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Judgment
The appellant is a proprietorship firm being engaged in providing service of painting and polishing of new construction as contractor / sub-contractor as per the requirement. The nature of service being provided by him was of work contract services. On the basis of a audit findings of a client of appellant i.e. M/s. Tirat Ram Ahuja Pvt. Ltd., department observed that the appellant had failed to discharge his service tax liability. Accordingly, a Show Cause Notice dated 27.11.2009 for the period 2006-2007 demanding Rs.1,22,174/- was issued. However, subsequently, vide a corrigendum dated 17.12.2009 abatement at the rate of 67 % in terms of Notification No. 1 of 2006 was allowed and the demands proposed was reduced to Rs.40,318/-. This amount got paid by the appellant. Subsequently, another Show Cause Notice dated 23.04.2013 for the period 2007-08 to 2011-12 was issued vide which a demand of Rs. 1,46,36,284/- was proposed. Three more Show Cause Notices were subsequently issued for the period 2010-11 and 2011-12 and the period 2013-14 and 2014-15. Details of these SCNs are tabled below:-
S.No.
SCN No./File No.
Dated
Period Involve
Amount involved
Remarks
1.
287/AE/Gr.(9)/2013-14
23.04.2013
2007-08 to 2011- 12
1,46,36,284/-
Remanded back by Commissioner (Appeals) to Adjudicating Authority for de-novo vide order dated 01.02.2018
2.
132/Div-1/2014-15
20.05.2014
2012-13
15,26,671/-
3.
09/Div-IV/2015-16
20.04.2015
2013-14
17,50,379/-
4.
DL-1/ST/Div-III/R11/SCN/Abdul Khalique/38/15
12.05.2016
2014-15
15,45,747
All these Show Cause Notices were initially adjudicated vide Order-in-Original No. 1/2017-18 dated 04.05.2017 in which demand of Rs.40,318/- only was confirmed alongwith interest and penalty was also imposed at the rate of Rs.200/- per day for the period during which the impugned failure continued under the provisions of Section 77 (1) (a) of the Finance Act, 1994. Also penalty of Rs.5000/- under section 77 (2) of the Act and of Rs.40,318/- under section 78 of the Act was imposed upon the appellant. The appellant filed an appeal against the said order but also deposited an amount of Rs.14,40,000/- on 29.06.2017, as pre-deposit. The Commissioner (Appeals) vide Order No. 14/ST/DLH/2018 dated 1st February, 2018 remanded the matter for de-novo fresh adjudication, giving another opportunity to the appellant to get its claim for abatement and reverse charge verified and to resubmit the verified documents to be considered afresh by the adjudicating authority.
After the order of Commissioner (Appeals) dated 01.02.2018 appellant filed the refund claim on 08.01.2020 for the amount of pre-deposit i.e. for Rs.14,40,000/-. The said refund claim has been decided vide Order-in-Original No. R-01/ 2020-2021 dated 29.06.2020 vide which the refund of Rs.13,03,723/-was sanctioned after deducting the amount of penalty (Rs.2,56,000 + 5000 + 40318) and that of interest (Rs.18381/-) from Rs.14,40,000/-. Being aggrieved of this order that the appeal was filed before Commissioner (Appeals) who vide Order No.08/2021 dated 03.02.2021 has rejected the appeal. Being aggrieved the appellant is before this Tribunal.
I have heard Mr. Umesh Sarwal, ld. Counsel for the appellant and Mr. Mahesh Bhardwaj, ld Departmental Representative for the Revenue.
It is mentioned on behalf of ld. Counsel for the appellant that the appeal has been mainly contended on the following grounds:-
(i) The Officer did not provide any effective opportunity to explain these issues discussed in the SCN, even adjudicating authority ignored the directions of the Commissioner, the effect of the order of Commissioner (Appeals) is pending before the Adjudicating Authority i.e. Additional Commissioner.
(ii) Officer passed the refund order without giving any effective opportunity to the firm to explain these issues, which is against the principle of natural justice.
(iii) The calculation done by the department is wrong as penalty should be calculated on the due date of tax, while officer calculated the penalty from the beginning of the quarter, which is against the provisions of law.
(iv) Officer cannot levy the penalty more than the tax amount.
(v) It was prayed that amount deducted towards penalty be rectified. The amount of refund available be recalculated.
It is submitted that the Appellate Authority vide Order No.178 of 1st Feb., 2018 though had confirmed the levy of interest and penalty but had not quantified the amount thereof. The order under challenge has for the first time quantified the interest and the penalty. The quantification is alleged to be disproportionate to the demand. For the said reason the order under challenge is prayed to be set aside and appeal is prayed to be allowed.
While rebutting these submissions, ld. DR has relied upon the order. It has mentioned that the Section 77 of Finance Act, 1994 permits the imposition of penalty at the rate of Rs.200/- per month. The Original Adjudicating Authority in Table II as mentioned in Order-in-Original dated 29 June, 2020 has calculated the penalty accordingly for a period of 1280 days for Rs.2,56,000/-. Hence, there is no infirmity in the order under challenge. Appeal is prayed to be dismissed.
After hearing the rival contentions, the only grievance of the appellant appears to be about the penalty of Rs.2,56,000/- being confirmed against him against the duty liability of the appellant for an amount of Rs.40,318/-. To adjudicate as to whether the said imposition is not permissible being disproportionate, I rely upon the decision of Hon’ble Karnataka High Court in the Writ Petition Civil No.9689/2006 as was decided on 2nd Jan., 2009 in the case of M/s. Philip Electronics India Ltd. vs. State of Karnataka wherein it has been held that the penalty cannot be more than the tax amount to be recovered from the assessee. It was specifically held by the Hon’ble High Court that penalty based on extent of delay which sometimes exceeds the liability is grossly disproportionate and arbitrary penalty which is also an irrational levy automatically looses nexus achieving the object of correcting mischief sought to be preventive by the Legislation and therefore, renders itself unconstitutional. Hon’ble Apex Court also in the case of Hindustan Steel Limited vs. State of Orissa reported in 1970 (25) STC 2011 has held that penalty is an automatic levy upto the maximum extent, which has to be reasonable i.e. to say the maximum limit for penalty is the extent of levy itself. The penalty exceeding thereof assumes the character of disproportionate penalty. The Hon’ble Apex Court later in a decision titled as State of Haryana vs. Sangla reported in 1993 (4) SCC 390 has held that the object in purpose for which the penalty is levied is that the penalty should be sufficient to remedy the mischief sought to be prevented and once it exceeds the limits of a corrective deterrent, sufficient to dissuade the violator, it assumes the character of disproportionate penalty the Hon’ble Apex Court in the case of Hindustan Steel Limited (Supra) has also held that not providing for an opportunity of hearing to the assessee before levying maximum penalty, the act by itself is in violation of the principles of natural justice.
Keeping in view the said decisions, also keeping in view that per day penalty at the rate of Rs.200/- can be levied in terms of sub-clause (3) of section 77 of Central Excise Act and the SCN is silent about specifically invoking the said sub-clause (3), I hold that the grievance of the present appeal stands already covered by the decisions as discussed above. The issue, therefore, is no more res-integra. Imposition of penalty of Rs.2,56,000/-+ Rs.5000 + 40318/- as against the duty demand of Rs.40,318/- is therefore, held to be unreasonable being absolutely disproportionate. Question of adjusting the said amount except for Rs.40,318/- from the refund sanctioned to the appellant, therefore, does not arise.
The Order under challenge, in view of the above discussion, is hereby set aside. However, the adjudication with reference to the impugned SCN’s is still pending due to matter being remanded back for afresh adjudication of claim for abatement and reverse charge, the same shall take its own independent course. Hence, setting aside of the present order under challenge to the extent beyond deduction of Rs.40,318/- shall not be prejudicial to the interest of either of the parties to the lis.
Consequent to entire above discussions, appeal stands allowed. Consequential benefit, if any, shall follow.
[Pronounced in the open Court on 16/02/2022]