ORDER
P.G. Chacko, Member (J)
1. The appellants were working as consignment agents, a species of clearing and forwarding agents, during the material period. They had also paid service tax for the said period (April, 2002-March, 2003) albeit belatedly. The lower authorities ordered levy of interest on the tax amount and have also imposed penalties of Rs. 200 per day under Section 76 of the Finance Act, 1994 and Rs. 1,000 under Section 77 of the Act. The party has since paid the interest also. In the present appeal, they concede tax and interest liabilities. Their only grievance is against the penalties.
2. After hearing both sides and considering their submissions, I note that the company had instituted proceedings before the Board for Industrial and Financial Reconstruction (“BIFR”, for short) under the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”, for short) in the year 2001 and that the Board declared them sick under Section 3(1)(o) of the said Act as on December 31, 2000 as per order dated September 19, 2002, a copy of which is available on record. Learned Counsel argues that the factum of the company having been declared sick as on a date prior to the period of dispute is a “reasonable cause” under Section 80 of the Finance Act, 1994 for any penalty not being imposed on the assessee under any of the penal provisions, viz., Sections 76, 77 and 78 of the said Finance Act. On the other hand, the case of learned JDR is that any person who is liable to pay service tax but defaults it is liable to pay penalty mandatorily under Section 76. Similarly, he is also liable to pay penalty under Section 77 upon his failure to file returns under the relevant provisions of the Finance Act and Rules framed thereunder. According to learned JDR, these liabilities would not be affected in any way by financial constraints. In other words, financial difficulties would not constitute “reasonable cause” under Section 80 of the Finance Act, 1994. The JDR has relied on the decision of this Bench in Sree Vadivambigai Textile Mills Ltd. v. Commissioner of Central Excise, Madurai [2006] 3 STR 426 (Tri.-Chennai), wherein it was held that the declaration by BIFR of a company “sick” under the SICA was no ground for leniency in demand of interest on service tax amount paid belatedly. The JDR has also relied on the decision in Inma International Security Academy P. Ltd. v. Commissioner of Central Excise, Chennai [2006] 3 STR 457 (Tri.-Chennai), wherein a penalty imposed under Section 76 of the Finance Act, 1994 was reduced in the facts and circumstances of the case and a penalty imposed under Section 77 was sustained.
3. After giving careful consideration to the submissions, I note that the question whether the assessee having been declared a sick industry by BIFR should be exonerated from penal liability was not before the Tribunal in the case of Sree Vadivambigai Textile Mills [2006] 3 STR 426 (Tri.-Chennai). In that case, the question was whether the Revenue should be lenient towards such an industry in demanding interest on service tax under Section 75 of the Finance Act, 1994. Neither of these questions arose in the case of Inma International Security Academy [2006] 3 STR 457 (Tri.-Chennai), wherein Section 77 penalty was sustained and Section 76 penalty was reduced. The case law cited by learned JDR does not appear to advance the Revenue’s case.
4. The unique question arising for consideration in the present case is whether the appellants should be exonerated under Section 80 of the Finance Act, 1994 from penal liability under Sections 76 and 77 of the Act on the ground that they were declared sick with effect from December 31, 2000 by BIFR under Section 3(1)(o) of the SICA. Section 80 ibid reads as under:
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.
(Here italicised)
5. For getting exonerated from penal liability under Sections 76 and 77, the assessee must prove that he had reasonable cause for committing the default, which in relation to Section 76 is in having delayed the payment of service tax and in relation to Section 77 is in having failed to file service tax returns. Filing of service tax return does not require money. It is, however, a statutory liability and a mandatory formality which every person liable to pay service tax is required to discharge. The appellants have not pleaded ignorance of their liability to pay service tax, in the present appeal. If that be so, they were aware of their statutory liability to file return with the competent authority and pay the service tax self-assessed. Insofar as non-filing of return is concerned, there can be no excuse based on financial constraints. Therefore, the question of not imposing penalty of Rs. 1,000 under Section 11 of the Finance Act on the appellants for their failure to file service tax return is ruled out.
6. However, payment of service tax requires money. It is on record that the appellant-company was declared sick with effect from December 31, 2000 by BIFR and that the relevant rehabilitation scheme is under execution. Apparently, during the period of dispute, the company was “sick” in terms of Section 3(1)(o) of the SI.CA. The service tax payments during the period happened to be delayed on account of this precarious condition of the company. In the context of addressing the question whether the appellants should be exonerated under Section 80 from their penal liability under Section 76, it is necessary to have a fresh look at Section 76 which reads as under:
Penalty for failure to pay service tax.Any person, liable to pay service tax in accordance with the provisions of Section 68 or the Rules made under this Chapter, who fails to pay such tax, shall pay, in addition to such tax and the interest on that tax in accordance with the provisions of Section 75, a penalty which shall not be less than two hundred rupees for every day during which such failure continues or at the rate of two per cent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax:
Provided that the total amount of the penalty payable in terms of this section shall not exceed the service tax payable.
7. It would appear from the above provision that the penalty is directly proportional to the delay of payment of tax. It is imposable at Rs. 200 per day from the due date of payment of tax to the date of actual payment of tax. The interest on tax under Section 75 of the Act is also a levy for the same delay. The penalty under Section 76 is in addition to the interest under Section 75. The appellants have shown that they paid the tax as also interest thereon for the period of delay of payment of tax. The legislative intent behind Section 80 has to be reckoned in this background. That provision says that, where a person liable to pay service tax proves that he failed to pay tax for a certain period for sufficient cause, he shall be exonerated from penalty under Section 76. In the present case, the order of the BIFR constitutes proof of the “sickness” of the company in terms of Section 3(1)(o) of the SICA for the period of dispute (2002-03) and, therefore, it has to be held that sufficient cause has been shown by the appellants for not having been able to pay service tax in time. In the result, the appellants are entitled to the benefit of Section 80 of the Finance Act. Insofar as the penalty under Section 76 is concerned, the said penalty is set aside and the appeal is allowed in part.