IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

SOUTH ZONAL BENCH AT BANGALORE

Majestic Mobikes Pvt. Ltd. and Ors vs The Commissioner of Service
Tax

CASE NO. :
Appeal No. ST/85/2007 (Arising out of RA No. 29/2007 Dt. 05.03.2007 Passed by the Commissioner of Service Tax,
Bangalore), Appeal No. ST/311/07 (Arising out of RA No. 49/2007 Dt. 23.04.2007 Passed by the Commissioner of
Service Tax, Bangalore), Appeal Nos. ST/215, 216, 217 and 218/2007 (Arising out of RA Nos. 52/2007 Dt. 26.04.2007,
53/2007 Dt. 27.04.2007, 50/2007 Dt. 24.04.2007 and 55/2007 Dt. 01.05.2007 Passed by the Commissioner of Service
Tax, Bangalore), Appeal No. ST/375/2007 (Arising out of RA No. 69/2007 Dt. 03.07.2007 Passed by the Commissioner
of Service Tax, Bangalore), Appeal No. ST/334/2007 (Arising out of RA No. 63/2007 Dt. 06.06.2007 Passed by the
Commissioner of Service Tax, Bangalore), Appeal No. ST/335/2007 (Arising out of RA No. 66/2007 Dt. 11.06.2007
Passed by the Commissioner of Service Tax, Bangalore), Appeal No. ST/162/07 (Arising out of RA No. 28/2007 Dt.
02.03.2007 Passed by the Commissioner of Service Tax, Bangalore), Appeal No. ST/196/07 (Arising out of RA No.
38/2007 Dt. 20.03.2007 Passed by the Commissioner of Service Tax, Bangalore), Appeal No. ST/05/07 (Arising out of
RA No. 61/2006 Dt. 09.10.2006 Passed by the Commissioner of Service Tax, Bangalore), Appeal No. ST/282/07
(Arising out of RA No. 43/2007 Dt. 27.03.2007 Passed by the Commissioner of Service Tax, Bangalore), Appeal No.
ST/126/07 (Arising out of RA No. 13/2007 Dt. 07.02.2007 Passed by the Commissioner of Service Tax, Bangalore),
Appeal No. ST/169/07 (Arising out of RO No. 01/2007 Dt. 29.03.2007 Passed by the Commissioner of Customs and
Central Excise, Visakhapatnam - II), Appeal No. ST/130/07 (Arising out of RA No. 7/2007 Dt. 22.01.2007 Passed by the
Commissioner of Service Tax, Bangalore), Appeal No. ST/168/07 (Arising out of RA. No. 16/2007 Dt. 12.02.2007
Passed by the Commissioner of Service Tax, Bangalore), Appeal No. ST/01/08 (Arising out of Order-in-Appeal No.
38/07(H-II) ST Dt. 28.09.2007 Passed by the Commissioner of Customs and Central Excise, Hyderabad - II), Appeal
Nos. ST/12/08 and ST/383/07 (Arising out of Order-in-Appeal Nos. 85/07-Commr Dt. 22.10.2007 and 57/2007-Commr
Dt. 25.07.2007 Passed by the Commissioner, LTU, Bangalore) and Appeal No. ST/399/07 (Arising out of
Order-in-Appeal No. 34/2007(H-II) ST Dt. 29.08.2007 Passed by the Commissioner of Customs and Central Excise,
Hyderabad - II)

CORAM :
Hon'ble S.L. Peeran, Hon'ble S.L. PeeranT.K. Jayaraman Members

JUDGMENT DATE :
2008-05-30

JUDGMENT :

T.K. Jayaraman, Member (T)

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1. The following cases involving common questions of law and facts were taken up
together for decision. The cases appearing from Serial Nos. 1 to 14 involve
enhancement of penalty by the Commissioner in terms of the revisionary powers
conferred on him by Section 84 of the Finance Act, 1994. The appellants challenged
the enhancement of penalty on various grounds. As regards the cases appearing in
Serial Nos. 15, 16 & 17 the penalties imposed are under challenge on the
ground that the duty has been paid before the issue of Show Cause Notice. The
details of the cases are given in the tabular column below.

Sl. No.

Appeal No.

Name of the Party

Impugned Order No. & Date

Remarks

Advocate/DR

1.

ST/85/07

Majestic Mobikes Pvt. Ltd. v. CST

RA No. 29/2007 Dt: 05.03.2007

It is a case of enhancement of penalty

Shri V. Raghuraman, Adv. Smt. Sudha Koka, SDR

2.

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ST/311/07

Sri Rama Enterprises v. CST

RA No. 49/2007 Dt:

23.04.2007

It is a case of enhancement of penalty

Shri S. Raghu, Adv. Shri Hitesh Shah, SDR

3.

ST/215/07 ST/216/07 ST/217/07 ST/218/07

Sai Motors Prakash Motors, Planet Agencies Pvt. Ltd. Dhruvdesh Honda v. CST

RA No. 52/2007 Dt: 26.04.2007 RA No. 53/2007 Dt: 27.04.2007 RA No. 50/2007 Dt:
24.04.2007 RA No. 55/2007 Dt: 01.05.2007

It is a case of enhancement of penalty

S/Sh. K.S. Ravi Shankar, K.S. Naveen Kumar & Ahok Deshpande, Adv. Sh.
R.P. Raheja, JCDR

4.

ST/375/07

Motor World Ltd. v. CST

RA No. 69/2007 Dt: 03.07.2007

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It is a case of enhancement of penalty

-do-

5.

ST/334/07

Farid Bikes Pvt. Ltd. v. CST

RA No. 63/2007 Dt: 06.06.2007

It is a case of enhancement of penalty

-do-

6.

ST/335/07

Farid Motors Pvt. Ltd. v. CST

RA No. 66/2007 Dt: 11.06.2007

It is a case of enhancement of penalty

-do-

7.

ST/162/07

Shri R.S. Balaji v. CST

RA No. 28/2007 Dt: 02.03.2007

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It is a case of enhancement of penalty

Sh. M.T. Keshava Iyengar, Adv. Smt. Sudha Koka, SDR

8.

ST/196/07

Ambassadar Travel Service v. CST

RA No. 38/2007 Dt: 20.03.2007

It is a case of enhancement of penalty

Sh. Ramesh Ananthan, Adv. Smt. Sudha Koka, SDR

9.

ST/05/07

Engineering Resources Group v. CST

RA No. 61/2006 Dt: 09.10.2006

It is a case of enhancement of penalty.

Sh. Ramesh Ananthan, Adv. Smt. Sudha Koka, SDR

10.

ST/282/07

Infra Violet v. CST

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RA No. 43/2007 Dt: 27.03.2007

It is a case of enhancement of penalty

Sh. Rajesh Kumar T.R., CA Hitesh Shah, SDR

11.

ST/126/07

TAFE Access Ltd. v. CST

RA No. 13/2007 Dt: 07.02.2007

It is a case of enhancement of penalty

Sh. Vijayan, Adv. Smt. Sudha Koka, SDR

12.

ST/169/07

N.C.S. Storage Systems Pvt. Ltd. v. CC&CE, Vizag-II

RO No. 01/2007 Dt: 29.03.2007

It is a case of enhancement of penalty.

Sh. S.V. Ratnam, Adv. Smt. Sudha Koka, SDR

13.

ST/130/07

RNS Motors v. CST

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RA No. 7/2007 Dt: 22.01.2007

It is a case of enhancement of penalty. Argued on merits and on time bar.

Sh. S. Raghu, Adv. Sh. R.P. Raheja, JCDR

14.

ST/168/07

Karnataka Security, Plans v. CST

RA. No. 16/2007 Dt: 12.02.2007

It is a case of enhancement of penalty. Bonafide belief is pleaded

Sh. A.S. Monnappa, Adv. Sh. R.P. Raheja, JCDR

15.

ST/01/08

A.R. Travels v. CC&CE, Hydbd-II

OIA No. 38/07(H-II)ST Dt. 28.09.2007

-Duty paid before the issue of SCN - SDR states that suppression of facts is not
countered. -Counsel states that he is pleading the payment made before issue of
SCN

Sh. G. Natarajan, Adv. Sh. Hitesh Shah, SDR

16.

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ST/12/08 & ST/383/07

Adecco Flexione Workforce Solutions Ltd. & Adecco Flexione India Ltd. v.
Commissioner, LTU

OIO No. 85/07- Commr Dt: 22.10.2007 OIO No. 57/2007- Commr Dt: 25.07.2007

OIO by Commissioner. Duty paid before issue of SCN. SDR files parawise
comments

Sh. G. Natarajan, Adv. & K.S. Ramesh, Consultant Smt. Sudha Koka, SDR

17.

ST/399/07

Marshal Security v. CC&CE, Hydbd-II

OIA No. 34/2007(H-II) ST Dt. 29.08.2007

- C(A)''''s Order - Duty paid before issue of SCN. - SDR states that the aspect
pertaining to suppression of facts has not been countered. - Counsel states that he
is pleading that payment of Tax has been done before the issue of SCN

Sh. G. Natarajan, Adv. Sh. Hitesh Shah, SDR

2. We heard the learned Counsels/Chartered Accountants who appeared on behalf of

the appellants. We also heard the Departmental Representatives. The facts of the
case in each appeal are briefly given in serially.

Majestic Mobikes Pvt. Ltd. v. CST, Bangalore

3. In this case, the appellant voluntarily came forward with a plea that due to

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ignorance they did not discharge the service tax liability under the category of
"Business Auxiliary Services." The Original Authority has given a finding that the
appellant has discharged the service tax liability of Rs. 6,68,945/- for the period from
01.07.2003 to 31.01.2005 along with interest of Rs. 63,496/- immediately without
protest when the officers pointed out the lapse. Invoking the powers under Section 80
of the Finance Act, the Original Authority did not impose any penalty under Section 76
and 77 of the Finance Act. However, under Section 78 he imposed a penalty of Rs.
10,000/- only. The order of the Original Authority is dated 30.03.2005. The date of
Show Cause Notice is also 30.03.2005. The service tax payment had been made on
19.03.2005. Thus, it is seen that the service tax has been paid before the issue of
Show Cause Notice. In terms of the powers conferred under Section 84 of the
Finance Act, the Commissioner Service Tax initiated revisionary proceeding on the
ground that the Original Authority arbitrarily invoked Section 80 to drop penalties
under Section 76 & 77 despite the fact that the assessee did not show any
reasonable cause for their failure to comply with the provisions. The Commissioner
has given a finding that the assessee admittedly paid the amount after almost two
years. He is of the view that penalties ought to have been imposed under Section 76,
77 & 78 of the Finance Act. He also held that the amount of Rs. 10,000/- as
penalty imposed under Section 78 is not in accordance with the law, because the
penalty under Section 78 at the minimum should be the amount equal to the service
tax evaded. In the present case, the service tax is not paid is Rs. 6,68,945/-.
Therefore, the Commissioner has given a finding that the maximum penalty can be
twice that amount, which is equal to Rs. 13,37,890/-. After giving such a finding, he
imposed Rs. 10,00,000/- as penalty under Section 78. Under Section 76 he imposed
Rs. 100/- per day. Further, under Section 77, he imposed a penalty of Rs. 1000/-.
Thus, the impugned order dated 05.03.2007 was passed by the Commissioner. The
impugned order is strongly challenged by the appellant.

Sri Rama Enterprises v. CST

4. In this case, the short payment of Service Tax is for the period from 01.10.2001 to
31.08.2004. The Show Cause Notice was issued on 18.04.2005. The short payment
along with interest was paid before the issue of Show Cause Notice. The Original
Authority imposed a nominal penalty of Rs. 2000/- under Section 78. However, he
dropped the penalties under Section 76 & 77. In this case the appellant is a lady

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running security service. She has pleaded ignorance of the legal provisions.
Moreover, she has stated that the service tax had not been collected from her clients.
The Original Authority passed the Order-in-Original dated 03.05.2005. The
Commissioner Service Tax initiated revision proceeding and imposed the following
penalties.

a) A penalty of Rs. 200/- per day was imposed under Section 76.

b) A penalty of Rs. 1000/- was imposed under Section 77.

c) The Commissioner in his impugned order dated 23.04.2000 enhanced the penalty
of Rs. 2000/- imposed under Section 78 to Rs. 59,000/-.

Sai Motors, Prakash Motors, Planet Agencies Pvt. Ltd. & Dhruvdesh Honda v.
CST

5. In all the above mentioned cases, the Original Authority dropped the penal action
under Section 76 & 77 as the appellants paid the service tax before the issue of
Show Cause Notice. He limited the penalty under Section 78 to Rs. 4000/-, 8000/-,
6000/- & 8000/- respectively in the above mentioned cases. The Revisionary
Authority in the impugned Orders - in - Revision, apart from imposing penalties under
Section 76 & 77 enhanced the penalties under Section 78 in the following
manner:

a) Penalty of Rs. 4000/- enhanced to Rs. 4,01,500/- b) Penalty of Rs. 8000/-

enhanced to Rs. 6,38,700/- c) Penalty of Rs. 6000/- enhanced to Rs. 4,65,000/- d)
Penalty of Rs. 8000/- enhanced to Rs. 6,83,800/-

5.1. All the four-revision orders are under challenge on various grounds.

Motor World Ltd. v. CST, Bangalore

6. This is similar to the earlier cases. In this case also, the service tax was paid before
the issue of Show Cause Notice along with the interest in the Order in Revision apart
from imposition of penalties under Section 76 & 77. The penalty under Section

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78 was enhanced from Rs. 20,000/- to Rs. 4,35,000/-. The impugned order in
Revision is under serious challenge.

Further, all the appeals from Serial Nos. 5 to 14 are similar to the above-mentioned
cases.

The Submission of the Counsels

7. The learned Advocates made their submissions. They relied on various case laws.
They brought to our notice several decisions of the judicial fora wherein it has been
held that when the duty is paid before the issue of Show Cause Notice, penalty
cannot be levied. The learned Departmental Representative countered this point by
inviting out attention to several contra-decisions. Reference was invited to the
decision of the Rashtriya Ispat Nigam Ltd. v. Commissioner of Central Excise,
Visakhapatnam It was urged that the above decision was upheld by the Supreme
Court 2004 (163) ELT A53 (SC). The decision of the Hon''''ble High Court of
Karnataka in the case of Commissioner of Central Excise, Mangalore v. Sri Krishna
Pipe Industries (Karnataka) was also cited. The learned SDR relied on the following
decisions, which are in favour of the Revenue.

a. CCE & STC, Bangalore v. First Flight Couriers Ltd. 2007 (8) S.T.R. 225 (Kar.)

b. CCE, Delhi - IV v. Ilpea Paramount Pvt. Ltd. 2007(213) E.L.T. 500 (Tri.-LB)

c. CCE, Delhi - III v. Machino Montell (I) Ltd.

d. Sai Machine Tools Pvt. Ltd. v. CCE & C, Indore 2006 (203) E.L.T. 15 (M.P.)

e. CCE & C, Aurangabad v. Padmashri V.V. Patil S.S.K. Ltd. (Bom.)

f. CCE, Meerut - I v. Parmarth Steel & Alloys (P) Ltd. 2007 (209) E.L.T. 200 (Tri.
- Del.)

g. Krishnaram Dyeing & Finishing Works v. CCE & C, Surat

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h. Pink City Communications v. CST, Delhi - III 2007 (7) S.T.R. 698 (Tri. - Del.)

i. CCE, Indore v. Deepak Spinners Ltd.

j. Pratibha Processors v. Union of India

k. Insurance & Provident Fund Department v. CCE, Jaipur - I

l. CCE, Mumbai v. Jas One Securities 2006 (2) S.T.R. 80 (Tri. - Mumbai)

m. ACME (India) Marketing & Services Pvt. Ltd. v. CCE, Chennai 2006 (3)
S.T.R. 700 (Tri. - Chennai)

n. The Union of India v. Kennametal Widia India Ltd. 2008-TIOL-169-HC-KAR-CX

o. CCE, Ludhiana v. Omkar Steel Tubes (P) Ltd.

p. CCE & C, Aurangabad v. Bageshwari Sahakari Sakhar Karkhana Ltd. 2008

(222) E.L.T. 204 (Bom.)

q. Larson & Toubro v. CCE, Mumbai - II

r. CCE, Delhi v. Toshi Auto Industries Pvt. Ltd.

s. CCE & C, Daman v. Goldstar Metal Ltd. 2007 (219) E.L.T. 476 (Tri. Ahmd.)

t. CCE, Jalandhar v. Jai Udyog Trading Corporation 2007 (219) E.L.T. 1003 (Tri. -
Del.)

7.1. On the other hand, it was submitted by the learned Counsels that in all the
above-mentioned cases the Adjudicating Authority in exercise of the powers
conferred on him under Section 80 of the Finance Act, waived the penalties under
Section 76 & 77. However, he reduced the penalty under Section 78 considering
the fact that in all the above-mentioned cases, the service tax along with interest has

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been paid much before the issue of Show Cause Notice. It was strongly urged that
the Adjudicating Authorities who had passed the order in original exercise their
discretion under Section 80 and the commissioner had no jurisdiction to question the
manner of exercise of discretion and interfere in such exercise of discretion more so
when the Orders - in - Original cite the provisions of Section 80 stating that there was
reasonable cause not to impose high penalty. The following cases were relied on:

a. Commissioner of Central Excise v. Sunita Shetty wherein it was held that the
Commissioner was not justified in reviewing the order passed by the Deputy
Commission as he had exercised his discretion under Section 80 of the Act.

b. Smitha Shetty v. Commissioner of Central Excise, Bangalore wherein it was held

that discretion to impose penalty to be exercised judicially after considering the
relevant circumstances. Even if a minimum penalty is prescribed, the competent
authority will be justified in refusing to impose penalty, when there is a technical or
judicial breach of the provisions of the Act or where the breach flows from a bona fide
belief that the offender not liable to act in the manner prescribed by the statute under
Section 11AC of the Central Excise Act, 1944.

c. The High Court of Karnataka followed the above decision in the case of
Commissioner of Central Excise v. Royal Agencies in order dated 26.02.2008 in CEA
No. 4/2000.

d. Commissioner of Central Excise and Customs v. Ashis Patil 2008 (10) STR 5
(DOM) wherein the Bombay High Court ruled that no question of law would arise once
discretion is exercised and reasons are recorded for reducing penalty.

e. CST v. Lark Chemicals 2008 (9) STR 230 (DOM) wherein it was held that Section
76 is subject to Section 80 and there is discretion to reduce the penalty.

f. Commissioner of Central Excise And Customs v. Security services 2008 (9) STR
529 (Bom.) wherein it was held considering Section 76 read Section 80, once the
discretion had been exercised by the officer and no arbitrariness is pointed out the
Court will not interfere.

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g. There was reasonable cause for waiver of penalties in view of a specific finding of
fact recorded by the Adjudicators.

h. Section 80 of the Finance Act is pari-materia with the provisions of Section 273B of
the Income Tax Act 1961 which confers powers to the Assessing Officer to reduce or
waive penalties when there is reasonable cause for failure. The appellants have cited
case law and enclose the same along with the text of the provisions wherein the
expression reasonable cause has been interpreted by the course which ratio is
equally applicable in the context of Service Tax Law.

i. The decision of the Karnataka High Court in Sunita Shetty''''s case has attained
finality as the Department did not challenge the same before a higher forum. Hence,
the Department cannot take a different view and revise the penalty imposed by the
Adjudicator by employing Section 84 in other cases or take decisions contrary to the
said judgment. Reliance was placed on the following Apex Court''''s decision.

(i) UOI v. Sathish A. Shah wherein it was held that it was not open to the Revenue to
accept the earlier judgment in the case of one assessee and challenge its correctness
without just cause in the case of other assesses.

(ii) Commissioner of Central Excise v. Shivasagar wherein it was held that

Departmental appeals against high court decision for subsequent year was dismissed
on the ground that no appeals were filed by the department before the Supreme Court
for earlier hearing.

(iii) Jayaswal Neco Ltd. v. Commissioner of Central Excise 2006 (73) RLT 230 (SC)
wherein it was held that department having accepted the principle laid down in the
earlier case cannot be permitted to take a different stand.

(iv) The penalty imposed should be commensurate with the gravity of the offence. The
Revisionary Authority has imposed penalties disproportionate to the tax amounts
involved.

(v) The Revisionary Authority has changed the very character of the proceeding of
Revision into a review. The respondent has ignored the difference between the

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revision and review. Respondent has no power of review in terms of Section 84 of the
Act and hence, the impugned orders are bad in law.

(vi) It was submitted that in terms of Section 83A of the Finance Act, the penalty has
to be adjudged by the Central Excise Officers conferred with such power by the
Board. Once a Central Excise Officers (Adjudicating Authority) decides the issue
relating to imposition of penalty. The same cannot be questioned under Section 84 of
the Act by exercising revisionery jurisdiction.

(vii) In terms of Board''''s Circular No. 87/05/2008 - ST dated 6.11.2006 it was clarified
by the Board that commission received by the Automobile dealers from financial
institutions / bank in respect of certain services are taxable. The appellants paid the
taxes much before the said circular and the circular itself has decided that there were
certain doubts in respect of activities undertaken by authorized motor vehicle dealers
and service stations. Since there were genuine doubts in the industry, no malafides
could be attributed to the appellants and hence, the enhancement of penalties in a
haphazard and arbitrary manner is legally untenable.

(viii) Section 80 has a non-obstante clause and commences with the word
notwithstanding and therefore gives wide discretion in the matter relating to
non-imposition of penalty. In the present cases, penalties were actually imposed and
the Original Authority need not actually have imposed them at all. This factor has
been ignored by the respondent who has enhanced the penalties by outrageous
multipliers.

(ix) Our attention was also invited to Section 73(3) of the Finance Act, and also a
Board''''s Circular based on the above provisions. The Circular and Section 73(3)
provides that if the assessee cleared the service tax due along with interest on his
own and even on the insistence of the Departmental Authority, then no penalty
proceedings can be taken against him.

(x) In the case of Appeal No. ST/05/2007 of M/s. Engineering Resources Group, there
was only delay in remitting the service tax. However, before the issue of Show Cause
Notice, the appellant remitted the service tax along with interest. The lower authority
waived the penalties under Section 76 & 77. But the Revisionary Authority

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imposed penalties under the above Sections. The learned Advocate Sri Ramesh
Ananthan invited our attention to the observations of the Tribunal in the case of
Commissioner of Central Excise, Bhopal v. Bhojpur Club 2006 (3) S.T.R. 512 (Tri. -
Del.), wherein the Tribunal has upheld the Commissioner Appeal''''s Order to the
effect, ''''When the assesses who did no at all comply with the Service Tax Law can
be given immunity provided they pay the Service Tax along with appropriate rate of
interest, there is no tangible and logical reason as to why the law abiding assessee
who had got himself registered more or less in time and had also started paying the
Service Tax along with interest, much before the new scheme became operational,
should be denied the benefit of waiver of the penal provisions referred to above for
late registration, delay in filing of relevant returns etc, all of which are procedural in
nature''''.

(xi) In respect of Appeal No. St/282/2007 of M/s. Infra Violet, it was stated that the
appellant was engaged in conducting various programs for clients in arranging
conferences, day outs, annual days, parties, competitions, launches and promotions
of products etc. Most of the activities are subcontracted. There was some confusion
and on some bills service tax was not charged. Even when the service tax was
charged, the customer did not pay. When the Department pointed out the lapse, the
appellant borrowed funds and paid the service tax to the tune of Rs. 3,75,000/- during
investigation. There was an assurance from the Department that further proceedings
will drop if the amount is paid immediately. Our attention was also invited to Section
73(3). The Revisionary Authority imposed penalties under Section 75A, 76, 77, &
78 of the Finance Act, even though the Original Authority waived all the penalties
under Section 80 of the Finance Act.

(xii) In respect of Appeal No. ST/126/2007, the appellant was under bona fide belief
that they were not liable to service tax for the commission received by them.
However, once they came to know that they had to pay service tax as advised by their
auditors, they registered under the category of "Business Auxiliary Service" on
29.10.2004. Then, they obtained adequate confirmation from legal consultants and
paid the tax along with interest on 10.02.2005 voluntarily. Therefore, the
enhancement of penalty by the Revisionary Authority is not at all justified.

(xiii) In respect of ST/169/2007 of M/s. NCS Storage System Pvt. Ltd., there was

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failure to pay the service tax and also to file the half yearly return. The Service Tax of
Rs. 1,51,011/- was paid after the issue of show cause notice but before the
adjudication. The Adjudicating Authority imposed penalty of Rs. 1000/- under Section
77 for non-filing of returns and dropped proceedings with regard to penalties under
Section 76 & 78. The Revisionary Authority has held that the Adjudicating
Authority''''s decision not to impose penalties under Section 76 & 78 is without
any basis. Therefore, in the Order - in - Revision, he imposed penalty of Rs. 100/-
under Section 76 & Rs. 1,51,011/- under Section 78.

(xiv) In respect of Appeal No. ST/130/2007 of M/s. RNS Motors, the learned Advocate
argued on merits as against time bar. The appellants received a communication from
Maruti Udyog Ltd. that they will be paying service tax in respect of amounts received
and hence the appellant entertained a bona fide belief that they are not liable for
service tax in respect of commission received by them. When the appellant came to
know that no service tax was paid under the category of Business Auxiliary Services,
they immediately paid the amount from 1.7.2003 on 10.03.2005. The appellants
received the show cause notice on 16.03.2005. The Original Authority in exercise of
the powers under Section 80, dropped the penalties under Section 76, 77 & 78.
The Revisionary Authority imposed penalty of Rs. 200/- per every day under Section
76. Rs. 1000/- under Section 77 and Rs. 9,00,000/- under 78. The decision of the
Tribunal in the case of Silicon Honda 2007 (7) STR 475 (Bang.) was relied on. In that
case, it was held that mere providing of space by the appellant for monetary
consideration cannot be brought under the definition of Business Auxiliary Service.
Therefore, even on merits, the demand is not sustainable and levy of penalty is not
justified. Moreover, when the service tax amount with interest is paid before the issue
of show cause notice, Section 73(3) of Finance Act, 1994 itself provides for non-issue
of Show Cause Notice and, therefore, the question of imposition of penalty does not
arise. The period of demand is from 1.7.2003 to 31.03.2005. The date of Show Cause
Notice under Section 84 is 19.07.2006. As there was a bona fide belief by the
appellant, it was urged that extended period cannot be invoked.

(xv) In respect of Appeal No. ST/168/2007 of M/s. Karnataka Security Plans, bona
fide belief was pleaded. The Security agency service during the period in question
was a new levy. Therefore, the trade including the appellant was not aware of the
liability to pay service tax on the said service. When the appellant came to know that

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service tax was payable on the said service, the appellant had obtained a Registration
Certificate from the Department and had started paying service tax from April 2002,
onwards. The Board in its Circular dated 23.09.2004, operative up to 30.10.2004, had
introduced a voluntary disclosure scheme in respect of assesses who had hot at all
complied with the provisions of the Service Tax Law and had waived penalties under
Sections 75A, 76, 77 etc, of the Finance Act, 1994 if the assessee had complied with
the provisions of the said Act before the deadline. The appellant complied with the
provisions of the said Act much before an introduction of the said amnesty scheme.
The appellant also had doubts regarding the value to be taken for purposes of service
tax. There was some doubt with regard to the salaries of the security personnel and
their ESI and EPF in the computation of service tax. In fact there was a clarification
from the Board that service tax was payable on the gross amount billed, as
communicated in Madurai Commissionerate Trade Notice dated 13.10.2002.
Therefore, the appellant had proved there was reasonable cause for failure to pay the
service tax in time. This has not been appreciated by the Revisionary Authority.

8. The bunch of appeals mentioned in the tabular column in Serial Nos. 15 & 17
have been passed by the Commissioner (Appeals). In these cases, the contention of
the appellant is that they had paid the duty before the issue of Show Cause Notice.
Therefore, they had prayed for setting aside the penalties imposed. In respect of the
appeals in Serial No. 16, the impugned orders have been passed by the
Commissioner as Original Authority. According to the Commissioner, there is no
suppression of facts to evade payment of duty. In view of the above finding there is
request for setting aside the penalties imposed. We shall consider the points raised in
the course of our findings.

9. The learned Joint CDR stated that the appellants had stated various case laws
from the Central Excise. According to him, the ratio of the case laws relating to
Central Excise does not apply for Service Tax matters. It was also argued that
Section 84 enables Revisionary Authority for making good the lacunas in the order
passed by the lower authority. It was urged that the case law cited by the appellant in
the Sai Motor''''s case at serial No. 1 namely Smt. Kuntesh Gupta v. Management of
Hindu Kanya Mahavidyalaya is not applicable because the Revisionary Authority has
the power to pass appropriate order under Section 84. Reliance was placed on the
decision of the High Court of Karnataka in the case of M/s. First Flight Couriers Pvt.

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Ltd. in CEA No. 19/2005 with respect to Departmental appeal against CESTAT''''s
Final Order No. 1859/2004 dated 19.11.2004 wherein it had been held that reduction
of penalty cannot be arbitrarily ordered. The case law CIT v. Dr. Suresh G. Shah 2007
(289) ITR 110 (Guj.) was relied on. Wherein it was held that where assessing officer
failed to initiate penalty proceedings, such omission cannot be made good by
Commissioner acting under Section 263 of the IT Law which is in pari-materia with
Section 84 of the Finance Act. The above case law relates to Income Tax. The facts
being different, the ratio of the said case cannot be made applicable to service tax
provisions. In the present case, the original Show Cause Notice had invoked
extended period of demand in view of the suppression of facts with intent to evade
payment of service tax which was overlooked by the lower authority while exercising
discretion under Section 80 of the Act. Smitha Shetty''''s case relied on by the
appellant relates to imposition of penalty under Section 76 of the Act and not
imposition of penalty under Section 78 of the Act.

10. We have gone through the records of the cases carefully. In the cases mentioned
in Serial Nos. 1 to 14, the Original Authority in exercise of the powers listed in hearing
under Section 80 of the Finance Act, 1994 has set aside the penalties under Section
76 & 77 of the Finance Act and imposed a nominal penalty under Section 78.
But, the Revisionary Authority felt that when the appellants had not proved sufficient
cause for waiver of penalties, the Original Authority could not have set aside the
penalties. Moreover, according to the Revisionary Authority, when the suppression of
facts has been established, the penalty under Section 78 could go to a maximum of
twice the service tax sought to be evaded. Taking this view, in all the cases, he had
imposed penalties under Section 78 to amounts more than the service tax. All these
orders are under serious challenge. Several case laws have been cited both by the
appellants and the Revenue. The facts of each case have to be examined before
deciding on the correctness and legality of the impugned orders.

11. Section 76 of the Finance Act provides for penalty for failure to collect or pay
service tax. Section 77 provides for penalty for failure to furnish prescribed return.
Section 78 is for the imposition of penalty for suppressing value of taxable services.
Section 80 of the Finance Act reads as follows:

Penalty not to be imposed in certain cases. - Notwithstanding anything contained in

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the provisions of Section 76, Section 77, Section 78 or Section 79, no penalty shall be
imposable on the assessee for any failure referred to in said provisions if the
assessee proves that there was reasonable cause for the said failure.

Section 84 of the Finance Act reads as follows:

84. Revision of orders by the Commissioner of Central Excise.-

(1) The Commissioner of Central Excise may call for the record of a proceeding under
this Chapter in which an adjudicating authority subordinate to him has passed any
decision or order and may make such inquiry or cause such inquiry to be made and,
subject to the provisions of this Chapter, pass such order thereon as he thinks fit.

(2) No order, which is prejudicial to the assessee shall be passed under this section
unless the assessee has been given an opportunity of being heard.

(3) The Commissioner of Central Excise shall communicate the order passed by him
under Sub-section (1) to the assessee, such adjudicating authority and the Board.

(4) No order under this section shall be passed by the Commissioner of Central
Excise in respect of any issue if an appeal against such is pending before the
Commissioner of Central Excise (Appeals).

(5) No order under this section shall be passed after the expiry of two years from the
date on which the order sought to be revised has been passed.

11.1. We would also like to reproduce Section 73 of the Finance Act as on date.

73. Value of taxable services escaping assessment. -

(1) Where any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, the 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 tax refund has erroneously been made, requiring him to show

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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) Willful mis-statement; or

(d) Suppression of facts; or

(e) Contravention of any of the provisions of this Chapter or of the rules made there
under 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) Where any service tax has not been levied or paid or has been short-levied or
short paid or erroneously refunded, by reason of fraud, collusion or any willful
mis-statement or suppression of facts, or contravention of any of the provisions of this
Chapter or the rules made there under, with intent to evade payment of service tax,
by such person or his agent, to whom a notice is served under the proviso to
Sub-section (1) by the Central Excise Officer, such person or agent may pay service
tax in full or in part as may be accepted by him, and the interest payable thereon
under Section 75 and penalty equal to twenty-five per cent. of the service tax
specified in the notice or the service tax so accepted by such person within thirty days
of the receipt of the notice.

(2) The Central Excise Officer shall, after considering the representation, 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

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of the amount specified in the notice) and thereupon such person shall pay the
amount so determined.

Provided that where such person has paid the service tax in full together with interest
and penalty under Sub-section (1A), the proceedings in respect of such person and
other persons to whom notices are served under Sub-section (1) shall be deemed to
be concluded:

Provided further that where such person has paid service tax in part along with
interest and penalty under Sub-section (1A), the Central Excise Officer shall
determine the amount of service tax or interest not being in excess of the amount
partly due from such person.

(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 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:

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. -- 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.

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(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) Willful mis-statement; or

(d) Suppression of facts; or

(e) Contravention of any of the provisions of this Chapter or of the rules made there
under with intent to evade payment of service tax.

(5) The provisions of Sub-section (3) shall not apply to any case where the service tax
had become payable or ought to have been paid before the 14th day of May 2003.

(6) For the purposes of this section, "relevant date" means, --

(i) in the case of taxable service in respect of which service tax has not been levied or
paid or has been short-levied or short-paid--

(a) Where under the rules made under this Chapter, a periodical return, showing
particulars of service tax paid during the period to which the said return relates, is to
be filed by an assessee, the date on which such return is so filed;

(b) Where no periodical return as aforesaid is filed, the last date on which such return
is to be filed under the said rules;

(c) In any other case, the date on which the service tax is to be paid under this
Chapter or the rules made there under;

(ii) in a case where the service tax is provisionally assessed under this Chapter or the

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rules made there under, the date of adjustment of the service tax after the final
assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded,
the date of such refund.

12. For the first time, Service Tax was introduced in India in the year 1994. Initially,
only three services were liable to service tax. Later, gradually more and more services
were brought under the tax net, with the result that at present, there are more than
100 taxable services. The point to be appreciated is that the service tax Law in our
country is revolving. In every budget, new categories of services are introduced. Many
a time, the service providers are not clear as to whether the service provided by them
is taxable or not. The CBEC also issues circulars clarifying the law. Even at the time
of introduction of the service tax, the Government of India emphasized the culture of
voluntary compliance. In other words, the Government was against draconian
provisions in practice. Even though some harsh provisions are in the statute book, a
close reading of the various provisions indicate that the intention of the Government is
not to impose heavy penalties in respect of service providers for various lapses when
they pay up the tax short paid along with the interest. Section 73 deals with recovery
of service tax not levied or paid or short levied or short paid or erroneous refund. The
normal period for demanding a short paid tax is one year. However, when there is
fraud or suppression with intent to evade payment of service tax, the department has
got five years for issuing the Show Cause Notice. Obviously, the above provisions are
for the recovery of taxes, which had not been paid. There is an explanation below
Section 73(1). In terms of the explanation, even in cases of suppression of facts with
intent to evade service tax, if the service provider pays the full tax and interest and
also penalty equal to 25% of the service tax mentioned in the Show Cause Notice, the
proceedings in respect of the service provider shall be deemed to be concluded. This
indicates that wherever the service provider accepts his lapses and pays up the
service tax, interest and 25% penalty, the proceedings shall not be re-opened further.
This is with a view to encourage voluntary compliance. For any person, payment of
tax is not a very pleasant activity. The human psychology is such that there is a
tendency to avoid payment of taxes. In any case, the Government has provided
options to the service provider so that he can escape from harsh penalties. Section
73(3) also deserves a close look. Sometimes short payment of tax may not be on

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account of fraud or suppression of facts. In such cases, there is a provision for
payment of short levies by the service provider on his own or even after pointing out
by the Central Excise officer. If such payment along with interest is made, even there
is no need for serving any Show Cause Notice. This provision was introduced w.e.f.
14.05.2003. This is also a clear indication of Government''''s effort to inculcate the
habit of voluntary compliance in the assessee. While imposing penalties, the Central
Excise Officer should not close his eyes to these provisions.

13. Even though the penal provisions have been incorporated under Sections 76, 77
& 78, Section 80 provides for waiver of penalties proposed under the above
Sections provided the assessee proves reasonable cause. The non obstante clause
''''Notwithstanding'''' deserves a close look. The Revisionary Authority is of the view
that in the present cases, there is no reasonable cause for waiver or reduction of
penalties.

14. In the Majestic Motor case, the appellants did not pay the service tax under the
category of "Business Auxiliary Service." However, when the lapse was pointed out,
they paid the service tax even before the issue of Show Cause Notice. The Original
Authority has made an observation "however because of their action of making good,
the payment immediately after pointing out by the departmental officers has diluted
the offence committed by them". Here is a case where the reason given for
non-payment is ignorance. When it was told that they are liable for tax, the tax along
with interest was paid. The very action of the appellant has shown that he is ready to
comply with the law. Under such circumstances, the Original Authority is of the view
that waiver of penalties under 76 & 77 can be given in terms of Section 80 and
also imposition of a nominal penalty under Section 78. In our view, the order of the
Original Authority is well reasoned and is not at all arbitrary. The tax paid is to the
tune of Rs. 6,68,945/-, whereas the penalty imposed by the Revisionary Authority is
Rs. 10,00,000/-. It is very clear that imposition of such a huge penalty on an assessee
who voluntarily complies is uncalled for and very much goes against the spirit of the
various provisions of the Finance Act 1994 relating to service tax which we have
earlier quoted. In our view, the Revisionary Authority has exercised his powers for the
reason that legally he has the powers. Such power has been exercised ignoring the
various provisions already existing in the Finance Act. Even in cases of suppression,
if an assessee pays the tax along with interest and 25% penalty, the proceedings are

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closed. Therefore, what is the justification for imposing a penalty of Rs. 10,00,000/-
for a short payment of Rs. 6,68,945/-? A sadistic streak can be discerned in such
exercise of power.

15. At this point, we would like to refer to the decision of the Tribunal in the case of
Z.U. Alvi v. Commissioner of Central Excise, Bhopal . In the said case, the
Commissioner imposed a penalty of Rs. 50 crore on an employee of BHEL. In fact he
was a Deputy General Manager. Just because the Commissioner''''s power with
regard to the imposition of penalty is unlimited, he cannot blindly impose savage
penalty. The observations of the Tribunal in Para 3 reads as follows:

3. Paragraph 14 of the impugned order is worth reading for a proper understanding of

the working of the mind of the Commissioner, the Adjudicating Authority. We read that
paragraph:

As per Rule 209A of the Rules, the maximum penalty permissible is three times the
value of such goods or five thousand rupees, which ever is greater. In the instant
case the value of goods involved in the ten show cause notices referred to above is
Rs. 22.67 Crores and so the maximum penalty that could be imposed on Shri Alvi in
this case is Rs. 68 Crores. I know that a person working in a Public Sector
Undertaking cannot afford to pay a huge amount of penalty, even then I am
compelled to impose here a greater amount of penalty so that the law of the land may
not be faulted by anybody in such a blatant manner as has been done by Shri Z.U.
Alvi and be it known to the concerned authorities that it is their duty to follow the law
of the land sincerely and need not follow the duty evasion/avoidance/deferrement
modus operandies of this type.

This is a classic instance to show how an Officer entrusted with a quasi-judicial

function can become crazy and cause untold miseries in blatant violation of law with
no regards for the rule of law. According to us if such an Officer is entrusted with
quasi-judicial duties, he will resort to arbitrary exercise of power, which will compel the
victims to approach higher tribunals for extricating them from the illegal orders.

The predicament of such an Officer is quite evident from the fate of the appellant
before us. This case on hand is a classic example of the vagaries of a Government

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servant who can misuse his powers. The Officer acted in an arbitrary and illegal
manner in exercise of his so-called judicial powers.

16. The appellant did not pay the service tax on account of ignorance of law. There is
no intention to evade payment of duty. When such facts are on record, no further
action on the part of the appellant to prove reasonable cause is warranted. What is
reasonable cause? The Supreme Court in Motilal Padampat Sugar Mills Co. Ltd. v.
State of Uttar Pradesh 1978 (118) ITR 326 (SC) held that "it is well settled law that
''''reasonable cause'''' can be reasonably said to be a cause which prevents a man of
average intelligence and ordinary prudence acting under normal circumstances
without negligence or inaction or want of bona fide. In all the cases decided under
revisionary powers by the Commissioner of Service Tax, Bangalore a penalty under
Section 78 has been enhanced to savage proportions. In the case of M/s. Sri Rama
Enterprises, the service tax involved is Rs. 39,334/-, the Commissioner has enhanced
the penalty under Section 78 from Rs. 2000/- to Rs. 59,000/-. This is not at all
justified. The logic of the Commissioner is that the Original Authority confirmed the
demand because of suppression of facts. Therefore, severe penalty in terms of
Section 78 is warranted. He has recorded that the maximum penalty, which can be
levied is twice the tax amount short paid which is Rs. 78,668/-. Holding such a view,
he was merciful enough to impose only a penalty of Rs. 59,000/-. He has totally
ignored the fact that the tax amount along with the interest was paid before the issue
of Show Cause Notice. The Revisionary Authority should keep in mind that the
penalty imposed should be commensurate with the offence. Majority of the cases
from Serial Nos. 1 to 14 relate to the commission received by the Automobile dealers
from financial institutions. There was doubt in the trade circles whether the
commission received should be taxable under the category of "Business Auxiliary
Service." When there is genuine doubt and the Board issued a clarification, no
malafide can be attributed. In such cases, waiver of penalty under Section 80 is
justified.

17. It is worth mentioning that the Government of India, in its Circular 18/2004 - ST
dated 23.09.2004 (Chennai III Trade Notice), announced an Extraordinary Tax Payer
Friendly Scheme for instant registration of service tax providers. For a limited period,
assesses were allowed to register themselves for payment of service tax even if they
had failed to register on account of ignorance or any other reasons with full waiver of

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penalty. It is very clear that the Government is making all efforts for a taxpayer
friendly service tax administration. This should be kept in mind while imposing
penalties. In the case of Commissioner of Central Excise, Bhopal v. Bhojpur Club the
Tribunal quoted with approval the following observations of the Commissioner
(Appeals). "When the assesses who did not at all comply with the service tax law can
be given immunity provided they pay the service tax along with the appropriate rate of
interest there is no tangible and logical reason as to why the law abiding assessee
who had got himself registered more or less in time and also started paying the
service tax much before the new scheme became operational should be denied the
benefit of waiver penal provisions." It is also of interest to note that there is no
provision of prosecution in respect of offences relating to service tax. In respect of all
the cases excepting one under Serial No. 12, there was sufficient cause for
non-payment of service tax in time. They are namely ignorance and bona fide belief.
The moment the lapse was pointed out in all the cases except that in Serial No. 12,
the tax and the interest was paid well before the issue of Show Cause Notice. Hence,
in all the cases, in Serial Nos. 1 to 14 excepting Serial No. 12, we set aside the
impugned Order - in - Revision and restore the Order - in - Original.

18. As regards Serial No. 12, with regard to N.C.S. Storage System, it is seen that the
service tax was paid only after the issue of show cause notice. In these
circumstances, non-imposition of penalties under Section 76 & 78 is not justified.
However, keeping in view the fact that the service tax was paid before the
adjudication, we reduce the penalty under Section 78 to Rs. 10,000/-. Otherwise we
uphold the Order - in - Revision in respect of N.C.S. Storage.

19. In respect of appeal in Serial No. 15 of the above tabular column namely M/s.
A.R. Travels, it has been pleaded that due to ignorance with regard to the Service Tax
Laws, the appellant did not pay the tax in time. Once the lapse was pointed out by the
Departmental officer, the tax along with interest was paid before the issue of Show
Cause Notice. Further, the appellant has stated that all matters relating to contracts
purchased and income tax etc. were looked after by an accountant. The appellant
being illiterate could not understand the intricacies of the Service Tax Law. The
appellant has relied on a large number of case laws. On going through the Order - in -
Original, we do not find any justification given by the Adjudicating Authority for
imposition of severe penalties. The O-I-O is a non-speaking order. The Commissioner

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(Appeals) while confirming the penalties under Section 75 & 76 limited the
penalties under Section 78 to 25% of the tax amount. Since there is no finding of
malafide and intention to evade payment of service tax, we set aside the penalties
imposed and allow the appeal.

20. In respect of the appeals in Serial No. 16 of the tabular column, the Commissioner
himself has given a finding that there is no suppression of facts. There is only a delay
in payment of the tax. The appellants had paid the tax along with the interest. The
Commissioner has imposed a penalty under Sections 75, 76 & 77 of the Finance
Act, 1994. Taking into consideration the circumstances of the case, we set aside only
the penalties imposed under Section 76 of the Finance Act. The other penalties are
upheld. Hence, we partially allow the two appeals.

21. In respect of the case in Serial No. 17 namely Marshal Security, only tax and a
part of the interest had been paid before the issue of Show Cause Notice. Taking into
consideration the circumstances of the case, we reduce the penalty imposed under
Section 76 from Rs. 4,47,539/- to Rs. 50,000/- only. The penalty imposed under
Section 77 is upheld. Thus, we partially allow this appeal.

22. Summing UP

1. The appeals in Serial Nos. 1 to 14 excepting the one in Serial No. 12, are allowed.

2. In respect of the appeal in Serial No. 12 the penalty under 78 is reduced to Rs.
10,000/- only & the other penalties are upheld.

3. The appeals in Serial No. 15 & 16 are allowed.

4. In respect of appeal in Serial No. 17 penalty under 76 is reduced to Rs. 50,000/-

and penalty imposed under Section 77 is upheld.

Thus, the appeals are disposed of in the above manner.

(Pronounced in Open Court on 30 MAY 2008)

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