(Prayer: This CEA is filed under section 35G of the Central Excise Act, 1944 arising out of order dated, 30-5-2008 passed in Final Order No.658/2008, praying to (i) to decide the substantial question of law stated therein; (ii) set aside the CESTAT, South Zone Bench, Bangalore, in final order No.658/2008 dated 30-5-2008 arised in Appeal No.ST/375/2007 and restore the order passed in RA No.69/2007 dated 3-7-2007.)

1. In these batch of cases, the power of the authorities to impose penalties and the power of the revisional authority to enhance penalties and scope of Sections 76, 78 and 80 of the Finance Act, 1994 is involved. Therefore, all these appeals are taken up for consideration together’ and disposed of by this common order.

2. The Appellate Tribunal in its order has set out the facts of each case at length. Therefore, we do not propose to restate the facts in this judgment.

3. As the controversy between the parties revolves around the interpretation to be placed on the various provisions dealing with penalties, the substantial question of law framed in these cases viz., whether the Tribunal was correct in setting aside the penalties imposed under Sections 76, 77 and 78 of the Finance Act, 1994 (hereinafter for short referred to as ‘the’ Act’) would cover all aspects and therefore, after hearing the learned counsel for the parties at length we have formulated the following substantial questions of law for consideration.

SUBSTANTIAL QUESTIONS OF LAW

1) Whether the penalty imposable under the Finance Act. 1994 is automatic?

2) Whether Sections 76 and 78 of the Act are mutually exclusive?

3) Even if the ingredients stipulated in Sections 76 and 78 of the Act are established, if “reasonable cause” is shown for the failure, whether the authorities have power to impose penalties given the explicit discretion in Section 80 of the Act?

4) If after holding that all the ingredients under Sections 76 and 78 exist and no reasonable cause is made out by the assessee, whether the imposition of penalty as prescribed under these two provisions is automatic or whether any discretion is left in the authority in the matter or imposing penalty?

5) If the order passed by the assessing authority is within the four corners of law, in other words within the parameters prescribed under the aforesaid statutory provisions, whether the revisional authority by virtue of the power conferred under Section 84 of the Act, can suo motu revise the order of the assessing authority and enhance the penalty? (In other words what is the scope or revisionary power under Section 84 of the Act’?)

6) Whether the revisional authority has jurisdiction to impose penalty for the first time when it has not been imposed by the adjudicating or assessing authority by invoking Section 80?

CONCEPT OF SERVICE TAX

4. The Apex Court in the case of ALL INDIA FEDERATION OF TAX PRACTITIONERS AND OTHERS vs UNION OF INDIA AND OTHERS [(2007) 9 VST 126 (SC)] =2007 (7) STR 625 (SC) explaining the meaning of service tax held as under:-

“The source of the concept of service tax lies in economics. It is an economic concept. It has evolved on account of service industry becoming a major contributor to the GDP of an economy, particularly knowledge-based economy. With the enactment of Finance Act, 1994, the Central Government derived its authority from the residuary entry 97 of the Union List for levying tax on services. The legal backup was further provided by the introduction of article 268A in the Constitution vide Constitution. (Eighty eighth Amendment) Act, 2003 which stated, that taxes on services shall be charged by the Central Government and appropriated between the Union Government and the States. Simultaneously, a new entry 92C was also introduced in the Union List for the levy of service tax. As stated above, as an economic concept, there is no distinction between the consumption of goods and consumption of services as both satisfy human needs. It is this economic concept based on the legal principle of equivalence which now stands incorporated in the Constitution vide Constitution (Eighty-eighth Amendment) Act, 2003. Further, it is important to note, that “service tax” is a value added tax which in turn is a general tax which applies to all commercial activities involving production of goods and provision of services. Moreover, VAT is a consumption tax: as it is borne by the client.

Chapter V of the Finance Act, 1994 referred to service tax. It defined “assessee” to mean a person responsible for collecting the service tax under the Act, “service tax” was defined to mean tax chargeable under Chapter V. Under the Act, “taxable service” was defined to mean any service provided by a stock-broker to an investor in connection with the sale or purchase of securities listed on a recognised stock exchange: services rendered to a subscriber by the telegraph authority: and services rendered by an insurer to a policy holder. Under the Act, it was clarified that words and expressions not defined in Chapter V but used therein shall bear the some meaning as given in the Central Excise Act, 1944, Section 66 stated that service tax: shall be levied at the rate of five per cent of the value of taxable services provided to any person by the service provider who was responsible for collecting the service tax. It was similar to section 3 of the Central Excise Act, 1944. Section 67 dealt with valuation of taxable services. Section 68 dealt with collection and recovery of service tax. Section 71 dealt with assessment. Section 72 dealt with best judgment assessment. Section 73 dealt with value of taxable services escaping assessment. Section 83, inter alia, stated that Sections 9C, 9D, 11B etc., of the Central Excise Act shall apply also to collection arid recovery of service tax. The administration of service tax is given to the authorities under the Central Excise Act.”

5. For the first time when service tax was introduced in India in the year 1994 initially only three services were liable to service tax. Later on and gradually, more and more services were brought under the service tax net with the result that at present there are 118 taxable services. Each year the annual Finance Acts have increased the list of taxable services. The service tax law in our country is evolving so as to encompass every sector and thus new category of services are being introduced. Many a time, service providers are not clear as to whether the services provided by them are taxable or not. The Central Board of Excise and Customs (CBEC) also issues circulars clarifying the law. The stress is on developing a culture of voluntary compliance. The Government is against draconian provisions in practice. In fact, in the Finance Act, 1994 initially there were various provisions in sections 87 to 92 which made non-compliance or the provisions of the Act a punishable offence, providing for prosecution of offenders. However, when the Finance Act, 1998 was enacted, these provisions have been omitted.

6. It is in this background keeping in mind the object and intendment of the Parliament in enacting this law, the provisions dealing with the penalty have to be considered.

Sections 76, 77, 78 and 80 of the Finance Act reads as under:-

“SECTION 76. Penalty for failure to collect or pay service tax. Any person liable to pay service tax in accordance with the provisions of section 68 or the rules made thereunder, who fails to pay such tax shall pay in addition to paying such tax, an interest on that tax in accordance with the provisions of section 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for every day during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that he failed to pay.

SECTION 77. Penalty for failure to furnish prescribed return. It is person fails to furnish in due time the return which he is required to furnish under section 70 or the rules made thereunder, he shall be liable to a penalty which may extend to an amount not exceeding one thousand rupees.

SECTION 78. Penalty for suppressing value of taxable service. IF the Assistant Commissioner of Central Excise or as the case may be, Deputy Commissioner of Central Excise in the course of any proceedings under this Chapter is satisfied that any person has, with intent to evade payment of service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service, he may direct that such person shall pay by way of penalty, in addition to service tax and interest, if any, payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of income of sought to be evaded by reason of suppression or concealment of the value of taxable service or the furnishing of inaccurate value of such taxable service.

SECTION 80. Penalty not to be imposed in certain cases – Notwithstanding anything contained in 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 the said provision if the assessee proves that there was reasonable cause for the said failure.”

7. Section 77 deals with penalty for failure to furnish prescribed ret urn. Section 79 deals with penalty for failure to comply with notice.

8. From the aforesaid provisions, it is clear that a person who is liable to pay tax under the Finance Act, 1994, is under a legal obligation to get himself registered under the Act. Non-registration attracts penalty. After registration, he is expected to file returns, if he is liable to pay tax. If the ret urns are not filed, again it attracts penalty. For non-registration and for not filing returns, a fixed amount is prescribed as penalty. Though under these two provisions, the maximum penalty is prescribed, discretion is conferred on the authority to levy a lesser amount. Section 79 deals with penalty for failure to comply with the notice i.e. a person who fails to comply with the provision of section 71.

9. A person who is liable to pay tax under Section 68 of the Act, if his understanding is that he is not liable to pay tax, he may not even register himself, may not file return and consequently may not pay tax. Even if a person who has registered himself and has been paying service tax for certain activities, may fail to include in his returns the activity, which according to him does not attract service tax and therefore may not pay tax. It also amounts to a case of failure to collect or pay service tax on that particular activity, though he has registered himself under the Act and has filed returns in respect of activity on which service tax is attracted. In such cases, there is a bonafide dispute whether tax is payable or not and whether a particular activity is construed as a taxable service under the Act.

10. It is in this background that, we have to take note of the fact that when the service tax was introduced in 1994 for the first time, it had only three taxable services. In every annual Finance Act, different categories of services are brought within the tax net. Even though the expressions “services” and “taxable services” are defined, there may be a doubt whether a particular activity falls within those definitions and is liable to service tax. It is after a period of time that disputes arose, matters reached judicial forums, doubts cleared and law laid down. It cannot therefore be said that there is any intention to avoid payment of tax by such taxpayers who bonafide believe that their activity is not liable to service tax. Probably keeping this in mind, the legislature has not only provided for imposing penalty, but also conferred a power coupled with discretion on the authority not to impose penalty, if there was al “reasonable cause” for the assessee not to pay tax. As the wordings of Sections 76 and 78 stand, unless, the ingredients mentioned in both the sections exist, those sections are not attracted. After those ingredients are held to be in existence and the sections are attracted, even then the imposition of penalty is not automatic.

11. Section 80 is emphatic in terms of text that no penalty shall be imposable on the assessee for any failure referred to in Sections 76, 77, 78 and 79, if the assessee proves that there was a “reasonable cause” for the said failure. Therefore, mere failure to comply with the requirements of the Section, does not vest any power in the adjudicating or assessing authority to impose penalty. Once, the failure of the requirements of the said provisions is established, in view of the non-obstante clause in Section 80, the authority has to find out whether there was any “reasonable cause” for the assessee for such failure to comply with the requirement of law. If the assessee makes out a reasonable cause, Section 80 mandates that no penalty shall be impossible on the assessee. Therefore, the sine qua non for the authority to impose penalty is as follows:-

a) existence of ingredients mentioned in Sections 76, 77 and 78;

b) failure on the part of the assessee to comply with the requirements of the said provisions;

c) absence of “reasonable cause” for the failure to comply with the requirement of law.

12. It is only thereafter that the authority has been vested with the power to impose penalty. In this regard, it is useful to refer to the judgment of the Delhi High Court in the case of WOODWARD GOVERNOR OF INDIA P. LTD. VS. CIT & OTHERS reported in 2002 (253) ITR 745 (Del.) which was rendered in the context of the Income Tax Act, 1961 which contains a provision conferring discretion on income tax authorities, not to impose penalties when there is “reasonable cause” shown by an assessee. It reads as under:-

“Section 273B starts with a non obstante clause and provides that notwithstanding anything contained in several provisions enumerated therein including section 271C, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions, if he proves that there was reasonable cause for the said failure. A clause beginning with “notwithstanding anything” is sometimes appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of Act mentioned in the non-obstante clause (see Orient Paper and Industries Ltd. v. State of Orissa, AIR 1991 SC 672). A non-obstante clause may be used as a legislature device, to modify the ambit of the provision of law mentioned in the non-obstante clause, or to override it in specified, circumstances. (see T.R. Thandur v. Union of India, AIR 1996 SC 1643). The true effect of the non-obstante clause is that in spite of the provision or Act mentioned in the non obstante clause, the enactment following it will have its full operation or that the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment (see Smt. Parayankandiyal Eravath Kanapravan Kalliani Amma v. K. Devi, AIR 1996 SC 1963). Therefore, in order to bring in application of section 271C in the backdrop of section 273B, absence of reasonable cause, existence of which has to be established by the assessee, is the sine qua non.

Levy of penalty under section 271C is not automatic. Before levying penalty, the concerned officer is required to find out that even if there was any failure referred to in the concerned provision the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause which was the reason for the failure referred to in the concerned provision. Thereafter the officer dealing with the matter has to consider whether the explanation offered by the assessee or the person, as the case may be, as regards the reason for failure, was on account of reasonable cause. ‘Reasonable cause” as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described a probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautions man, placed in the position of the person concerned to come to the conclusion that the same was the right thing to do. The cause shown has to be considered and only if it found to be frivolous, without substance or foundation, the prescribed consequences follow.”

13. Therefore, given the language of Section 80 of the Act, which confers discretion on the service tax authorities not to impose penalty if there is reasonable cause in a given case, the imposition of penalty under Sections 76, 77 and 78 is not automatic. The existence of grounds/ingredients postulated in the said provisions is a condition precedent for attracting penalty. Therefore, first, we have to find out, whether in the facts of a given case whether those ingredients exist. Once it is held that those ingredients exist and the provisions are attracted, then if the language used in the said provisions do not leave any discretion in the authority in the matter of imposition or penalty, penalty is to be imposed in terms of the said provision. However, if any discretion is left, then the said quasi-judicial discretion is to be exercised reasonably. Before levying penalty, the authority is required to find out whether there was any failure referred to in the concerned provision and the same was without a reasonable cause. The initial burden is on the assessee to show that there existed reasonable cause, which was the reason for the failure referred to in the concerned provision. Thereafter the authority has to consider the explanation offered by the assessee for failure and whether it, constitutes a reasonable cause. “Reasonable cause” means an honest belief founded upon reasonable grounds of the existence or a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautions man, to come to the conclusion that the same was the right thing to do. Only if it found to be frivolous, without substance or foundation, the question of imposing penalty would arise.

14. Therefore, it is clear that the power to levy penalty could be exercised by the authorities only after the aforesaid tests are passed. In fact, the intention of the Parliament is clear from the wordings of Section 78. After the ingredients of Section 78 are established and failure to comply with the same is also established, the provision expressly states that ‘he may direct that such person shall pay by way of penalty”. Therefore, the intention is clear. A discretion is conferred on the authority to impose or not to impose penalty. In this context, it is useful to refer to the judgment of the Apex Court in the case of SMT. HARBANS KAUR VS. CWT., reported in (1997) 224 ITR 418 (SC). While interpreting the purport and significance of the expression “reasonable cause” in Section 18(1) of the Wealth Tax Act, 1957 the Apex Court held as under:-

“Section 18(1) empowers the officer under the Act to impose penalty on a person in certain contingencies. As per the sub-section if the Wealth Tax Officer, Appellate Assistant Commissioner or Appellate Tribunal in the course of any proceedings under the Act is satisfied that any person has without reasonable cause, failed to furnish the returns which he is required to furnish or has without reasonable cause failed to furnish within the time allowed or without reasonable cause failed to comply with a notice under section 16(2) or (4), or has concealed. the particulars of any assets or furnished inaccurate particulars of any assets or debts such officer may direct that such person shall pay, by way of penalty, the amount specified respectively in three clauses set out therein. Section 18-B confers power on the Commissioner to reduce or waive such penalty in certain contingencies, if he is satisfied that such person has made full and true disclosure of his net wealth and has also cooperated in any enquiry relating to the assessment of his net wealth and has either paid or made satisfactory arrangement for the payment of any tax or interest payable in consequence of an order passed under the Act.

If the conditions stipulated in the section are satisfied the Commissioner has a discretion in the matter. In exercise of that discretion, the Commissioner can either reduce the amount of the penalty or he may even waive the entire penalty. It is for the Commissioner to decide on the facts of a particular case whether a waiver in entirety or a reduction alone is warranted.

The words “the Commissioner may in his discretion……reduce or waive the amount of penalty” in Section 18-B of the Act are clear enough to show that the power conferred on the Commissioner is to be exercised by him in such manner as he deems just and proper. When a discretion is conferred on an authority the same must be exercised fairly and not arbitrarily, justly and not fancifully vide S.G. Jaisinghani vs. U.O.I. & others: AIR 1967 SC 1427.

Even if the legislature has not used the words “in his discretion” in Section 18(B)(1) Commissioner could have exercised only a discretionary power in view of the employment of the word “may”. Now when the Parliament used both expressions “may’ and “in his discretion” together, the position is placed beyond the pale of any doubt that the legislature wanted an officer of the rank of the Commissioner to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion.”

15. Therefore, it is clear that once the word ‘may’ is employed by the legislature, a discretion is vested in the authority to impose or not to impose penalty. When once the authority decides to impose penalty, then the discretion that is conferred on the authority has to be exercised in consonance with the express words used in both these sections. Firstly, when both these sections specifically speak of penalty at a particular rate, authority should find out first whether the failure to pay tax falls under section 76 or 78. If it is a case falling under Section 76, then while imposing the penalty, the penalty imposed shall not be less than one hundred rupees, but may extend to two hundred rupees for every day during which such failure continues. However, the penalty under this clause shall not exceed the amount of service lax that he tailed to pay. When the statute stipulates the minimum penalty to be imposed and the maximum penalty to be imposed, an authority cannot exercise its discretion to impose penalty either less than the minimum or in excess or the maximum that is prescribed by the Statute. In this regard no discretion is left to the adjudicating authority. The discretion is within those two parameters. What exactly is the quantum of penalty to be imposed is a matter left to the authority having regard to the facts of that particular case.

16. In this connection, it was also pointed out by counsel that the word one hundred rupees has to be read with the words “per day”. This was also a subject matter of interpretation before the Tribunal as well as this Court. The Tribunal in the case of SMITHA SHETTY vs. CCE, reported in 2003 (156) ELT 84 (T), at Para 12, held as under:-

“I have carefully considered the matter. The Deportment’s contention is the words ‘everyday’ appearing after ‘rupees two hundred’ qualify the expression rupees one hundred’ also. In other words, the Revenue’s stand is that Sec. 76 prescribes the minimum penalty as ‘rupees one hundred’ for everyday and lays down the maximum limit of rupees two hundred per day. It was emphatically argued that since there was no comma after the words ‘rupees one hundred’ like in the case of Sec. 77, the phrase ‘per day’ used after the words ‘rupees two hundred’ shall apply to the words rupees one hundred also. Section 76 and 77 as it stood at the relevant point of time are as follows:-

“76. Penalty for failure to collect or pay service tax - Any person, liable to pay service tax in accordance with the provisions of Sec. 68 or the rules made there under, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of Sec. 75, a penalty which shall not be less than one hundred rupees but which may extend to two hundred rupees for everyday during which such failure continues, so, however, that the penalty under this clause shall not exceed the amount of service tax that failed to pay.

77. Penalty for failure to furnish prescribed return, if a person fails to furnish in due time the return which he is required to furnish under sub-section (1) of Sec. 70 or by notice given under sub-section (2) of that section, he shall pay, by way of penalty, a sum which shall not be less than one hundred rupees, but which may extend to two hundred rupees for every day during which the failure continues.

With reference to the Sec. 77 of the Finance Act, Tribunal has already held the minimum penalty at Rs. 100/- and not Rs. 100/- per day. Even in the absence of comma after the words ‘rupees one hundred’ it cannot be presumed that Section prescribes minimum penalty of Rs. 100/-per day. The section clearly says the sum shall not be less than Rs. 100/- which may extend to Rs. 200/- everyday during which such failure continues. Even in the absence of comma, it may be read as minimum penalty of Rs. 100/- and maximum may be Rs. 200/- for everyday. Even in the case of BL Company (supra), it was observed that, in the absence of comma after Rs. 200/- makes it clear that everyday is qualifying only Rs. 200/-. As rightly observed by the Bombay High Court in the case of Cine Super 8 Pvt. Ltd (supra) now, punctuation is only a minor element in construction of a statute, no doubt when a statute is carefully punctuated and there is doubt about its meaning weight should be given to the construction as observed by the Supreme Court in the case of Aswini Kumar Vs Arabinda Bose (AIR 1952 (SC) 369) and M.K. Salpekar Vs Sunil Kumar Shamsunder Chaudhari (AIR 1988 SC 1841). In the instant case, there is no ambiguity or doubt in arriving at the meaning of the wordings of the relevant section. On a plain reading of the Section, it can be understood that the Section has laid down minimum penalty of Rs. 100/-and maximum penalty of Rs. 200/- for every day delay. The ruling given by the Apex Court in the case of Hindustan Steel Vs. State of Orissa (Supra) is relevant in this context. It was held therein an order imposing penalty for failure to carry out the statutory obligation is the result of quasi-criminal proceedings and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contentious or dishonest or acted in conscious disregard of its obligation. Penalty will not also be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose penalty will be justified in refusing to impose penalty, when there is al technical or judicial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. Since the adjudicating authority has exercised discretion in imposing the penalty with reference to the facts of each case, there was no justification for the Review authority to enhance the penalty on the ground that Sec. 76 prescribes minimum penalty of Rs. 100/- for every day. All these appeals are allowed accordingly.”

17. This decision of the Tribunal has been affirmed by this Court in the case of CCE VS. SUNITHA SHETTY reported in 2006 (3) STR 404 (Kar.), which has been followed by this Court in the case of Commissioner of Central Excise vs. Royal Agencies in CEA No.4/2004 disposed of on 26.2.2008. Similar views have been taken by various other High Courts. Therefore, this penalty provision being penal in nature, has to be strictly considered. If two views are possible, it is that view which is beneficial to the assessee which is to be preferred. That is what has been done by the Tribunal as well as by this Court. Therefore, it is not possible to accept the contention of the revenue that less than one hundred rupees has to be considered as less than one hundred rupees for every day.

18. Probably, noticing this loophole, the Legislature taking note of the judicial pronouncement, from 18.04.2006 amended the law so as to include ‘every day’ after the words one hundred rupees. Therefore, till such amendment, the interpretation placed by the judicial authorities has been accepted by the Government. That is the cause for amendment. Therefore, the minimum penalty leviable under Section 76 is one hundred rupees and the maximum penalty leviable is two hundred rupees per day, during the relevant period. However, the same is subject to the condition stipulated in the said section that he has failed to pay service tax. Therefore, discretion is left to the authority to prescribe the measure or penalty between these two stipulations.

19. If it is a failure to comply with the requirement of Section 78, a separate penalty is stipulated in the said provision. Section 78 applies to a case where a person has registered himself under the Act and failed to file the prescribed return and in such return filed, he has suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service. Therefore, it is clear that Section 78 operates in an altogether different field. But, even if as a matter of fact, it is established that the assessee has suppressed or concealed the value of taxable service and has furnished inaccurate value of such taxable service, the imposition or penalty is not automatic. The intention is clear from the words used in the said provision, to the effect that, he may act according to the provisions while imposing penalty.

20. However, this provision is also made subject to Section 80. Therefore, even if there is a suppression or concealment of the value of taxable service or inaccurate value as mentioned in the returns filed. If that is on account of a bonafide mistake or any ea use which constitutes “reasonable cause”, no penalty is leviable. Therefore, the argument that once acts of suppression, concealment and furnishing inaccurate particulars are established, the penalty follows as a matter of course or in other words is automatic, is without any substance as it runs counter to the express provision contained in Sections 78 and 80 of the Act. When once it is held that there is no reasonable cause, then the authority is empowered to impose penalty as prescribed under Section 78, for such failure. Here the penalty prescribed is penalty which shall not be less than but which shall not exceed twice the amount or service tax sought to be evaded by reason of suppression or concealment or the value of taxable service or the furnishing of inaccurate value of such taxable service.

21. When once the ingredients of Section 78 are established and there is no reasonable cause for failure. Section 80 is not attracted. Then the authority has to impose a minimum penalty of the amount or service tax sought to be evaded and the maximum is double the said amount. Here, there is no discretion, which is vested with the authority. The discretion is only confined La impose a penalty above the minimum and less than the maximum provided for under the Act. It is in that context, in the light of the scheme of this provision that Sections 76 and 78 operate in a mutually exclusive area. For the same reason, the question or imposing penalty both under Sections 76 and 78 would not arise. The penalty is to be imposed either under Section 78 or under Section 76 and certainly not under both the provisions. In this connection, revenue has relied on the judgment of the Division Bench of the Kerala High Court in the case of the ASSISTANT COMMISSIONER OF CENTRAL EXCISE VS. KRISHNA PODUVAL reported in 2006 TIOL-77-HC-KERALA-ST at para 11, it held as under:

“11. The penalty imposable under Section 76 is for failure to pay service tax by the person liable to pay the same in accordance with the provisions of section 68 and the rules made thereunder, whereas section 78 relates to penalty for suppression of the value of taxable service. Of course, these two offences may arise in the course of the same transaction, or from the same act of the person concerned. But we are of opinion that the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both the offences. There can be a situation where even without suppressing value of taxable service, the personal liable to pay service tax fails to pay. Therefore, penalty can certainly be imposed on erring persons under both the above sections, especially since the ingredients of the two offences are distinct and separate. Perhaps invoking powers under Section 80 of the Finance Act, the appropriate authority could have decided not to impose penalty on the assessee if the assessee proved that there was reasonable cause for the said failure in respect of one or both of the offences. However, no circumstances are either pleaded or proved for invocation of the said section also. In any event, we are not satisfied that an assessee who is guilty of suppression deserves such sympathy. As such, we are of opinion that the learned Single Judge was not correct in directing the 1^st appellant to modify the demand withdrawing penalty under Section 76. Therefore, the judgment of the learned Single Judge, to the extent it directs the first appellant to modify Ext. P1 by withdrawing penalty levied under Section 76, is liable to be set aside and we do so. The cumulative result of the above findings would be that the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs.”

22. With due respect, we are of the view that the said Judgment runs counter to the express provisions contained in sections 76 and 78. In fact, in support of our contentions, we would like to point out that by Finance Act 2008 (18 of 2008) which came into force from 10.05.2008, the Parliament has made the legal position clear by introducing a proviso to Section 78. It reads as under:

“provided also that if the penalty is payable under this section, the provision of section 76 shall not be attracted.”

23. While imposing penalty under Section 76, the question of imposing penalty under Section 78 also will not arise because Section 76 applies to a case where the person has not either registered himself under the Act or having registered himself has not filed the return and not paid tax for the activity which he is carrying on. In such circumstances, the question of finding fault with the returns, which are filed furnishing inaccurate value of such taxable service or suppressing or concealment or the value of taxable service would not arise. The amendment brought about is only clarificatory in nature. That was the position even before the amendment. It is clear from the express provisions of Section 76 and 78.

REVISIONAL JURISDICTION: SECTION 84

24. Section 84 of the Act reads as under:-

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

(1) The Commissioner of Central Excise may call for the record for 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)……

(4)……

(5)……

In fact , the said revisional jurisdiction is now omitted and an appeal provision is Introduced from the year 2009 by the Finance Act with effect from 19.08.2009. As the section stood during the period in dispute the revisional authority has been conferred the power to call for the record of any proceedings under the chapter and make such enquiry or cause such enquiry to be made and subject to the provision of this chapter, pass such orders thereon as he thinks fit.

25. Sub-Section (2) of Section 84 makes it clear that 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. Therefore, in the Section, there is no indication as to under what circumstances, this revisional power could be exercised by the revisional authority. At the same time, merely because there is no indication under what circumstances such power could be exercised, it cannot be contended that no power was vested with the revisional authority. If it is contended as such, the said provision would become ultra-vires the Constitution. Therefore, in order to save the said provision from vires or the unconstitutionality, we can take a clue from the word used in the head note. The power or revision is well understood by various pronouncements or the courts.

26. The Apex Court had an occasion to consider this power of revision under the Income Tax Act, 1961 as contained in Section 263 in MALABAR INDUSTRIAL CO. LTD. VS. CIT reported in 2000 (243) ITR 83 (SC). After extracting the aforesaid provision, the Supreme Court held as under:

“A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to section 263(1) of the Act.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase “prejudicial to the interests of the Revenue: is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. Vs. S.P. Jain [1957] 31 ITR 872, the High Court of Karnataka in CIT vs. T. Narayana Pai [1975] 98 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 and the High Court of Gujarat in CIT u. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interests of the Revenue.

Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company v. CIT [1987] 163 ITR 129 interpreting “prejudicial to the interests of the Revenue.” The High Court held (page 138): “In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.

The phrase “prejudicial to the interests of the Revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the Courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 [SC] and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 [SC].”

27. The Delhi High Court in the case of ADDL. CIT VS. SUDERSHAN TALKIES reported in (1993) 2000 ITR 153 (Del.), again dealing with the revisional power under the income tax law held as under:-

“A similar question had come up for consideration before this court in the case of Addl. CIT v. J.K. D’Costa [1982] 133 ITR 7. Proceedings for levy of penalty were not initiated by the Income-tax Officer and the Commissioner had in that case, passed an order under section 263 of the Act and directed the Income-tax Officer to initiate proceedings for the levy of penalty. This court came to the conclusion that the proceedings for the levy of penalty whether under section 271(1)(a) or section 273(b) are proceedings independent of, and separate from, the assessment proceedings. It then came to the conclusion that failure to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income-tax to pass an order under section 263 and direct initiation of penalty proceedings. After this point was decided in favour of the assessee, the Commissioner of Income-tax filed a special leave petition being SLP (Civil) Nos. 11139-11392 of 1981 (see (1984) 147 ITR (St) 1) and the same was dismissed by the Supreme Court on March 2, 1984. It is clear, therefore, that the Division Bench decision of this court in J.K.D’Costa’s case (1982) 133 ITR 7 has been confirmed by the Supreme Court and the facts of that case are similar to the present case. It must follow, therefore, that the Tribunal was right in setting aside the order of the Commissioner of Income-tax passed under section 263 of the Act so far as it directed the Income-tax Officer to initiate penalty proceedings under section 273(b) of the Act.

28. The Madras High Court in the case of CIT vs. CRK SWAMY reported in (2002) 254 ITR 158 (MAD.) while dealing with revisionary powers under the Income Tax Act, 1961 held as under:

“Moreover, as held by a Bench of the Delhi High Court in the case of Addl. CIT v. Sudershan Talkies (1993) 200 ITR 153, failure on the part of the possessing authority to initiate penalty proceedings would not give jurisdiction to the Commissioner of Income-tax to pass an order under section 263 of the Income-tax Act, 1961 and to direct initiation of such proceedings. We are in respectful agreement with that view.

The question referred to us for the assessment year 1984-85, as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in setting aside the order passed under section 263 of the Income-tax Act and holding that non-initiation of penalty proceedings under section 271(1)(C) do not render the assessment made dated January 16, 1989, erroneous or prejudicial to the interests of the Revenue and consequently the Commissioner of Income-tax is not justified in assuming under section 263, is therefore answered in favour of the assessee and against the Revenue.”

29. The learned counsel for the revenue submitted that all the judgments referred to by the counsel for the respondent-assesses are rendered under the income tax law. Whether the provision which falls for interpretation under the Act is similar to the provision in the Income Tax is to be seen. It is true that as we have pointed out, wordings of Section 263 in the Income Tax is not in parimateria with Section 84 of the Finance Act, 1994. In Section 263, the two grounds on which a revisional authority could exercise jurisdiction are briefly explained, i.e., the order is erroneous and when the order is prejudicial to the interest of the revenue. Both these words are missing in Section 84. As pointed out earlier, if there is no indication of the scope of power of revisional authority under the Act it is liable to be struck down as violative of Article 14 as it amounts to conferment of unbridled power or arbitrary power on the revisional authority. Therefore, to save the said provision from unconstitutionality, we have to place a reasonable interpretation on the said provision. It is in this context, the very phrase “revisional power” or the word “revision” gives an indication, in so far as the scope of power to be exercised by the authority under this Act.

30. While interpreting a fiscal legislation what has to be kept in mind by the revisional authorities is the scheme of each and every legislation to levy and collect tax in accordance with the provision of the Act. This task is entrusted to the revenue. The revenue is levying tax lawfully payable by a person. Certainly revisional authorities owe a duty to review such orders and facilitate levy and collection of tax which are legitimately due to the Department. Penalty is one such category, which cannot be considered as loss or revenue to the exchequer. Non-payment of tax and interest would be a part of the tax itself and if not collected would be prejudicial to the interest of the revenue.

31. In the matter of collection of tax, if there is any order, which is prejudicial to the interest of the revenue, the same is liable to be corrected. It is also possible that such orders may be contrary to the statutory provision in an enactment. When the statutory provisions are inserted in the enactment prescribing a penalty at a particular rate taking away discretion on the part of the assessing authority, if the assessing authority ignoring this provision imposes penalty lesser than what is prescribed, probably a case for exercise of revisional power is made out. But if the order of the assessing (adjudicating) authority is within the parameters prescribed under the law, if the penalty imposed is not less than the minimum prescribed, when an element of discretion is vested in the authority to impose penalty between the minimum and the maximum and if the authority has exercised its discretion and imposed penalty at a particular rate, certainly it cannot be found fault with. The revisional authority in his revisional jurisdiction cannot enhance the penalty. It is settled law that if two views are possible, merely because the appellate authority or the revisional authority’s view is not consistent with view taken by the original authority, that would not be a ground to interfere with an order passed by the lower authority. When the lower authority imposes a penalty, which is more than the minimum, the revisional authority has no jurisdiction in exercise of power under Section 84 to interfere with such power and enhance the penalty. Of course, when the penalty is more than minimum, the aggrieved person would certainly challenge the order on the ground that the penalty imposed is on the higher side. Though it is more than the minimum and is less than the maximum the revisional authority certainly cannot interfere with the discretionary order passed by the assessing or adjudicating authority which has been vested with the power and discretion to impose such penalty.

32. While imposing penalty, if the authority imposes a penalty invoking a wrong provision i.e. in a case which is covered under Section 78, he invokes power under Section 76 or in a case which is covered under Section 76, he invokes power under Section 78 and imposes penalty, that by itself is not conclusive. The Court has to apply its mind to find out first whether the case falls under section 76 or 78 and only then can penalty be imposed in accordance with the statutory provision.

CONCLUSIONS

33. In the light of the foregoing discussion and for the reasons stated above, we answer the substantial questions of law as under:-

(1) The imposition of penalty under the Act is not automatic. The ingredients mentioned in the Section should exist. In respect of Sections 76, 77 and 78 of the Act, not only the ingredients of those Sections should exist, but also there should be absence of reasonable cause for the said failure.

(2) Sections 76 and 78 are mutually exclusive. If penalty is payable under Section 78, Section 76 is not attracted. Therefore, no penalty can be imposed for the same failure under both the provisions.

(3) Even if the ingredients stipulated in Sections 76 and 78 of the Act are established. If the assessee shows reasonable cause for such failure, then the authority has no power to impose penalty in view of Section 80 of the Act.

(4) Even after holding that the ingredients stipulated in Sections 76 and 78 exist, and there is no reasonable cause shown for failure to comply with the said provisions, the authority has the discretion regarding the quantity of the penalty to be imposed. However, the penalty to be imposed cannot be less than the minimum or more them the maximum prescribed under the statute.

(5) The minimum penalty to be imposed is Rs. 100/- and not Rs.100/- per day.

(6) If the penalty imposed is not less them the minimum prescribed under law, the revisional authority has no power to enhance the amount of penalty on the ground that it is less.

(7) When the assessing authority, in its discretion has held that no penalty is leviable, by virtue of Section 80 of the Act, the revisional authority cannot invoke us jurisdiction and impose penalty for the first time.

34. In this batch of cases, it is clear from some of the orders of the assessing/adjudicating authority that he was satisfied with the “reasonable cause” shown by the assessees but sun penalty was imposed not on the ground that, there was no reasonable cause or that the reasons were not acceptable to him, but penalty was imposed in substance to educate the taxpayer about his moral responsibility. Unfortunately, the assessee has not challenged the said orders but has paid the same. In such circumstances, the revisional authority had no jurisdiction to interfere with the said orders as the authority below had held that there was sufficient cause for non-payment of duty. Therefore, the order passed by the revisionary authority is erroneous and calls for interference. Hence, no case for interference with the impugned order is made out. Hence, these appeals are dismissed. No costs.