
service tax. Hence, the imposition of penalty is wholly
justified under the circumstances of the present case.
3. The contention of the petitioner that no penalty shall
be levied on persons who pay the service tax with
applicable interest before issuance of Show Cause Notice
under Section 73(3) of the Finance Act is not applicable to
the case of the petitioner. The petitioner falls under the
exceptions contained in Section 73(4) of the Finance Act,
1994 which contemplates that in case of fraud or
collusion or willful misstatement or suppression of facts or
contravention of any of the provisions of this chapter or of
the rules made thereunder with intent to evade payment
of service tax. The facts and circumstances established
these ingredients in the case of the petitioner. Hence, the
benefit of Section 73(3) of the Finance Act, 1994 are not
available to the petitioner. In the instant case the
petitioner after having collected the service tax did not
remit the tax collected to the Department and did not file
the statutory returns. Hence, the suppression on the part
of the petitioner with an intent to evade service tax is
quite evident from the conduct of the petitioner.
4. The Respondent submits that the Adjudicating
Authority, Appellate Authority and this Hon'ble Court have
taken all the factors in to consideration and passed the
orders dismissing the claim of the petitioner. This Hon'ble
Court was conscious of the legal position and discussed
the statutory provisions in the Order under Review.
5. The Final Order of the CESTAT at paragraph 6.2
gives reasons why the penalty imposed by the
Adjudicating Authority is sustainable and the same is
confirmed by this Hon'ble Court in the Order under
Review. The undertaking of the petitioner in paragraph 3
of the affidavit that he is agreeable to pay 25% of the
penalty in accordance with the amended provision
contained in Section 76 of the Finance Act, 1994 is not
legally permissible as the said amendment came into
effect from 14/05/2015 which is prospective in nature.
The said amendment is only in respect of penalty under
Section 76 of the Finance Act and is not applicable to the
provisions contained in Section 77 and 78 of the Finance
Act, 1994. The penalty is levied by invoking Section 78 of
the Finance Act, 1994. Therefore, the petitioner agreeing
to pay penalty under amended provision of Section 76 of
the Finance Act, 1994 cannot be legally acceptable.
6. The petitioner being a practicing Chartered
Accountant has not demonstrated valid and cogent reason
in his support during the proceedings before the
Adjudicating Authority and Appellate Authorities. The
CESTAT has observed that the petitioner has not
contested the findings of the lower authorities and even
before this Hon'ble Court during the pendency of the CEA
No.21/2018. Therefore, there is no scope to raise new
factual and legal contentions in the Review Petition. The
conduct of the petitioner has to be viewed seriously
particularly taking into consideration that he is a
practicing Chartered Accountant and is completely aware
of his tax obligations compared to a layman. The
acceptance of the plea of the petitioner would amount to
allowing the Review Petition as the petitioner is indirectly
seeking for quashing of Penalty order passed under
Section 78 of the Finance Act and confirmed by this
Hon'ble Court which is not permissible under the
provisions of the Finance Act, 1994.
WHEREFORE, the Respondent prays that this Hon'ble Court
may be pleased to reject the present Review Petition in the
interest of justice and equity."
24. In view of the above peculiar facts and circumstances of the
case, this Court bestowed its attention to the relevant material on
record, meticulously.
25. Admittedly, the order that is assailed by the Review
Petitioner in CEA No.21/2018 came to be passed on 11.02.2021.
There is some force in the arguments put forth on behalf of the
Department that due to lapse of time, correspondence of KSFC as
sought by the Review Petitioner cannot be placed before the Court.
26. However, the review petitioner has placed before this Court
the reply received by the Review Petitioner from KSFC along with
memo dated 02.02.2023. The reply received by the Review
Petitioner reads as under:
"To, Date:02.02.2023
Shri Niranjan V.K.,
1049, Maria Arcade, Dr.Rajkumar Road,
4th M Block, Rajajinagar,
Bengaluru-560 010.
Sub: Information sought under RTI Act-2005 RTI application under
Registration No.CCEBL/R/E/22/00093 dated 14.12.2022-Reg
Please refer to the above. Your RTI Application was transferred to
this office by the CPIO, PrCCO vide letter
GCCO/RTI/APP/1377/2022-TECH dated 14.12.2022.
02. Attempt was made to elicit the information/record, sought
by you vide your RTI Application, from the Anti-Evasion Section
where the information was likely to be available. The Deputy
Commissioner (Anti-Evasion Section) has reported that the letter
dated 19.12.2007 sought vide your RTI Application could not be
traced inspite of putting all out efforts. Further, an attempt was
made with the Adjudication Section to obtain a copy of the said. It
has been reported by the Adjudication Section that the Show Cause
Notice referred in the RTI application issued to M/s LSG Sky Chefs
India Pvt Ltd was not received by the Adjudication Section, as seen
from the SCN register maintained in the Section, for
Commissioner/ADC/JC level Show Cause Notices.
03. If you are not satisfied with the above reply, you may prefer
an appeal before the first Appellate Authority, Shri H.
Soikhanthang, Additional Commissioner, HMT Bhavan, Bellary
Road, Bengaluru-560032, within a period of 30 days from the date
of receipt of this letter."
27. As could be seen from the reply, the letter said to have been
issued by KSFC is made as basis for the Department to commence
the penalty proceedings against the review petitioner. It is
pertinent to note that KSFC has now not been able to furnish copy
of the said letter.
28. The scope of Review Petition is no longer res integra. The
Hon'ble Apex Court, in the case of the S. Madhusudhan Reddy
Vs. V. Narayana Reddy and Others reported in 2022 SCC
Online SC 1034, after taking into consideration catena of
judgments of the Apex Court on the point, has held as under:
"31. As can be seen from the above exposition of law, it has been
consistently held by this Court in several judicial pronouncements
that the Court's jurisdiction of review, is not the same as that of
an appeal. A judgment can be open to review if there is a mistake
or an error apparent on the face of the record, but an error that
has to be detected by a process of reasoning, cannot be described
as an error apparent on the face of the record for the Court to
exercise its powers of review under Order XLVII Rule 1 CPC. In
the guise of exercising powers of review, the Court can correct a
mistake but not substitute the view taken earlier merely because
there is a possibility of taking two views in a matter. A judgment
may also be open to review when any new or important matter of
evidence has emerged after passing of the judgment, subject to
the condition that such evidence was not within the knowledge of
the party seeking review or could not be produced by it when the
order was made despite undertaking an exercise of due diligence.
There is a clear distinction between an erroneous decision as
against an error apparent on the face of the record. An erroneous
decision can be corrected by the Superior Court, however an error
apparent on the face of the record can only be corrected by
exercising review jurisdiction. Yet another circumstance referred
to in Order XLVII Rule 1 for reviewing a judgment has been
described as "for any other sufficient reason". The said phrase has
been explained to mean "a reason sufficient on grounds, at least
analogous to those specified in the rule" (Refer: Chajju
Ram v. Neki Ram, AIR 1922 PC 112, and Moran Mar Basselios
Catholicos v. Most Rev. Mar Poulose Athanasius, 1955 SCR 520)."
29. Keeping in mind the legal principles enunciated in the
Madhusudhan Reddy, supra, when the material on record is
analyzed in the instant case, it emerges that the Review Petitioner
has sought for review of the Order in CEA No.21/2018 dated
11.02.2021, on the aforesaid grounds.
30. The principle ground on which the Review Petitioner is
seeking for review of the Order in CEA No.21/2018 is that, the
authorities have proceeded on the basis of the letter issued by
KSFC whereby, KSFC said to have paid the service charges to 45
persons who have been employed by the Review Petitioner for
carrying out internal audit work in KSFC and failed to pay the
service tax. But, according to Review Petitioner, no such letter has
been issued by KSFC as per the reply obtained by filing an
application under Right to Information Act.
31. Whether at all the KSFC has issued such a letter or not,
therefore, assumes significance in adjudicating the grounds urged
in the Review Petition. Time was granted by this Court to both the
parties to place the said letter before the Court. Sri Jeevan J.
Neeralgi, learned counsel for the Department has stated that due
to lapse of time, such a letter could not be produced before this
Court. The Review Petitioner has placed the reply received by
KSFC. Irrespective of the letter that has been issued by KSFC,
since KSFC is a State Government undertaking, accounts of KSFC
would be available to establish that all payments have been made
by the KSFC for 45 persons who had been deputed for carrying out
the internal audit work. According the Review Petitioner, he came
to know about the fact that no such letter has been addressed by
KSFC only recently and said letter is the basis on which the entire
proceedings against Review Petitioner has been commenced and
therefore, he can maintain the Review Petition.
32. In the light of the above factual aspects, this Court bestowed
its attention to Section 78 of the Finance Act, whereunder, penalty
proceedings has been commenced and review petitioner has been
penalized to pay Rs.10,12,433/-. For ready reference, Section 78
of the Finance Act is culled out hereunder:
"Penalty for failure to pay service tax for reasons of
fraud, etc.
78. (1) Where any service tax has not been levied or paid, or
has been shortlevied or short-paid, or erroneously refunded,
by reason of fraud or collusion or wilful mis-statement or
suppression of facts or contravention of any of the provisions
of this Chapter or of the rules made thereunder with the intent
to evade payment of service tax, the person who has been
served notice under the proviso to sub-section (1) of section
73 shall, in addition to the service tax and interest specified in
the notice, be also liable to pay a penalty which shall be equal
to hundred per cent. of the amount of such service tax:
"Provided that in respect of the cases where the details
relating to such transactions are recorded in the specified
record for the period beginning with the 8th April, 2011
upto the date on which the Finance Bill, 2015 receives the
assent of the President (both Days inclusive), the penalty
shall be fifty per cent of the service tax so determined.".
Provided further that where service tax and interest is
paid within a period of thirty days of --
(i) the date of service of notice under the proviso to
sub-section (1) of section 73, the penalty payable
shall be fifteen per cent. of such service tax and
proceedings in respect of such service tax, interest
and penalty shall be deemed to be concluded;
(ii) the date of receipt of the order of the Central
Excise Officer determining the amount of service tax
under sub-section (2) of section 73, the penalty
payable shall be twenty-five per cent. of the service
tax so determined:
Provided also that the benefit of reduced penalty under
the second proviso shall be available. only if the amount
of such reduced penalty is also paid within such period.
"Explanation.-For the purposes of this sub-section,
"specified records" means records including computerised
date as are required to be maintained by an assesse in
accordance with any law for the time being in force or where
there is no such requirement, the invoices recorded by the
assessee in the books of accounts shall be considered as the
specified records."
"(2) Where the Commissioner (Appeals), the Appellate
Tribunal or the court, as the case may be, modifies the
amount of service tax determined under sub-section
(2) to section 73, then the amount of penalty payable
under sub-section (1) and the interest payable thereon
under section 75 shall stand modified accordingly, and
after taking into account the amount of service tax so
modified, the person who is liable to pay such amount
of service tax, shall also be liable to pay the amount of
penalty and interest so modified.
(3) Where the amount of service tax or penalty is
increased by the Commissioner (Appeals), the
Appellate Tribunal or the court, as the case may be,
over and above the amount as determined under sub-
section (2) of section 73, the time within which the
interest and the reduced penalty is payable under
clause (ii) of the second proviso to sub-section (1) in
relation to such increased amount of service tax shall
be counted from the date of the order of the
Commissioner (Appeals), the Appellate Tribunal or the
court, as the case may be.]
33. On careful perusal of the above provisions, it is crystal clear
that as per second proviso, if the tax is paid within a period of 30
days, the penalty payable would be within a period of 30 days of
the date of service of the notice under proviso to sub Section (1) of
Section 73, the penalty payable shall be 15% of such service tax
and proceedings in respect of such service tax, interest and penalty
shall be deemed to be concluded.
34. In the case on hand, notice under Section 73(1) of the Act
came to be issued by the authorities, the first show cause notice
issued by the authorities is on 08.08.2007. Again, the second
show cause notice was issued on 18.09.2008.
35. As per the first proviso to Section 73, the penalty payable
was 50% and as per second proviso, penalty payable is 15%. As
per second proviso (ii), the penalty payable will be 25%. The show
cause notice dated 08.08.2007 and 18.09.2008 is duly replied on
01.10.2007. The service tax with interest along with ST-3 returns
were filed on 20.08.2007 pertaining to the period 2005-06, 2006-
07. In other words, before issue of second show cause notice on
18.09.2008, there was already payment of service tax with
interest. Therefore, second proviso would be applicable and
authorities could not have imposed the penalty of 100% on the
assessee. The explanation to said Section would make it clear as
to what the Section means by specified records.
36. In fact, it is the specific case of the Review Petitioner that the
first show cause notice acknowledges the payment of service tax
and the interest thereon and therefore, the Additional
Commissioner of Service Taxes, at the first instance who passed
the order in original ought not to have saddled 100% penalty on
the Review Petitioner. The said aspect of the matter is ignored by
subsequent authorities in the appeals filed by the Review
Petitioner. Before this Court also, said aspect of the matter is not
urged by the Review Petitioner, as he was not having the
knowledge that KSFC has not issued letter to Department that it
had paid service charge to 45 persons, in time.
37. The order passed by the Additional Commissioner, which
came up to this Court in CEA No.21/2018 and confirmed was based
on the said letter issued by KSFC whereby, KSFC has categorically
stated that entire service charges has been paid well in time and it
is the default on the part of the review petitioner to pay the service
tax in time.
38. The material on record would also disclose that the service
tax has been paid subsequently with accrued interest even before
the show cause notice has reached the review petitioner.
Surprisingly, the Additional Commissioner has observed in his order
that the service tax has not been paid. The show cause notice
itself shows that there was a payment of service tax along with
interest by the review petitioner. Therefore, the order of the
Additional Commissioner is factually incorrect.
39. Further, order imposing Rs.10,12,433/- as penalty under
Section 78 of the Act, itself needs to be set-aside, if there is factual
error especially in the absence of department making available
copy of the letter issued by the KSFC. The affidavit filed by the
Review Petitioner clearly mentions that he is intending to put
quietus by paying 25% of the penalty.
40. In the absence of the parties placing the letter said to have
been issued by KSFC which is the sole basis for passing the order
imposing 100% penalty on the review petitioner, the order passed
by the respective authorities which came to be confirmed in CEA
No.21/2018 needs a relook.
41. Taking note of these peculiar facts and circumstances of the
case, this Court is of the considered opinion that instead of
directing the parties to one more round of litigation by allowing the
review petition and setting aside the order passed in CEA No.21/
2018 and remitting the matter for fresh consideration in
accordance with law, if the matter is put to rest by accepting the
affidavit filed by the review petitioner and directing the review
petitioner to pay Rs.2,50,000/- would meet the ends of justice.
Furthermore, at this distance of time, it would be a futile exercise
for both the parties to re-agitate the issues from square one.
42. In view of the foregoing discussion, this Court is of the
considered opinion that a case is made out by the Review Petitioner
to pay a sum of Rs.2,50,000/- towards penalty proceedings
initiated by the Department and put an end to the litigation.
43. Accordingly, the following:
ORDER
(i) Review Petition stands disposed of.
(ii) Review Petitioner is directed to pay
Rs.2,50,000/- (Rupees Two lakhs fifty
thousand only) to the Department as agreed in
the affidavit dated 26.10.2023.
(iii) On payment of said sum of Rs.2,50,000/-, as
agreed, the proceedings in respect of service
tax, interest and penalty shall be deemed to be
concluded.
(iv) No order as to costs.
Sd/-
JUDGE
Sd/-
JUDGE
kcm
