Office of the Commissioner of Custom & Central Excise

OIO No.44/JC/2012 Dated 31.03.2012

lhek “kqYd ,oa dsUnzh; mRikn “kqYd vk;qDrky;] dsUnzh; mRikn “kqYd Hkou] jsl dkslZ] fjax jksM jktdksV-360001 OFFICE OF THE COMMISIONER OF CUSTOMS & CENTRAL EXCISE RACE COURSE RING ROAD, RAJKOT-360001 F.No.V.ST/15-188/Adj/2010 By RPAD/HAND DELIVERY

vkns”k dh frfFk 31.03.2012 Ekwy vkns”k Lka. Date of Order:- Order in Original NO. 18.04.2012 44/JC/2012 tkjh djus dh frfFk Date of Issue:- ,e- KkulqUnje vkns”kdrkZ dk uke : ससंयकक आयकक Passed by: य य ds0 m-0 “kqYd vk;qDrky;] jktdksV ds lanHkZ esa : M/s. Jamnadas Ramji, In the matter of 101 & 102, Milestone Building, Pandit Nehru Marg, Jamnagar dkj.k crkvksa uksfVl SCN No.V.ST/AR-JMR/JC/205/2010 dated 22.09.2010 la- &frfFk Show Cause Notice No. & Date.

1- ;g izfrfyfi ml O;fDr dks futh mi;ksx ds fy, fu%'kqYd nh xbZ gSA ftls ;g tkjh fd;k x;k gSA 1. This copy of order is granted free of charges to the person to whom it is issued.

2- bl vkns'k ls ;fn dksbZ O;fDr vlarq"V gS rks bl vkns'k ds fo:) fuEufyf[kr dks vihy dj ldrk gSA&vk;qDr ¼vihy½ lhek ,oa dsUnzh; mRikn 'kqYd] jsl dkslZ fjax jksM jktdksVA 2. Any person deeming himself aggrieved by this order may appeal against this order to the Commissioner (Appeals), Customs & Central Excise, Central Excise Bhavan, Race Course Ring Road, Rajkot.

3- vihy dk QkeZ ,l-Vh-&4 nks izfr esa Hkjk tk, ,oa mlds lkFk fu.kZ; dh izfrfyfi ;k lsokdj fu;e] 1994 dh dye 8 esa fofufnZ"V vuqlkj vkns'k ds fo:) vihy dh izfrfyfi gksuh pkfg,A 3. The Appeal should be filed in form ST-4 as per Rule 8 of Service Tax Rules, 1994 and it shall be signed by the person as specified in Rule 3 (2) of the Central Excise (Appeals) Rules, 2001.

4- ikVhZ }kjk bl vkns'k dks O;fDrxr izkIr fd, tkus dh rkjh[k ls ;k Mkd }kjk izkfIr dh rkjh[k ls rhu eghus ds vanj vihy Qkby dh tkuh pkfg,A 4. The appeal should be filed within three months from the date of receipt of this order. [Section 85 of the Finance Act, 1994].

5. blds lkFk fuEufyf[kr dkxtkr gksuh pkfg,A 5. The appeal should be accompanied by:

¼v½ ,slk vkns'k dh izfrfyfi ;k nwljs dh d izfrfyfi ftl ij uhps n'kkZ, v?khu fu/kkZfjr dksVZ dh Qhl LVsEi gksuh pkfg,A (a) Copy of this order which should bear court fee stamp as prescribed under Schedule 1 of Article 6 of the Court Fee Stamp Act, 1870, as under: (i) ;fn lCtsDV eSVj dh jde ;k ewY; ;k ewY; 50 :i; ;k 50 :i;s ls de gks rks :i;s 00- 25 gksA Page 1 of 34 OIO No.44/JC/2012 Dated 31.03.2012

6. lsok dj ]naM ¼isuYVh½ vkfn ds Hkqxrku dk izek.k A Proof of payment of duty, penalty etc., should also be attached to the original form of appeal.

Brief Facts of the Case:

M/s Jamnadas Ramji, (hereinafter referred to as “the noticee”) having their office at 101 & 102, Milestone Building, Pandit Nehru Marg, Jamnagar and have Service Tax Registration no. AABFD 5799 EST 001 in Form ST-2 under Section 69 of the Finance Act, 1994 (32 of 1994). They have undertaken to comply with conditions prescribed in Service Tax Rules, 1994.

2. Whereas, during the course of audit for the period April-2004 to March- 2009, while scrutinizing the records of the said noticee, it appeared that they had provided temporary manpower for carrying out a specific task of loading & unloading of fertilizers to the GSFC from 16.06.2005 onwards.

3. The service provided by the said noticee falls under the category of “Manpower Recruitment or Supply Agency” within the definition of the Section 65 (105) (k) of Finance Act, 1994.

4. As per section 65(68) of the Finance Act, 1994 “Manpower Recruitment or Supply Agency” means any person engaged in providing any service directly or indirectly in any manner for recruitment or supply of manpower, temporary or otherwise, [to any other person]

5. The Finance Act, 2005, w.e.f. 16.06.2005 enhanced the scope of Manpower Recruitment Services by including temporary supply of manpower therein and renamed the manpower recruitment agency as “Manpower Recruitment or Supply Agency”.

6. As envisaged in master circular No. 96/7/2007-ST, dated 23.08.2007 this issue has been clarified that, “In the case of supply of manpower, individuals are contractually employed by the manpower recruitment or supply agency. The agency agrees for use of the services of an individual, employed by him, to another person for a consideration. Employer-employee relationship in such case exists between the agency and the individual and not between the individual and the person who uses the services of the individual. Such cases

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are covered within the scope of the definition of taxable service [Section 65(105)(k) and, since they act as supply agency, they fall within the definition of “Manpower Recruitment or Supply Agency” [Section 65(68)] and are liable to Service Tax”. 7. Whereas, in the instant case the man power supplied by the noticee to the GSFC, Sikka (Gujarat) for loading/unloading of the fertilizers were their own employees. They have been found to be drawing their respective salaries from the noticee and their regular deduction or provident fund was taking place at the end of the noticee. Therefore the relationship between the man power Recruitment or Supply agency & noticee is as an employer-employee. Hence, the service rendered by the noticee to the GSFC and income earned through providing of the said service is liable to Service Tax under the ‘Manpower Recruitment or Supply Agency” service w.e.f. 16.06.2005.

8. The said noticee had started paying Service Tax for this service from third quarter of 2007-08; however, on reconciliation of the payment of Service Tax payable and Service Tax paid, there was a glaring difference. Therefore, the unpaid service tax for the period from 2005-06 to 2007-08, along-with the difference for the rest of the period, where less payment was made by the said noticee, requires to be recovered along-with interest under the provisions of Service Tax Act, 1994. The year wise value of service provided by the noticee and the service tax payable is calculated and worked out in table hereunder:

Year Rate ofTaxable Value ofST Payable ST Paid Difference duty % of Service to be recovered 2005-06(from 10.20 1,10,91,365 11,31,320 NIL 11,31,320 16.06.2005) 2006-07 12.24 1,98,39,773 24,28,388 NIL 24,28,388 2007-08 12.36 1,75,93,298 21,74,532 11,99,941 9,74,591 2008-09 12.36 1,65,16,946 20,41,495 18,03,416 2,38,079 TOTAL 47,72,378

9. Whereas, it appeared from the above that the noticee had suppressed the total Service Tax payable as per the above table and short paid the Service Tax totally amounting to Rs. 47,72,378/-. Thus, it appeared that the said noticee had contravened the provisions of Section 73 of the Finance Act, 1994 in as much as, by their acts and/ or omission as detailed in Para supra, failed to obtain Service Tax registration in the category “Manpower Recruitment or Supply Agency Services”, escaped the assessment of tax, failed to disclose wholly and truly all the material facts required, and suppressed the taxable

of 34 OIO No.44/JC/2012 Dated 31.03.2012 service with a willful intention to evade payment of Service Tax for the period 2005-06 to 2008-09, and evaded the payment of Service Tax amounting to Rs. 47,72,378/-. Hence it appears that the extended period under proviso to Sub- Section (1) of Section 73 of the Finance Act, 1994 appeared to be invokable for recovery of Service Tax short paid by the noticee.

10. Whereas, as per the Section 69 of the Finance Act, 1994, read with Rule 4 of the Service Tax Rules, 1994 every person providing taxable service shall obtain service tax registration within prescribed time period. However, the noticee have not obtained the same within prescribed time limit. The text of the said Section 69 of the Finance Act, 1994 read as under:

(1) “Every person liable to pay service tax under this chapter or the rules made there under shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the Superintendent of Central Excise.” (2) ”…...”

11. From para supra(s), it appeared that the noticee had contravened the following provisions of the Act and rules made there-under as detailed below:

a) the provisions of Section 66 of the Finance Act, 1994 in as much as they have not discharged their Service Tax at applicable rate on the amount said Service delivered by them; b) the provisions of Section 67 of the Finance Act, 1994 in as much as they have evaded the payment of Service Tax on the said services; c) the provisions of Section 68 of the Finance Act, 1994 read-with Rule 6 of the Service Tax Rules, 1994 in as much as they have failed to deposit service tax into the account of the Government of India, the Service Tax leviable in terms of Section 66 of the Finance Act, 1994 and failed to remit the Service Tax so leviable, within the stipulated time as required under Section 68 of the Finance Act, 1994; d) the provisions of Section 69 of the Finance Act, 1994 readwith Rule 4 of the Service Tax Rules, 1994 in as much as they failed to obtain Service Tax registration. e) the provisions of Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they failed to assess their tax liability and also failed to file returns;

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12. Therefore, M/s. Jamnadas Ramji, 101 & 102, Milestone Building, Pandit Nehru Marg, Jamnagar, vide show cause notice no. V.ST/AR-JMR/JC/205/2010 dated 22.09.2010 were called upon to show cause to the Joint Commissioner of Central Excise & Customs, Rajkot-360 001, as to why:-

(i) Service Tax along with Education Cess totally amounting to Rs. 47,72,378/- (Rs. Forty seven Lakhs Seventy-two thousand three hundred seventy eight only) should not be recovered from them under proviso to Section 73(1) of the Finance Act, 1994. Since amounts of Rs. 11,88,331/-, Rs. 24,28,961/- and 9,42,292/- vide three challans dated 02-07-2010 totally amounting to Rs. 45,59,584/- has already been paid by the noticee, they are also asked to show cause as to why the same should not be appropriated against their Service Tax liability. The noticee is also required to show cause as to why the remaining amount of Rs. 2,12,794/- which is still outstanding should not be recovered alongwith interest as applicable under Section 73(1) of the Finance Act, 1994.

(ii) Interest at the applicable rate on the above amount should not be recovered from them under Section 75 of the Finance Act, 1994.

(iii) Penalty should not be imposed on them under Section 76 of the Finance Act, 1994.

(iv) Penalty should not be imposed on them under Section 77 of the Finance Act, 1994.

(v) Penalty should not be imposed on them under Section 78 of the Finance Act, 1994.

Defence Submission and Personal Hearing:

13. The noticee submitted reply to the SCN vide letter dated 22.12.2011 and inter alia submitted that:

(i) They were working as a loading and unloading contractor for M/s Gujarat State Fertilizers & Chemicals Ltd. (A

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Government of Gujarat Undertaking) [Hereinafter referred to as M/s GSFC]. For this purpose they had engaged their man power for completing the said contract of loading and unloading. They had taken the registration from the department with effect from 03.12.2007. At the time of registration, they had disclosed all the facts of their case to the department. They further added that they were supplying the said service to only one client i.e. M/s GSFC. Therefore, they were completely unaware about the Service Tax Laws, payments, liability and procedure. They were fully dependent upon GSFC, who is a Government organization and were following the directions as told to them by GSFC with regard to any taxation. They were under the impression and belief that if any Tax including Service Tax was payable, then GSFC would informed them and such charges to be borne by them. It was felt that GSFC would discharged all obligations for payment of taxes, if any, applicable. It can very well be understood that the noticee had provided all services and raised Bills for the same, hence if any Service Tax payment was required to be made then in such case the GSFC would not acknowledge such bill/invoice raised by the noticee and they would inform the noticee to first charge such service tax and thereafter raised the bill/Invoice. As such question of evasion of Service Tax with malafide intentions does not arise.

(ii) In the month of December, 2007, M/s GSFC had informed the noticee that they were liable to service tax for the services provided by them to M/s GSFC and the noticee suo-moto obtained the registration No AABFD5799EST002 w.e.f. 03.12.2007 having Registration. Further, M/s GSFC vide letter dated 26.12.2007 informed them that service tax was applicable and they may claim service tax amount along-with Bill. M/s GSFC amended the Work Contract accordingly. Hence, the noticee were not aware about the service tax liability earlier and thereafter the noticee have charged the same in their Bills and also paid the same to the Department. There was no default in service tax payment since 03.12.2007. The entire dispute in the present case is related to the non payment of Service tax payment for the services provided from 16.05.2005 to 03.12.2007. During the subsequent audit of their documents by the Service Tax Department undertaken on 28.12.2010, a sum of Rs.4,034/- was pointed out being the total Revenue involved in Audit Para; and they

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had promptly paid the amount in question to the Government Treasury on 29.12.2010. This clearly shows their readiness and promptness to comply with all demands and/or rules of the Government. As stated earlier, they were not aware about this tax liability and even M/s GSFC has also not informed them that this service has come into effect from 16.05.2005. M/s GSFC has not informed the noticee in their letter dated 26.12.2007 that they should raise the bill for service tax for the earlier period since 16.05.2005. Hence they have not collected from M/s GSFC and paid any service tax for this period. The liability from 16.05.2005 has come to their notice only during the period of Audit by the Department undertaken on 10.09.2009; and they have immediately taken steps for recovery from M/s GSFC and to pay the service tax.

(iii) They issued invoice / debit notes to M/s GSFC for the whole service tax and M/s GSFC paid the said service tax to them. Therefore it is wrongly concluded that the Audit team or any other authority has found that the noticee have not raised bill and suppressed the service charged amount. The noticee have further added that their Principals M/s. GSFC accorded approval to them to make payment of the demanded amount of Service Tax vide their letter dated 01.07.2010 and they immediately remitted the due amount to the Government Treasury on 02.07.2010. The noticee submitted copy of challan evidencing payment of service tax. All the transactions were through Bills only and there was no hidden transaction and even the same is shown and mentioned in noticee’s Balance Sheet which is a public document and available for all the Government Authorities. These facts itself show the noticee’s bonafide belief that they were not aware about any liability for payment of service Tax and were under the impression that GSFC will comply with the Tax liability if any applicable.

(iv) The present dispute was related only to the Service tax amount for the services provided by them before the information given by GSFC. The earlier Tax liability was huge to the tune of Rs 45,59,584/- and being a very small company it was not possible for the noticee to pay the service tax on their own without receiving the service tax amount from M/s GSFC. The noticee pursued the matter vigorously with M/s GSFC Authorities and succeeded in receiving the

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payments from GSFC and thus have paid the entire amount of Service tax before issuance of SCN.

(v) In the instant case, question of evasion or suppression of service tax does not arise at all as the service receiver is a government organization, who will not involve in such evasion and would not like the bills from service provider wherein no service tax has been charged. There is no benefit or financial gain to the noticee in evasion or suppression of any service tax as the service receiver is a government organization who will never be involved in such evasion being well aware about laws and tax liability.

(vi) These facts will clearly reveal and demonstrate that the noticee were not aware about liability for service tax payments and came to know only when it was informed to them by GSFC. Further, payment by them of entire Service Tax before issuance of SCN shows their bonafide intentions, and further that even at this stage they had not contested any tax liability. If the noticee had provided the same services to any other company/firm other than GSFC, then in such case the Department could have charged that the noticee have suppressed the Service Tax. However, in the present case as there were no other service receivers therefore the liability of service tax payment could not come to their notice.

(vii) The dispute is related to the total service tax payment of Rs 47,72,378/-. They have already paid Rs 6,41,129/- on 09.07.2009 (copy of statement of bills and copy of Challan are enclosed) itself for the period 2008-2009 and 2009-2010 (April –June 2009) before audit by the department. The year wise bifurcation of the service tax paid is as follows:

Service tax For 2008- 2,19,083 2009, payment received in 2009-10 Service tax paid for 4,21,964 2009-2010 (April – June 2009)

(viii) It can be seen that they have already paid the service tax to the tune of Rs.2,19,083/- related to the period 2008-2009. However, this due amount was received by them from M/s. GSFC in 2009-10 and hence they had remitted the same to the Government Treasury on due date after receipt. Therefore there is no delay in

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service tax amount for Rs 2,19,083/-. There is delay in payment balance Service tax to the tune of Rs 45,59,584/- and not for entire amount of Rs,47,72,378/- as alleged in the SCN. The Audit team has taken entire amount from the balance sheet from 16.05.2005 to 31.03.2010. They have not taken into consideration that service tax amount for Rs 2,19,083/- has already been paid and also there is no delay in payment and the same is reflected in ST-3 returns which are duly scrutinized by the concerned Service Tax officer.

(ix) That when the approval was received from M/s GSFC for the balance service tax payable, they had immediately paid the balance Service tax to the tune of Rs. 45,59,584/- vide three challans all dated 2.7.2010 (i) for Rs. 11,88,331/-, (ii) for Rs. 24,28,961/- and (iii) for Rs.9,42,292/-. They enclosed copies of all challans as an evidence of payment of S.Tax of Rs.47,72,378/-.

(x) That they have also paid the entire interest amount of Rs 20,89,491/- vide (i) Challan dated 18.10.2010 for Rs.420/-, (ii) Challan dated 18.04.2011 for Rs.1,00,000/-, (iii) Challan dated 18.10.2011 for Rs.6,36,026/-, (iv) Challan dated 18.10.2011 for Rs.10,91,646/-, (v) Challan dated 18.10.2011 for Rs.2,61,399/- and enclosed the copies of all challans. The noticee are a small entity and it was not possible for them to pay huge interest of Rs 20,89,491/- without the support of M/s GSFC.

(xi) At the outset, it is to submit that the noticee had paid whole service tax payable by them related to the period 2005-06 to 2008-2009 well before the issuance of the show cause notice. The noticee had also informed the jurisdictional service tax range for such payment of service tax vide letter dated 05.07.2010 and 15.09.2010. Therefore, it can be reasonably assessed that the noticee had paid whole demand even before the issuance of show cause notice. Therefore the basic theme of the Show Cause Notice that there was short payment of service tax on the part of noticee must be considered as redundant and therefore whole show cause notice becomes defective ab initio due to this reason.

(xii) Fit Case for relief grant u/s 73(3)

It is submitted that the noticee has not contested the above said demand and even paid the whole amount of service tax as determined by the Central Excise officers. Initially, the noticee were engaged with

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M/s GSFC for loading and unloading contract. At that time, the noticee had no idea that supply of his salaried personnel for loading and unloading work would amount to service tax under the category “Manpower Recruitment or Supply Agency”. Further, they also believed that as M/s G.S.F.C. is a government undertaking, therefore if any services provided to them were taxable then the administrative people would inform accordingly and if any liability was there either GSFC would pay or informed them for such payments. Further the said belief gets stronger when administrative people of M/s GSFC also did not require the noticee to get registered with service tax department for better legal compliance. Therefore the noticee had never thought that the supply of his salaried personnel will be taxable service. Accordingly the noticee was under bona-fide belief that the loading and unloading service will not be taxable under “Manpower Recruitment or Supply Agency”. Therefore it is submitted that there was initial ignorance of law on the part of noticee to pay service tax amount due to reason above stated within time limit, therefore the delay in payment of tax had occurred. As M/s G.S.F.C. did not inform the noticee, therefore the noticee did not take the service tax registration which resultantly delayed the service tax payment. However when informed by GSFC in December 2007, the noticee had taken the registration for service tax on 03.12.2007 and simultaneously started paying the service tax payable by him and as ascertained by him on his own. Therefore as there was reasonable cause and even the whole amount of service tax had been paid before the issuance of above said SCN, and now also paid the entire interest amount, the noticee herewith requests that the penalties as mentioned in the above said Show Cause Notice may not please be imposed Therefore it is established that the noticee had never intended for evasion of tax payments. The reason of delay in payment of due service tax is completely due to ignorance of law as stated earlier.

(xiii) The noticee wish to draw attention towards the plain reading of the section 73(3) of the Finance Act, 1994 which reveals that where the person pays the amount of defaulted service tax or erroneously refunds on his own ascertainment or tax ascertain by the central excise officer before service of notice on him and inform central excise officer in writing, then the central excise officer shall not serve any notice specified in sub section (1) in respect of amount so paid. It

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was further provided that where the central excise officer determined the amount of short payment of service tax or erroneous refund which in his opinion had not been paid by the said person then he shall proceed to recover such amount in the manner specified in this section. Moreover the explanation 2 of the section 73(3) also provides that the “for removal of doubts, it is hereby declared that no penalty under any of the provisions of this act or the rules made thereunder shall be imposed in respect of payment of service tax under this subsection and interest thereon”.

(xiv) That the noticee have disclosed all the information to the central excise officer as well as registering authority. The noticee has even paid the whole amount of service tax which comes to Rs 47.72 lakhs {approximately double the amount of his total yearly value of service} at his own ascertainment. Here is a case where the reason given for non-payment is complete ignorance as stated above in detail. When it was told that they were liable for differential tax, the whole amount of differential service tax was paid by the noticee without contesting the demand of such huge amount for Rs 45.60 Lakhs. The very action of the noticee by making payment of such big service tax amount has shown that he was ready to comply with the law. They further added that they are rendering services to M/s. GSFC since 1996 and their services did not attract service tax. However, as per the amendment brought into effect by the Government during May 2005, service tax to our services had become applicable; but they actually came to know its applicability in December 2007 only.

(xv) Further the noticee had disclosed all the information in his balance sheet. The profit and loss account of the noticee stated and represented the nature of income earned by him. Therefore sir, it is not a case of suppression of facts which is detected by the central excise officers. It is a case where the differential demand is based on the difference in ledger accounts as well as balance sheet figures with the ST-3 returns of the noticee. If there existed any suppression of facts, the said fact would have never been reflected in the balance sheet and raised Bills for service and accordingly no difference in value could have been detected. Here it may please be noted that the balance sheet of the firm is a public document and can be easily traced out by any person of concern. Accordingly, willful suppression for evasion of tax is definitely absent in the case of noticee. They rely

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upon the decision of Tribunal in the case of M/s Rama Paper Limited Vs CCE, Meerut reported at 2011 (22) S.T.R. 19 (Tri. - Del.) and submitted that it is not a case of willful suppression of facts or other contravention with intent to evade the tax payments. It is a case of genuine ignorance of law under bonafide belief and confusion arising while working with Government undertaking. Therefore, imposition of such penalties may go against the spirit of various provisions of the Finance Act 1994 relating to service tax. They further relied upon the of decision of Tribunal in the case of the Majestic Mobikes Vs CCE 2008 (11) STR 609 [TRI-BANG] and in the case of M/s ROLEX LOGISTICS PVT. LTD Vs CST, Banglore reported at 2009 (13) STR 147 (Tri. Bang),and submitted that in the case of noticee, again the demand was raised on the basis of balance sheet figures and hence it is not a case of willful suppression. They further relied upon the decision of Tribunal in the case of M/s Veerabhadreshwara Transport Vs CCE, Belgaum reported at 2010 (18) S.T.R. 621 (Tri. - Bang.) and contended that in case of noticee, they committed the default by genuine ignorance of law therefore the cited case is squarely applicable to their case and penalties not to be imposed.

(xvi) They had paid whole service tax amount for Rs 47.72 Lakhs on their own before even issuance of Show Cause Notice. Further the reason of the said default is genuine as above stated therefore hence the default does not arise on account of fraud, collusion, willful misstatement, suppression of facts or other contravention with intent to evade the tax payments. Therefore the provisions of section 73(3) of the Finance Act, 1994 are clearly applicable to this present case. Accordingly, it is requested to take a lenient view while deciding the case.

(xvii) They relied upon in the case of CST, New Delhi Vs Independent News Services P. Ltd reported at 2011 (23) S.T.R. 23 (Tri. - Del.) wherein the Tribunal has held that when the whole service tax is paid along with interest payable before issuance of show cause notice then it will amount to conclusion of all the proceeding under Finance Act, 1994. The noticee have stated that in their case also they have paid whole of the service tax amount along with interest therefore the proceeding may be concluded according to the CESTAT decision. They have also relied on the decision of Hon’ble High Court of Karnataka as reported in 2011-TIOL-635-HC-KAR-ST and various

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other judicial pronouncement in support of their above plea and requested that as the noticee had paid the whole amount of differential service tax as determined by the central excise officer before issuance of show cause notice and from the above submission it can be said and submitted that the case is not related to the willful suppression of facts with intent to evade the service tax payments therefore the penalties under section 78 should not be imposed upon the noticee in the interest of natural justice.

Penalties not to be imposed either u/s 76 or 78 by invoking the vested power under section 80 of the Finance Act, 1994.

(xviii) That the noticee is working for the Government Undertaking i.e. M/s G.S.F.C. therefore the noticee was in the impression that if there are any type of taxes payable, then the said Govt. undertaking will attract their attention towards this facts. However, the said Govt. undertaking did not attract attention of notice and therefore they have not charged the service tax amount from the said Govt. undertaking in their invoices. In December 2007, when noticed by M/s GSFC, they had obtained the registration as well as regularly paid the service tax. Further they have also raised debit notes / various supplementary invoice to M/s G.S.F.C. for payment of service tax amount including interest payable thereon for the earlier period. The payment of said amount was awaited from M/s GSFC however they have paid the whole service tax as demanded immediately on receipt of confirmation for balance service tax amount from GSFC. Accordingly, there exists sufficient reasons for non- payments of said defaulted service tax amount. However on being pointed out by the central excise officer, they have paid the whole amount of service tax even before the issuance of SCN. That the section 76 (1) uses the word “shall pay penalty”. Further the section 80 also provides that the penalty can be waived if the assessee proves that there was reasonable cause for failure. Hence the penalty under section 76 is not automatic and mandatory in nature. As the noticee had paid whole amount of service tax on the instance of central excise officers therefore penalty u/s 76 should not be imposed keeping in view the provision of section 73(3) of the Finance Act, 1994.

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(xix) As there were sufficient causes existing and because of those genuine reasons, the noticee had failed to pay the taxes. Further the prompt payment by noticee also shows his integrity for compliance of provisions of Finance Act, 1994 and rules made thereunder. Even, whole the service tax had been paid well before the issuance of said impugned Show Cause Notice and now also paid huge amount of interest before adjudication, and hence it is a fit case for granting the relief from penalties by applying the provision of section 80 for the full waiver of penalties as mentioned in the said Show Cause Notice u/s 76, 77 and 78 of the finance Act, 1994.

(xx) That lapse, if any, involved in delayed payment of service tax has occurred purely on account of ignorance of law, which has been rectified by them before issuance of the SCN by making payment of the entire amount of Service Tax and also paid interest thereafter and before participating in the adjudication proceedings. Therefore, they are eligible for the amnesty from penal action envisaged in Section 80 of the Finance Act, 1994. The provision of section 80 of the Finance Act, 1994 reads as under:

“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 assessee proves that there was reasonable cause for the said failure”.

Therefore, in view of above submission and as sufficient causes exist for the non-payment / short payment of service tax by the noticee therefore it is requested to kindly grant relief under section 80 as provided for the full waiver of the proposed penalties u/s 76, 77 and 78 of the Finance Act, 1994.

(xxi) When penalties u/s 78 are imposable then the penalty u/s 76 cannot be imposed:

Even otherwise without admitting and without prejudice to the above submission, they submit that the fifth proviso to section 78 provides that if the penalty is payable under this section, then the provision of section 76 will not apply. Accordingly, when the penalties are proposed

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to be imposed u/s 78, then the proposal of imposition of penalty u/s 76 is clearly illegal. Therefore, the said fact also may please be considered while adjudicating the case of noticee.

(xxii) Hence, in view of their above submission, they contend that: -

A. As they had paid whole amount of service tax before issuance of show cause notice therefore the benefit of section 73(3) of the Finance Act, 1994 must be granted under which it was provided that when the assessee had paid the whole amount of service tax and interest then all the proceeding under Finance Act, 1994 are to be concluded.

B. Further it is established that in the present case, willful suppression of facts with intention to evade the service tax is absent therefore penalties under section 78 should not be imposed.

C. The noticee had paid the whole amount of service tax before issuance of show cause notice, therefore by applying the section 73(3), all the proceeding are concluded. Further the penalty under section 76 is not considered as mandatory therefore the penalty under section 76 is also not to be imposed upon the noticee.

D. There were reasonable causes existed for non-payment / short payment of service tax therefore the relief under section 80 must be granted to noticee in respect of non imposition of penalty under section 76, 77 and 78 of the Finance Act, 1994.

E. Even without prejudice to each other and without admitting the facts, it is submitted that as per 5th proviso to the section 78, it was provided that when the penalties are imposable under section 78, the provision of 76 is not applicable in that cases. Therefore if penalty is imposed under section 78, then the penalty under section 76 should not be imposed.

14. Personal hearing in the matter was held on 28.12.2011 and the same was attended by Mr. Haresh T. Davda, the representative of the noticee and submitted the above discussed defence reply dated 22.12.2011 and requested to decide the case based on the same. He stated that the demand alongwith interest has been paid.

DISCUSSION AND FINDINGS:

of 34 OIO No.44/JC/2012 Dated 31.03.2012

15. I have carefully gone through the entire case records, SCN issued and defence put forth in writing as well as contentions raised during the personal hearing. 16. I find that out of total demand of Rs.47,72,378/-, the noticee have paid service tax of Rs.45,59,584/- on 2.7.2010, through various Challans, as tabled below: Table

(Amt. in Rs.) Sl. Date of Service Tax No. Challan paid

1. 2.7.2010 11,88,331/-

2. 2.7.2010 24,28,961/-

3. 2.7.2010 9,42,292/-

TOTAL 45,59,584/-

Therefore, the same is liable to be appropriated against the service tax liability of Rs.47,72,378/-. For the remaining demand of service tax of Rs.2,12,794/-, the noticee have contended that they have already paid the service tax of Rs.6,41,129/- on 9.7.2009 for the period 2008-09 and 2009- 10 (April-June 2009) before audit by the department and added that out of said payment of Rs.6,41,129/-, the amount of Rs.2,19,083/- is related to the period of 2008-09. They have further added that they had received the amount of service charge for the year 2008-09 from M/s GSFC in 2009-10

of 34 OIO No.44/JC/2012 Dated 31.03.2012

and hence they had remitted the same to the Government Treasury on due date after receipt. They have also submitted statement of bills and copy of challan dated 9.7.2009 for payment of service tax of Rs.2,19,083/- for 2008-09 for which payment was received in 2009-10. They have also argued that the audit team has taken the entire amount from balance sheet from 16.05.2005 t 31.03.2010 but has not taken into consideration the service tax amount of Rs.2,19,083/- that has already been paid and hence there is no delay in payment and the payments are reflected in ST-3 returns. From the statement of bills and challan dated 9.7.2009 submitted by the noticee, it is seen that they have already made payment of service tax of Rs.2,19,083/- vide challan dated 9.7.2009, however, the show cause notice has been issued for the entire period. I do not find any reason to deny this adjustment of tax and by taking into consideration the noticee plea, I hold that the service tax payment of Rs.2,19,083/- is required to be appropriated against the remaining service tax liability of Rs.2,12,794/-.

17. It is further observed that the noticee have paid the interest amount of Rs.20,89,491/- for delayed payment of service tax of Rs.45,59,584/-, as tabled below: Table (Amt. in Rs.)

Sl. Date of Service Tax No. Challan paid

1. 18.10.2010 420/-

2. 18.04.2011 1,00,000/- 3. 18.10.2011 6,36,026/- 4. 18.10.2011 10,91,646/- 5. 18.10.2011 2,61,399/- TOTAL 20,89,491/-

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This amount of interest of Rs.20,89,491/- is also required to be appropriated against the demand of interest.

18. Now, the points to be decided in the present proceedings are whether the noticee is liable for imposition of penalty under Section 76, 77 and 78 of the Finance Act, 1994 or otherwise?

19. The noticee have contended that they were not aware about this tax liability and even M/s GSFC has also not informed them that this service has come into the tax net with effect from 16.05.2005 and accordingly they did not raise the bill for service tax for the period since 16.05.2005. They have added that they have neither collected service tax from M/s GSFC nor paid any service tax for this period. They noticee have further added that the liability from16.05.2005 came to their notice only during the period of audit by the department undertaken on 10.09.2009 and they have immediately taken step for recovery from M/s GSFC and to pay the same to Gov- ernment. Therefore, it is wrongly concluded that the audit team or any other authority has found that the noticee have not raised bill and suppressed the service charged amount. They added that when the service re- cipient M/s GSFC accorded approval to them to make payment of the demanded amount of service tax vide their letter dated 1.7.2010 they immediately remitted the due amount to the Government Treasury on 2.7.2010 and all the transactions were through bills only and there was no hidden transaction and even the same is shown and mentioned in noticee’s Bal- ance Sheet which is a public document and available for all the Government Authorities and hence these facts itself show their bonafide belief that they were not aware about any liability for payment of service tax and were under the impression that GSFC will comply with the tax liability if any applicable. The noticee have further added if they had provided the same services to any other company/firm other than GSFC, then in such case the department could have charged that the noticee have suppressed the service tax, however, there were no other service receivers therefore the lia - bility of service tax payment could not come to their notice. They have also contended that they actually came to know its applicability in Decem- ber 2007 only and obtained registration on 3.12.2007 and from that day onward they have started to pay service tax regularly and they had disclosed all the information in their balance sheet, it is not a case of suppres - sion of facts which was detected by the central excise officers because it is

of 34 OIO No.44/JC/2012 Dated 31.03.2012 a case where the differential demand is based on the difference in ledger accounts as well as balance sheet figures with the ST-3 Returns. They have also contended that the balance sheet of the firm is a public document and can be easily traced out by any person of concern and hence, the willful suppression for evasion of tax is absent in their case and accordingly, argued that the provisions of Section 73(3)of the Finance Act, 1994 are clearly applicable to their case and requested to take a lenient view while deciding the case. They have also relied upon various case laws in support of their contention.

20. I find that the liability of service tax of the noticee under the category of service ‘Manpower Recruitment and Supply Agency’ was effective from 16.6.2005. However, they have started to pay the same on the service charges collected from 3.12.2007 onward. The payment of outstanding amount for the period 2005-06 (16.06.2005) to 2008-09 was made by the noticee on 2.7.2010, after being pointed out by the audit party of the department. This clearly shows that the noticee have not paid this outstanding service tax till the audit of their record by department. If their records were not audited by the department, they might have escaped from the payment of such a huge amount of tax. Hence the only conclusion that can be drawn is that their intention was definitively not to disclose their true liability for the period 16.06.2005 to 2008-09. Once the department’s audit detected this non payment the noticee was left with no option but to make payment of this outstanding amount of service tax. The noticee have tried to justify their act as bonafide by emphasizing that they have not suppressed any facts from the department. I am not convinced with the argument of the noticee because if their intention was not to suppress the income generated on account of providing ‘manpower supply service’, they would have suo-moto paid the outstanding amount of service tax for the period 2005-06 to 2007-08 (upto 2.12.2007) immediately after 3.12.2007 i.e. the date when they came to know that the service provided by them was taxable under the category of ‘Manpower Recruitment or Supply Agency’. However, the noticee had not paid the outstanding dues till the audit of their records by Central Excise, Rajkot. They had even not informed the department about their tax liability. If their records were not audited by the department, they certainly would have not paid the same. Hence, this deliberate act clearly proves their malafide intention to suppress the facts from the department to evade payment of service tax. If they had bonafide

of 34 OIO No.44/JC/2012 Dated 31.03.2012 intention that arise because of ignorance of law, they would have paid their outstanding tax liability immediately after knowing their mistake i.e. on 3.12.2007 and would not have waited for auditing of their records which took place during August & September 2009. Therefore, I find that this is a clear case of suppression of facts as the noticee have deliberately suppressed the actual facts from the department with a willful intention to evade payment of service tax for the period under dispute.

21. The noticee plea, that due to ignorance of law, the delay in payment of tax had occurred as they were under the impression that M/s GSFC being a Government undertaking will comply with every law applicable to them as well and also ensure that the service provider should also issue the proper bill with service tax charged thereon, is not convincing to me as it is a well settled principle that ignorance of law is no excuse. The noticee is a well organized partnership firm and it is the sole responsibility of the noticee to comply with all the law and procedure when they entered into a contract with any other agency/company irrespective of whether it is a government organization or any other private firm/company. The noticee cannot take shelter of ignorance by holding that they have provided their services to a government undertaking and it is the duty of the government undertaking to ensure the noticee is correctly issuing the bills and abiding by all the law and procedure.

22. The noticee have also argued that they had paid the whole service tax demand of Rs.47.72 lakhs on their own before even issuance of show cause notice, hence this proves that default did not arise on account of fraud, collusion, willful misstatement, suppression of facts or other contravention with intent to evade the tax payments. Accordingly, they have contended that the provisions of Section 73(3) of the Finance Act, 1994 are clearly applicable to their case and requested to take a lenient view while deciding the case. To appreciate the issue better, I produce below Section 73 of the Finance Act, 1994:

” SECTION [73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. — (1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, [Central Excise Officer] may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such

of 34 OIO No.44/JC/2012 Dated 31.03.2012 tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that 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 of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “one year”, the words “five years” had been substituted.

Explanation. — Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years, as the case may be.

[(1A) * * * * ]

(2) The [Central Excise Officer] shall, after considering the repre- sentation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined :

* ] * * * [ *

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the [Central Excise Offi- cer] of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :

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Provided that the [Central Excise Officer] may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the [Central Excise Officer] shall proceed to recover such amount in the manner specified in this section, and the period of “one year” referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation.[1] — For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the [Central Excise Officer], but for this sub- section.

[Explanation 2. — For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon.]

(4) Nothing contained in sub-section (3) shall apply to a case 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 of the rules made thereunder with intent to evade payment of service tax.

[(4A) Notwithstanding anything contained in sub-sections (3) and (4), where during the course of any audit, investigation or verification, it is found that any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, but the true and complete details of transactions are available in the specified records, the person chargeable to service tax or to whom erroneous refund has been made, may pay the service tax in full or in part, as he may accept to be the amount of tax chargeable or erroneously refunded along with interest payable thereon under section 75 and penalty equal to one per cent. of such tax, for each month, for the period during which the default continues, up to a maximum of twenty-five per cent. of the tax amount, before service of notice on him and inform the Cen- tral Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under sub-section (1) in respect of the amount so paid and proceedings in respect of the said amount of service tax shall be deemed to have been concluded :

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Provided that the Central Excise Officer may determine the amount of service tax, if any, due from such person, which in his opinion re- mains to be paid by such person and shall proceed to recover such amount in the manner specified in sub-section (1).

Explanation. — For the purposes of this sub-section and section 78, “specified records” means records including computerised data as are required to be maintained by an assessee 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 account shall be considered as the specified records.”

Section 73(3) of the Finance Act, 1994 stipulates that the cases where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid. Further, the explanation (2) to the Section 73(3) of the Finance Act, 1994 explains that for the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. The plain reading of Section 73(3) of the Finance Act, 1994 with it explanation clarifies that penalty would not to be imposed on such cases where any service tax has not been levied or paid or has been short levied or short paid under sub-section 1 of the Section 73 of the Finance Act, 1994. This section however does not include a case where any service tax has not been levied or paid or has been short levied or short paid by reason of 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. Since, as discussed in para supra, the noticee have not paid service tax of Rs.47.72 lakhs by way of suppressing the facts from the department with an intent to evade the payment of service tax, hence their case is not covered under Section 73(3) of the Finance Act, 1994 and penalty cannot be waived on this count. On the alternate, I find that their case is fit to be covered under Section 73(4) of

of 34 OIO No.44/JC/2012 Dated 31.03.2012 the Finance Act, 1994 as this sub-section clearly states that nothing contained in sub-section 73 (3) shall apply to a case where any service tax has not been levied or paid or has been short levied or short paid by reason of fraud, or collusion, or willful mis-statement 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. Since, this is a clear case of suppression of facts as the noticee have deliberately suppressed the actual facts from the department with a willful intention to evade payment of service tax for the period under dispute, their case is covered under Section 73(4) of the Finance Act, 1994 and as such they are liable for penal action under Section 76, 77 and 78 of the Finance Act, 1994. Therefore, the argument of the noticee that the benefit of Section 73(3) of the Finance Act, 1994 is applicable to their case is set aside.

23. The noticee have further argued that they had disclosed all the information in their balance sheet and that the profit and loss account of theirs stated and represented the nature of income earned by him. Therefore, they have added that it is not a case of suppression of facts which was detected by the central excise officers but it is a case where the differential demand is based on the difference in ledger accounts as well as balance sheet figures with the ST-3 returns of the noticee. They have also argued that if there existed any suppression of facts, the said fact would have never been reflected in the balance sheet and accordingly no difference in value could have been detected. They have relied upon the decision of Tribunal in the case of M/s Rama Paper Limited Vs CCE, Meerut reported at 2011 (22) S.T.R. 19 (Tri. - Del.), in the case of the Majestic Mobikes Vs CCE 2008 (11) STR 609 [TRI-BANG] and in the case of M/s ROLEX LOGISTICS PVT. LTD Vs CST, Banglore reported at 2009 (13) STR 147 (Tri. Bang),and submitted that in the case of noticee the demand was raised on the basis of balance sheet figures and hence it is not a case of willful suppression. They also have relied upon the decision of Tribunal in the case of M/s Veerabhadreshwara Transport Vs CCE, Belgaum reported at 2010 (18) S.T.R. 621 (Tri. - Bang.) and contended that in their case, they committed the default by genuine ignorance of law and therefore the cited case is squarely applicable to their case and penalties are not to be imposed. The ST 3 return is a statutory document under Finance Act, 1994 and the Balance Sheet as well as Profit & Loss Account are statutory documents under Companies Act, 1956. Therefore, when the public documents bring the

of 34 OIO No.44/JC/2012 Dated 31.03.2012 discrepancy, the onus of proof was on the assessee to come out with clean hand to prove their stand. Further, as discussed in foregoing paras, one of the element like suppression, which is essential ingredient in Section 73 is present in the present case. Therefore, I hold that the proceeding is well within time and as such all these aspects make the noticee liable for imposition of penalty and no concession in respect of waiver of penalty can be granted to the noticee. I find that Hon’ble Tribunal in the case of IDEAL SECURITY Verses Commissioner of C. Ex. Allahabad as reported at 2011(23) STR 66(Tri-Del) while dealing on a similar issue has taken a similar stand. The relevant para of the said judgement is reproduce below:

“8. So far as the contention of the appellant in respect of time bar issue and also adjudication under Section 73 is concerned, the appellate authority dealt with the issue in para 10 and he found that one of the element like suppression, which is essential ingredient in Section 73 is present. Therefore, he held that the proceeding was well within time. When he found all these aspects, he made the appellant liable to pay penalty also. He did not give any concession in respect of penalty .

9. We do agree with the ld. Appellate Authority in the matter of the discrepancy noticed by him in respect of the considerations received and appearing in different manner in two different statutory documents. While the ST 3 return was statutory document under Finance Act, 1994, the balance-sheet and profit and loss account were statutory documents under Companies Act, 1956. Therefore, when the public documents bring the discrepancy, the onus of proof was on the assessee to come out with clean hand to prove its stand. When we did not find any merit on the part of appellant, we agree with ld. appellate authority that invoking Section 73 is appropriate. So far as the valua- tion aspect is concerned, whether the statutory dues which form part of gross value of the service shall be included or excluded is not a prescription of law.”

{Emphasis supplied} 24. I further find that the noticee have also relied upon the decision of Tribunal in the case of CST, New Delhi Vs Independent News Services P. Ltd reported at 2011 (23) S.T.R. 23 (Tri. - Del.) wherein the Tribunal has held that when the whole service tax is paid along with interest payable before issuance of show cause notice then it will amount to conclusion of all the proceeding under Finance Act, 1994. The noticee have stated that in their case also they have paid whole of the service tax amount along with interest therefore the proceeding may be concluded relying on the CESTAT decision. I find that the noticee reliance on the above tribunal order is misplaced as the same is not applicable to their case. In the above cited case the Hon’ble

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Tribunal has clearly held that when the whole service tax is paid alongwith interest payable before issuance of the show cause notice then it will be amount to conclusion of all the proceeding under the Finance Act, 1994. However, in the case on hand, though the noticee have paid service tax amount on 2.7.2010 i.e. before issuance of show cause notice dated 22.09.2010, they have not paid interest prior to issuance of the show cause notice. They have paid interest amount of Rs.20,89,071/- on 18.04.2011 and on 18.10.2011 i.e. after the date of issuance of show cause notice. Hence, the facts of both the cases are altogether different and the case law cited by the noticee is inapplicable to the present case.

25. The noticee have also relied on the decision of Hon’ble High Court of Karnataka as reported in 2011-TIOL-635-HC-KAR-ST wherein the Hon’ble Court has held that

“It is high time , the authorities will change their attitude towards these

tax payers, understanding the object with which this enactment is passed

and also keeping mind the expressed provisions as contained in sub-

section 3 of Section 73. The parliament has expressly stated that

against persons who have paid tax with interest, no notice shall be

served. If notices are issued contrary to the said section, the person to

be punished is the person who has issued notice and not the person to

whom it is issued. We take that, in ignorance of law, the authorities are

indulging in this extravaganza and wasting their precious time and also

the time of the tribunal and this court. It is the high time that the

authorities shall issue appropriate directions to see that such tax payers

are not harassed. If such instances are noticed by this court hereafter,

certainly it will be a case for proper action against those law breakers.” [Emphasis supplied]

In the abovementioned judgment, the Hon’ble High Court of Karnataka has clearly held that no show cause notice shall be served if service tax with interest has been paid by the person. However, in the case on hand, as discussed in foregoing paras, the noticee have not paid interest amount prior to issuance of show cause notices, hence, I find that this judgment of Hon’ble High Court is not applicable to the noticee’s present case. Moreover

of 34 OIO No.44/JC/2012 Dated 31.03.2012 as already discussed this case fits in the category as stated in Section 73(4) of the Finance Act, 1994.

26. The noticee have further contended that the lapses, if any, involved in delay payment of service tax has occurred purely on account of ignorance of law, which has been rectified by them before issuance of the SCN and payment of the entire amount of service tax and interest thereafter and before participating in the adjudication proceedings and accordingly requested they are eligible for amnesty from penal action envisaged in Section 80 of the Finance Act, 1994. They have contended that sufficient causes exist for the non-payment / short payment of service tax by them and therefore requested for granting relief under Section 80 as provided for full waiver of the proposed penalty under Section 76, 77 and 78 of the Finance Act, 1994. To appreciate the issue better, I reproduce Section 80 of the Finance Act, 1994:

“ SECTION 80. Penalty not to be imposed in certain cases. —

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.”

I find that the Section 80 clearly stipulate if the assessee proves that there was reasonable cause for failure of payment of service tax, no penalty under Section 76, 77 and 78 shall be imposable on the assessee for any failure referred to in the said provisions. In the case on hand, the noticee have contended that delayed payment of service tax has occurred purely on account of ignorance of law which has been rectified by them before issuance of show cause notice and by paying interest before participating in the adjudication proceedings, hence requested for granting amnesty from penal action. However, as discussed in foregoing paras, I find that if they had a bonafide intention about non-payment that arose due to ignorance of law, they would have paid the same immediately after knowing their mistake i.e. on 3.12.2007 and would not have waited for auditing of their records which took place during August & September 2009. If the department had not conducted audit of their records in 2009, they would have definitely evaded the service tax of Rs.47,72,378/- for the period 2005-06 to 2008-09. Hence, I do not find any merit in the argument put forth by the noticee and

of 34 OIO No.44/JC/2012 Dated 31.03.2012 accordingly hold that the noticee have not been able to show any reasonable cause for non-payment of service tax within stipulated time and mere plea of ignorance of law cannot be made a base for waiver of proposed penalties under Section 80 of the Finance Act, 1994. Thus the noticee are liable to be penalized under Section 76, 77 and 78 of the Finance Act, 1994.

27. The noticee have relied upon various case laws in support of their above contention. I have checked the applicability of these case laws to the present case on hand and observed that:

(i) The Hon’ble Tribunal while deciding applicability of Section 80 of the Finance Act, 1994 for waiver of penalty under Section 76, 77 and 78 of the Finance Act, 1994 in the case of Gurwinder Kaur verses CCE, Ahmedabad as reported in 2011(24) STR 667(Tri-Ahmedabad) has held that

“the provisions of Section 80 of Finance Act, 1994 are to be applied by looking

at facts and circumstances in each individual case and there cannot be a

uniform set of principles or guidelines. In any case such set of guidelines have

not been framed also till now and nor was such guidelines brought to my notice.

I also find that in the case of A.S. Patel, the fact that assessee was a teacher

and was not a technical person and was teaching himself and paid tax with

interest before issue of show cause notice were the factors considered for the

waiver of penalties under Section 80 of Finance Act, 1994. In this case also it

is a proprietorship firm and the nature of work is of such a nature that ladies

do it on the basis of commission and they may not have big professional

assistance or a proper office etc. Under these circumstances I consider that

this is a fit case for waiver of penalties under Sections 76, 77 & 78 of Finance

Act, 1994.”

However, in the case on hand, the noticee is a partnership firm having a proper setup of business and office etc. They have a big turnover and therefore can have professional assistance also. Hence, their case cannot be equated with the above decision of the Hon’ble Tribunal as the Tribunal itself has held that the provisions of Section 80 of Finance Act, 1994 are to be applied by looking at facts and circumstances in each individual case and there cannot be a uniform set of principles or guidelines. Hence, I hold that the above case law cited by the noticee is not applicable to their case.

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(ii) The Hon’ble Tribunal while deciding applicability of Section 80 of the Finance Act, 1994 for waiver of penalty under Section 76, 77 and 78 of the Finance Act, 1994 in the case of CCE, Allahabad verses Vijay Laxmi as reported in 2009 (13) STR 567(Tri-Del) has held that

“ 3. On perusal of the order of the Commissioner (Appeals), it is seen that the Respondent rented the vehicle to M/s. Northern Coal Fields and they have not collected the service tax from M/s. Northern Coal Fields. It is noted that after receipt of the show cause notice, they have de- posited the entire amount of interest. The Commissioner (Appeals) observed that the Respondent had no mala fide intention in making the late payment of Service Tax. He also observed that they were ignorant about the provisions of Service Tax and even the Company of the stature of M/s. Northern Coal Field did not inform the Respondent about the levy of Service tax. It is noted that the Respondent is a lady entrepreneur acted in bona fide manner.”

In this case, while granting immunity under Section 80 of the Finance Act, 1994, the Hon’ble Tribunal has held that the respondent had no mala fide intention in making the late payment of service tax. Further, it has also been noted by the Tribunal that the respondent is a lady entrepreneur acted in bona fide manner. However, in the present case on hand, as discussed in foregoing paras, the noticee has deliberately suppressed the material facts from the department to evade payment of service tax. This evasion of service tax was detected only when the audit of their records was conducted by department. Hence, the noticee’s act cannot be a bana fide act. If their act was bonfide and they had no intention for evading tax, they should have paid / disclosed the same at the time of obtaining their registration i.e. on 3.12.2007 and they should not have waited for auditing of their records. Hence, their case cannot be equated with the above decision of the Hon’ble Tribunal as the facts of both the case are altogether different from each other. Hence, the said decision of Hon’ble Tribunal as cited by the noticee is not applicable to their case.

(iii) The Hon’ble Tribunal while deciding applicability of Section 80 of the Finance Act, 1994 for waiver of penalty under Section 76, 77 and 78 of the Finance Act, 1994 in the case of CCE, Kanpur verses Pradeep Enterprises as reported in 2009 (16) STR 419(Tri-Del) has held that the proprietor of the respondent firm in response to the summons immdediately appeared and disclosed the entire transactions as recorded in the Bill Book, Bank Statement, etc.. They have also paid the tax with interest prior to issuance of show cause

of 34 OIO No.44/JC/2012 Dated 31.03.2012 notice. The Tribunal after looking into the conduct and facts and circumstances of the case has held that there was a reasonable cause for the said failure and accordingly set aside revenue appeal.

However, I find that the facts of the present case on hand is altogether different from the facts mentioned in above Tribunal Order. In the present case on hand, the noticee has not paid service tax and interest before issuance of show cause notice. In fact the noticee has paid interest amount of Rs.20.89,071/- on 18.10.2011 while show cause notice was issued to them on 22.09.2010. Hence, the case cited by the noticee is misplaced and the same cannot be made applicable to the present case on hand.

(iv) Similarly the Hon’ble Tribunal order passed in the case of M/s K.S. Murali Mohan versus Commissioner of Service Tax, Bangalore as reported at 2011(21) S.T.R. 512 (Tri-Bang.) is also not applicable to the present case as the issues of both the cases are different. In this case cited by the noticee, the Tribunal has held that the issue involved in this case is regarding the payment of service tax on the GTA during the relevant period. The service tax liability on the services was in nascent stage and there was lot of confusion as to who has to discharge the service tax. However, in the present case on hand, there is no confusion regarding applicability and payment of service tax. The ignorance of law on the part of the noticee cannot be made the base for waiver of penalties, hence the said decision of Tribunal aslo cannot be made applicable to the present case.

(v) Similarly, the facts of the case relied upon by the noticee in the case of Veerabhadreshwar Transport vs CCE, Belgaum as reported at 2010 (18) S.T.T. 621 (Tri-Bang.) are different from the present case on hand hence I do not rely upon the said decision.

(vi) The Hon’ble High Court of Judicature at Allahabad while deciding applicability of Section 80 of the Finance Act, 1994 for waiver of penalty under Section 78 of the Finance Act, 1994 in the case of CCE verses Auto World as reported in 2010 (18) STR 5 (All) has held that

“6. We do not find any substance in the argument of learned counsel for the appellant. Having regard to the facts and circumstances as recorded and the findings that the Service tax was introduced for the first time in July, 2003. By the Boards Circular dated 6-11-2006, it has been clarified that the Service tax leviable on a marketing agent of

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I.C.I.C.I. Bank for providing service to authorize customers for pur- chasing vehicles on loan and further that the assessee has partly paid the amount along with the interest in the month of December, 2004 and there was no mala fide on the part of the appellant and further the balance amount has been paid partly before the show cause notice and partly before the adjudication order. We are of the view that Tribunal has rightly held that this is a fit case to invoke Section 80 of the Act.”

As discussed in foregoing paras, the facts of the case on hand are totally different from the facts of the case relied upon by the noticee.

(vii) Similarly, other case laws relied upon by the noticee are also not applicable to their case by one reason or the other on the grounds elaborated for the other case laws, as discussed above, hence I hold that benefit of Section 80 of the Finance Act, 1994, for waiver of penalty under Section 76, 77 and 78 of the Finance Act, 1994, cannot be extended to the noticee because they have not been able to give any reasonable cause for non payment of tax of Rs.47,72,378/- for the period from 2005-06 to 2008-09.

28. Now, as discussed in foregoing paras, the noticee have delayed payment of service tax due, the noticee appears liable to be penalized under section 76 of the Finance Act, 1994. The use of the words, “who fails to pay such tax, shall pay, in addition to such ….… a penalty which shall not be less than two hundred rupees for every day during which such failure continues….” in section 76, ibid indicates that it was an in-built provision in the statute itself for payment of penalty at a specified scale for every day for delay, in addition to the tax and interest, leviable thereon under section 75 of the Finance Act, 1994. The words “shall pay” as used in section 76 of the Finance Act, 1994, in regard to penalty on account of non-payment of tax within the stipulated time indicate that the penalty there under has to be paid mandatorily by the tax payer.

29. Regarding imposition of penalty under Section 77 of the Finance Act, 1994, I find that the noticee have neither registered themselves under category “Manpower Recruitment or Supply Agency Service” at the material time nor filed any ST-3 return for the period under dispute though they are well aware of the provisions of law and for such contraventions penalty under Section 77 of the Finance Act, 1994 is imposable.

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30. Further, the noticee have contended that the fifth proviso to Section 78 provides that if the penalty is payable under this section, then the provision of Section 76 will not apply and hence when the penalties are proposed to be imposed under section 78, then the proposal of imposition of penalty under Section 76 is clearly illegal and accordingly requested to consider this fact while adjudicating their case. In this regard, I find that the show cause notices cover the period from 2005-06 onwards. It is during this period that fifth proviso to Section 78 of Finance Act, 1994 has been added w.e.f. 10.5.2008 through a legislative amendment, providing that if penalty is payable under section 78 ibid, the provisions of Section 76 shall not apply. As already held, in the facts and circumstances of the case, penalty on the noticee is imposable under Section 76 as well as Section 78 of Finance Act, 1994. Now the question is which legal provisions for imposition of penalty on the noticee would apply in the case on hand in the backdrop of the fact that the impugned notice covers the period running from 2005-06 onwards and fifth proviso to Section 78 providing that if penalty is payable under Section 78, the provisions of Section 76 ibid, shall not apply, is added through a legislative amendment mid-way, w.e.f. 10.5.2008. Since amendment to Section 78 by way of insertion of the fifth proviso as aforesaid is not with retrospective effect, the change has to have effect only prospectively. Therefore, Section 76 as well as Section 78 would apply for the period upto 9.5.2008 and w.e.f. 10.5.2008, the provisions of Section 76 ibid, would not apply if penalty is held payable under Section 78, and penalty under Section 78 alone shall be payable by the noticee. As for the case on hand, it is held that penalty is payable by the noticee under Section 76 as well as Section 78 of the Finance Act, 1994 for the period upto 9.5.2008 and with effect from 10.5.2008 only Section 78 of the Finance Act, 1994 be applicable in the facts and circumstances of the case. Therefore the noticee is liable to penalty under section 76 as well as section 78 of the Finance Act, 1994 accordingly.

In this case, since the noticee has failed to pay the tax within the due date as indicated hereinbefore, penalty under Section 76, ibid, is imposable for the period from 2005-06 to 09.05.2008 on the noticee at the rate prescribed therein. Quantification of penalty payable under Section 76 ibid is possible only when the noticee fully discharges the service tax liability alongwith interest due on account of delayed payment of tax. However, as

of 34 OIO No.44/JC/2012 Dated 31.03.2012 specified in Section 76, ibid, penalty payable thereunder shall not exceed the amount of service tax payable for the period from 2005-06 to 09.05.2008.

31. In view of the above discussion, I pass the following order:

(i) I confirm and demand the service tax Rs. 47,72,378/- (Rupees Forty Seven Lakh Seventy Two Thousand Three Hundred Seventy Eight only) from M/s. Jamnadas Ramji, Jamnagar under proviso to Section 73(1) of the Finance Act, 1994. I appropriate an amount of Rs.47,72,378/- paid against the total demand. (ii) I order the noticee M/s. Jamnadas Ramji, Jamnagar, to pay interest on the amount confirmed at Sl. No.(i) above under the provisions of Section 75 of the Finance Act, 1994 at appropriate rate. I appropriate an amount of Rs.20,89,491/- (Rupees Twenty Lakh Eighty Nine Thousand Four Hundred Ninety One Only) paid against the same. (iii) I impose a penalty of Rs.200 per day or two percent per month whichever is higher on M/s. Jamnadas Ramji, Jamnagar, on the service tax due and confirmed for the period from 2005-06 to 9.5.2008 under the provisions of Section 76 of the Finance Act, 1994 starting with the first day after the due date till the date of actual payment of service tax, provided that the total amount of the penalty payable shall not exceed the service tax due and confirmed for the period from 2005-06 to 9.5.2008. (iv) For the service tax due and confirmed for the period from 10.5.2008 onwards, no penalty is imposed under Section 76 of the Finance Act, 1994, as amended, in view of fifth proviso to Section 78 inserted in Section 78 by the Finance Act, 2008 (18 of 2008) dated 10.5.2008. (v) I impose a penalty of Rs. 5000/- on M/s. Jamnadas Ramji, Jamna- gar under the provisions of Section 77 of the Finance Act 1994. (vi) I impose a penalty of Rs. 47,72,378/- (Rupees Forty Seven Lakh Seventy Two Thousand Three Hundred Seventy Eight only) on M/s Jamnadas Ramji, Jamnagar under the provisions of Section 78 of the Finance Act, 1994. If the amount as determined under Sr. No. (i) above is paid within 30 days from the receipt of the order along-

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with the interest payable then as per proviso to Section 78 the penalty will be only 25% of the service tax determined at Sl. No. (i) above. The benefit of reduced penalty shall be available only if the amount of penalty so determined has also been paid within the period of thirty days from the receipt of the order.

(M. GNANASUNDARAM) JOINT COMMISSIONER F. No. V.ST/15-188/Adj./2010

By Regd. Post A/D.

To, M/s. Jamnadas Ramji, 101 & 102, Milestone Building, Pandit Nehru Marg, Jamnagar.

Copy To:

1. The Assistant Commissioner (RRA), Central Excise, Rajkot. 2. The Deputy Commissioner, Service Tax Division, Rajkot. 3. The Deputy Commissioner, Tax Recovery Cell, HQ, Rajkot. 4. The Superintendent, Service Tax Range-Jamnagar. 5. Guard file.