1. Interest

   1. Under section 75 of the Act, failure to credit/pay the tax due or any part thereof within the prescribed time, attracts mandatory simple interest at the rate of;

      1. 1.5 % p.m. or part thereof for the period 1-7-1994 to 15-7-2001.

      2. 24% p.a. for the period 16-7-2001 to 15-8-2002.

      3. 15% p.a. for the period 16-8-2002 to 9-9-2004.

      4. at such rate of interest as may be notified by the Central Government by notification in Official Gazette, effective from 10-9-2004 (such rate will not be less than 10% p.a. and not more than 36% p.a.). Consequently, the rate of interest payable by the assessee has been notified at 13% p.a., effective from 10-9-2004. (N. No. 26/2004-Dt. 10-9-2004).

   2. In Re: Oriental Insurance Co. Ltd. (1998) 103 ELT 459 (Comm. Appeal) it is held that, in case of provisional payment of service tax as provided in Rule 6(4) of Service Tax Rules, interest on delayed payment of shortfall of service tax, is to be calculated till the date of final payment of such service tax.
      
   3. The service tax liability on transporters was set aside by Apex Court in Laghu Udyog Bharti vs. UOI (1999) 112 ELT 365 (SC). However, the relevant clauses providing for service tax liability on transporters were again revalidated by making amendment in Service Tax Rules with retrospective effect, but the service tax was to be paid by an assessee thereafter within 30 days from the date of receipt of the assent of the President to the amendment contained in section 117 of Finance Act, 2000. In CCE, Meerut-I vs. Avadh Alloys Pvt. Ltd. (2004) 173 ELT 34 (Tri-Del), it has been held that, in the event of failure to pay service tax within 30 days from the President's assent, which was received on 12-5-2000, the appellant is liable to pay interest from 12-6-2000, till the date of payment.
       
2. Penalty
   1. The penalties prescribed for various defaults prior to enactment of the Finance Act, 2004 (i.e., prior to 10-9-2004) are summarized in table below:

      Sr.No.	Section	Nature of default	Quantum of penalty
      1	75A	Failure to register in accordance with provisions of section 69	Rs. 500/- (Mandatory Penalty)
      2	76	Failure to pay service tax on due date prescribed under the rules	Minimum of Rs. 100/- and maximum of Rs. 200/- per day, during which default continues restricted to amount of service tax
      3	77	Failure to furnish Half yearly Return under section 70	Not exceeding Rs. 1,000/-
      4	78	Suppressing value of taxable service	Minimum amount of service tax evaded, by reason of suppression up to maximum of twice the amount of service tax evaded. (Refer note 1 below)
      5	79	Failure to comply with notice under section 71	Minimum 10% and maximum 50% of the amount of service tax avoided

      Note:

      1)

      The Finance Act, 2003 has restricted the penalty under section 78 to 25% of service tax, if the amount of service tax, interest and such penalty, is paid within 30 days of the date of communication of the adjudicating order. Further, where the service tax determined to be payable is increased or decreased by the Appellate authorities or the Court, then the service tax so increased or decreased shall be considered for determining the quantum of penalty payable (25%) provided the amount of service tax so increased, along with interest and consequential increased penalty, is paid within 30 days of date of communication of the order by which such increase in service tax takes effect. The benefit of such reduced penalty shall also apply in cases, where the order determining the service tax relates to notices issued prior to 14th May, 2003.

   2. The penalties prescribed for various defaults after enactment of the Finance Act, 2004, effective from 10-9-2004, are summarized in table below:

      Sr. No.	Section	Nature of default	Quantum of penalty
      1	75A	Deleted	—
      2	76	Failure to pay service tax on due date prescribed under the rules	Minimum of Rs. 100/- per day and maximum of Rs. 200/- per day, during which default continues restricted to amount of service tax
      3	77	Contravention of any provisions of Service Tax Act or Rules (Refer note 1)	Not exceeding Rs. 1,000/-
      4	78	Where service tax has not been levied or paid or short levied or paid or erroneously refunded by reason of: a) Fraud or b) Collusion or c) Wilful misstatement or d) Suppression of facts or e) Contravention of any of the   provisions of Service Tax or Rules made thereunder with intent to evade payment of service tax	Minimum amount of service tax evaded by reason of suppression up to maximum of twice the amount of service tax evaded or erroneously refunded (Refer notes 2 & 3 below)
      5	79	Deleted	—

      Notes:
      1)	Penalty under section 77 will be used invariably in all cases where provisions dealing with registration, filing of returns etc. have not been complied with or contravened, even without any intention to evade service tax.
      2)	Refer Note 1 appended to table in para 2.1 hereinabove.
      3)	The amended section 78 is on similar lines with section 11AC of Central Excise Act, 1944.

   3. Section 80 provides that no penalty is imposable under sections 76, 77 and 78, if the assessee proves that there is "reasonable cause" for the failure referred to in those sections. The expression "reasonable cause" is not defined in the Act, and it would depend upon the facts and circumstances of each case and would necessarily have to be logical and in ordinary course.
      
      
   4. Important Case Laws
      1. It is mandatory on part of the department, to follow the principle of natural justice viz., audi alteram partem rule (i.e., hear the other party) before imposition of penalty and provide the assessee a reasonable opportunity to prove that there was a reasonable cause and pass a proper speaking order. [Ashwani Associates vs. CCE, New Delhi (2000) 118 ELT 57 (Tri-Del)]
         
      2. An Order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should 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 all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial 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. [Hindustan Steel Ltd. vs. State of Orissa (1978) 2 ELT J59 (SC)]. Note : The above case is a well known case under the Sales Tax law but is invariably quoted and relied upon in similar situations under other laws.
         
      3. The use of phrase "who fails to pay such tax" in section 76 cannot be interpreted to mean that section cannot be applied to a person who has paid the tax after some delay. The CESTAT has held that, section 76 applies to person who fail to pay service tax including person, who fail to pay such tax for any period of time beyond the due date [R. B. Bahutule vs. CCE (2004) 166 ELT 233 (Mum-CESTAT)]
         
      4. The Hon’ble Tribunal held that, on a plain reading of section 76 (before amendment), it was clear that, in absence of comma after the words "rupees one hundred" in section 76 the minimum penalty was an absolute amount of Rs. 100/- and maximum penalty was Rs. 200/- per day of default and not Rs. 100/- per day or Rs. 200/- per day of default. [Smita Shetty vs. CCE, Bangalore (2003) 156 ELT 84 (Tri-Bang.)]. It is to be noted that to overcome this judgment an amendment has been effected in section 76 w.e.f. 10-9-2004 to prescribe the penalty of Rs. 100/- per day or Rs. 200/- per day of default
         
      5. The Bangalore Tribunal after relying on decision in Smita Shetty vs. CCE (supra), observed that the service tax is a new levy and the appellant did not know about the promulgation of the levy. Further it is observed, the appellant has deposited the service tax along with interest and in view of this fact the action of the appellant is found to be bonafide. The Tribunal finally rejected the appeal filed by the department, against Commissioner Appeal’s order setting aside the penalty [CCE, Bangalore –III vs. Impress Ad-aids & Displays (2004) 173 ELT 137 (Tri-Bang.)].
         
      6. Penalty for failure to file returns on time can be imposed only under the provisions of law existence at the time of issuing a show cause notice and not at the time of filing of the returns [West Minster International (P) Ltd vs. CCE, New Delhi (2002) 140 ELT 244 (Tri-Del)].
         
      7. The Delhi Tribunal reduced the penalty for delay in filing the return to a token figure of Rs. 5,000/- since the appellant were under a bonafide belief that they were exempted from service tax [Palika Palace vs. CCE, Chandigarh (2001) 134 ELT 677 (Tri-Delhi)].
         
      8. Section 11AC of the Central Excise Act, 1944, is on similar lines to section 78, provides for a mandatory penalty only in cases were there has been a short levy by a reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Act or the Rules made thereunder with intent to evade payment of duty. In the impugned case the ingredients for invoking section 11AC were neither specified in the Show Cause Notice nor the same had been recorded by the adjudicating authority. Therefore the provisions of section 11AC per se were not applicable. The mandatory penalty imposed is therefore not sustainable [Penta Media Graphics Ltd. vs. CCE, Chennai-iii. (2003) 160 ELT 980 (TRIB)]
         
      9. The Apex Court while dealing with sections 11A and 11AC of the Central Excise Act, 1944 (similar to sections 73 and 78 of Service Tax Act), observed that, "as far as fraud and collusion are concerned; it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word "wilful" preceding the words "mis-statement or suppression of facts" which means with intent to evade duty. The next set of words "contravention of any of the provisions of this Act or Rules" are again qualified by the immediately following words "with intent to evade payment of duty". It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to section 11A. misstatement or suppression of fact must be wilful". [Cosmic Dye Chemical vs. CCE, Bombay (1995) 75 ELT 721 (SC)]
         
      10. In order to attract penalty under section 78, an element of mens rea is essential. In this regard useful reference can be made to the following observations made by Apex Court:

          "Now coming to the relevant clause, the following material ingredients constitute an offence thereunder: (1) a person must have a knowledge that there is a prohibition or restriction against doing any of the enumerated acts with respect to goods imported or exported contrary to the restriction or prohibition imposed against their import or export; (2) he must have acted with an intention to evade such a restriction or prohibition; there is no offence unless the said two elements of mens rea namely, knowledge and intention, are established. It is not enough if a person has only knowledge of such a prohibition or restriction; in addition he shall have the intention to evade such a prohibition or restriction against the import or export of goods, as the case may be. Knowledge of an offence cannot be equated with an intention to commit the offence. Such a construction effaces the distinction between the two distinct elements of mens rea, knowledge and intention, laid down in the clause."[Sachidananda Banerjee, A.C.C.,
          Calcutta vs. Sitaram Agarwala (1999) 110 ELT 292 (SC)]

      11. The Larger Bench of Delhi Tribunal after relying on Karnataka High Court judgment in CCE, Mangalore vs. Shree Krishna Pipe Industries (2004) 165 ELT 508 (Kar) held that, when the duty amount is paid by the assessee before issuance of show cause notice, no penalty can be imposed under section 11AC [CCE, Delhi-III, Gurgaon vs. Machino Montell (I) Ltd. (2004) 168 ELT 466 (Tri-LB)].

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