The appeal under section 35-G of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994 arises from an order of the Customs, Excise and Service Tax Appellate Tribunal1 dated 12 March 2014.
A notice to show cause was issued to the appellant on 29 September 2010 by the Assistant Commissioner, Central Excise and Service Tax, Mirzapur calling upon the appellant to explain why an amount by way of service tax of Rs.74,675/- should not be demanded in terms of the provisions of section 73(1) of the Finance Act, 19942 together with interest under section 75 and why penalty should not be imposed inter alia under sections 76, 77 and 78 for non payment of the dues on account of service tax. The Assistant Commissioner of Central Excise, Division Mirzapur confirmed the demand of Rs.74,675/-. In the order of adjudication dated 24 November 2011, the Assistant Commissioner observed that the appellant had deposited an amount of Rs.74,675/- on 9 June 2011, 7 September 2011 and 21 September 2011 and consequently ordered appropriation of the amount against the total liability of the same amount. A penalty, each of Rs.5000/-, was imposed under section 77 for violation of the provisions of sections 69 and 70. A penalty in the amount of Rs.74,675/- was also imposed under section 78 which, it was directed, shall stand reduced to 25% of the service tax amount if the entire amount including the service tax, interest and penalties were paid within thirty days. The appellant filed an appeal before the Commissioner (Appeals) which was dismissed on 30 March 2012. The Tribunal has dismissed the appeal of the appellant on 12 March 2014 relying upon its decision earlier decision in M/s Neelav Jaiswal & brothers Vs. Commissioner of Central Excise, Allahabad3.
The following questions of law have been pressed at the hearing of the appeal :
"(i) Whether the Tribunal/Commissioner (Appeals) and the adjudicating officer were justified in imposing penalty under sections 77 and 78 of the Finance Act, 1994 upon the appellant despite the fact that the entire tax liability as well as interest was deposited by the appellant before the passing of the order in original dated 24 October 2011.
(ii) Whether the Tribunal was justified in deciding the case of appellant by placing reliance on the order and judgment pronounced in the case of Neelav Jaiswal & brothers Vs. C.C.E. Allahabad."
The appeal is admitted on the aforesaid questions of law and by consent is taken up for final hearing and disposal.
The appellant is engaged in providing taxable service of 'manpower recruitment and supply of agency service'. The relevant period to which the dispute relates is from April 2005 to March 2010. The appellant had received an amount of Rs.6,54,343/- from M/s Hindalco Industries Limited, Renukoot. The service receiver had paid to the appellant amounts on account of provident fund in respect of the manpower supplied. Service tax was not paid by the appellant on the provident fund component which had been received from Hindalco Industries Ltd. as the service receiver. The non payment of service tax on the aforesaid component of Rs.74,675/- paid to the appellant between 2005-06 and 2009-10 was a subject matter of the show cause notice dated 29 September 2010.
The Tribunal, in the case of Neelav Jaiswal (supra), had in a judgment dated 22 July 2013 held as follows:
"6. Section 65(105)(k) enacts the relevant taxable service to mean any service provided or to be provided to any person, by a man-power recruitment or supply agency in relation to the recruitment or supply of man-power, temporarily or otherwise, in any manner. Section 65(68) of the Act defines 'man-power recruitment or supply agency' to mean any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise, to any other person. Section 67 of the Act dealing with valuation of taxable service for charging service tax specifies that where the provision of service is for a consideration in money, the taxable value would be the gross amount charged by the service provider for such service provided or to be provided by him.
7. It is admitted that the liability to remit Provident Fund to Provident Fund Authorities is a statutory liability on the appellant, the employer of persons who were deployed to serve the needs of M/s Hindalco Industries Ltd., towards the taxable manpower recruitment or supply agency service. M/s Hindalco in consideration for such taxable service provided by the appellant had remitted to the appellant not only the amount agreed to between the parties for remunerating the personnel so deployed but also the amount of provident fund payable by the appellant to Provident Fund authorities, in terms of the appellant's statutory obligation. Both these amounts therefore constitute the gross amount charged by the appellant for the taxable service provided to M/s Hindalco Industries Ltd., since the taxable service was provided for a consideration in money. Both these amounts therefore constitute the gross amount charged by the appellant for having provided the taxable service."
Consequently, in this decision the Tribunal had come to the finding that the taxable value under section 67 in respect of a service provided by a manpower recruitment and supply agency would be the gross amount charged by the service provider for the service. The liability to remit provident fund being a statutory liability of the service provider, the receiver of the service had remitted the amount towards the provident fund payable by the service provider to the Provident Fund authorities. Hence, according to the Tribunal, the service tax was liable to be paid on the amount which was agreed between the parties as a remuneration for the personnel deployed as well as on the statutory liability towards provident fund dues and bonus. It was this decision which was followed by the Tribunal in the case of the appellant while dismissing the appeal.
The only issue which is raised in the present appeal is in regard to the imposition of a penalty on the appellant. The contention of the appellant is that there was no case of fraud, collusion, wilful mis-statement or suppression of facts within the meaning of section 78 or of a contravention with an intent to evade payment of service tax. Moreover, it has been submitted that under the first proviso to section 78, the amount of penalty is liable to be reduced to 25% of the service tax determined if the service tax together with interest is paid within thirty days from the communication of the order of the Central Excise Officer determining the service tax. In the present case, it has been submitted that the appellant had established its bona fides by not even waiting for an order of adjudication but had deposited the amount of service tax with interest on 9 June 2011, 7 September 2011, 21 September 2011 and 11 October 2011. Finally, it has been submitted that nearly two-hundred notices had been issued by the Division and Commissionerate at Allahabad which indicates that there was mass unawareness among the service providers in the area which was noted in an order of the Joint Commissioner (Adjudication), Central Excise, Allahabad dated 16 June 2011 (Annexure-12).
On the other hand, the learned counsel appearing on behalf of the Revenue has supported the order of the Tribunal.
At the relevant time, prior to the substitution of the provisions of section 78 by the Finance Act, 2011 with effect from 8 April 2011, section 78 insofar as is material, provided as follows:
"78. Penalty for suppressing value of taxable services.- Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of--
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded:
Provided that where such service tax as determined under sub-section (2) of section 73, and the 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 per cent of the service tax so determined :
Provided further that the benefit of 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 thirty days referred to in that proviso."
Section 80, insofar as is material, provides as follows:
"80.Penalty not to be imposed in certain cases-(1) Notwithstanding anything contained in the provisions of section 76, section 77 or first proviso to sub-section (1) of 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."
Under section 78, a penalty is provided where the service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of the provisions of the relevant Chapter with an intent to evade payment of service tax. Under section 80, it has been provided that no penalty would be imposable if the assessee proves that there was a reasonable cause for its failure.
In response to the notice to show cause, the appellant had emphasised that there was no intent to evade payment of excise duty. Before the Tribunal in the grounds of appeal, the appellant stated that the amount towards provident fund was deducted by the appellant from the salary of the employees and an equal amount was contributed by it as the employer. The amount which was contributed by the employer was received from Hindalco Industries Ltd. and the appellant had deposited a cheque for the total provident fund contribution in the Employees' Provident Fund Account. The appellant stated that it had not retained any of the amount but had deposited it in the account of the concerned employees maintained with the Provident Fund Commissioner. The appellant further stated that it was under a bona fide belief that the amount which it had received from the recipient of the service in respect of the provident fund contribution of the employer was not subject to service tax.
The notice to show cause which was issued to the appellant stated that the appellant was engaged in providing taxable service from 1 April 2005 but had applied for service tax registration on 11 July 2006. The appellant has averred that even before the order of adjudication was passed on 24 November 2011, it had duly deposited the service tax of Rs.74,675/- together with interest of Rs.16,463/- by challans dated 9 June 2011, 7 September 2011, 21 September 2011 and 11 October 2011. This is a material circumstance which has a bearing on whether the appellant had an intent to evade the payment of service tax within the meaning of section 80. At the material time, the department had also taken due notice of the fact that there appeared to have been a mass unawareness among the service providers on whether the service tax was also liable to be deposited on the component of provident fund received from the recipient of the service to whom the manpower services were provided. This circumstance was actually borne in mind in an order dated 16 June 2011 of the Joint Commissioner (Adjudication), Central Excise, Allahabad, a copy of which has been annexed as Annexure-12 to the appeal.
Having regard to the fact that the appellant had obtained registration, albeit on 11 July 2006, and the only dispute is as to whether service tax was liable to be paid on the component of provident fund received from the recipient of the service, we are of the view that the submission of the appellant that there was no fraud, collusion, wilful mis-statement or suppression of facts or contravention with an intent to evade the payment of tax, merits acceptance. In this regard, the Court must have due regard to the principle which was laid down by the Supreme Court in Anand Nishikawa Co. Ltd. Vs. Commission of Central Excise, Meerut4 wherein it was held as follows:
"......... It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act. ............"
The same principle was formulated in the earlier decision in Padmini Products Vs. Collector of Central Excise, Bangalore5.
Moreover, the conduct of the appellant in paying the entire amount of service tax dues together with interest even before the order of adjudication was passed is a factor which must weigh in the balance. The fact that the service tax was deposited even before the order of adjudication was passed was taken note of by the Assistant Commissioner in the order dated 24 November 2011. In these circumstances, we are of the view that no case for the imposition of a penalty was made out.
In the present case, the Tribunal in its impugned judgment and order decided the issue of taxability without entering into any specific finding in regard to whether the condition precedent for the imposition of a penalty had been established. We would have remanded the proceedings back to the Tribunal for a fresh consideration but in the present case we have noticed from the records that the quantum of the amount contemplated in the notice is only 74,675/-. In the interest of bringing a finality to the matter and in order not to burden the Tribunal by directing a fresh consideration in regard to a matter involving a small amount, we have considered it appropriate, by consent, to consider the issue as to whether the imposition of a penalty was warranted. Though the Tribunal on the issue of taxability has relied upon its earlier decision as noted above, the issue of taxability has not been contested before this Court in the present appeal and the appeal is confined only to the aspect of penalty.
For the reasons which we have indicated above, we answer the questions of law as framed in the negative and in favour of the appellant.
The appeal shall stand disposed of accordingly. There shall be no order as to costs.
Date: 25.08.2014 SK (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)