Service Tax - Amended provisions of Sec 78 – Whether applicable for offences before 08.04.2011?
VIDE Finance Act, 2011, Section 78 of the Finance Act, 1994 has been substituted with a totally new set of provisions to deal with quantum of penalty in different situations. In terms of the amended provisions, according to the first proviso to Section 78(1), where true and complete details of the transactions are available in the specified records, penalty shall be reduced to fifty per cent of the service tax not levied or paid or short-levied or short-paid or erroneously refunded.
Now the point of doubt is whether the benefit of 50% penalty can be extended to the offences committed prior to the substitution of Section 78 with effect from 08.04.2011.
The Commissioner (Appeals), Pune III recently had to decide an appeal on this interesting dispute. The Adjudicating authority imposed 50% penalty under the first proviso to Section 78(1) and the department filed an appeal with the Commissioner (Appeals) on the ground that the provisions of amended Section 78 cannot be applied to the case as the period of offence is before 08.04.2011.
The Commissioner (Appeals) passed an interesting order (which may soon be reviewed by the Department for filing appeal) holding that there is no merit in the appeal by the Department and there is no error in applying the new provisions of Section 78 for the offences prior to 08.04.2011. Some of the excerpts from the order:
In respect of effect of amendment of law, in the case of T. Barai Vs Henry Ah Hoe ( 1983-1-SCC-177), it was held:
It is quite clear that insofar as the Central Amendment Act creates new offences or enhances punishment for a particular type of offence no person can be convicted by such ex post facto law nor can the enhanced punishment prescribed by the amendment be applicable. But insofar as the Central Amendment Act reduces the punishment for an offence punishable under s. 16(1)(a) of the Act, there is no reason why the accused should not have the benefit of such reduced punishment. The rule of beneficial construction requires that even ex post facto law of such a type should be applied to mitigate the rigour of the law. The principle is based both on sound reason and common sense. This finds support in the following passage from Craies on Statute Law, 7th edn. at pp. 387-88 : "A retrospective statute is different from an ex post facto statute. "Every ex post facto law ..... " said Chase J. in the American case of Calder v. Bull(1) "must necessarily be retrospective, but every retrospective law is not an ex post facto law. Every law that takes away or impairs rights vested agreeably to existing laws is retrospective, and is generally unjust and may be oppressive ; it is a good general rule that a law should have no retrospect, but in cases in which the laws may justly and for the benefit of the community and also of individuals relate to a time antecedent to their commencement : as statutes of oblivion or of pardon. They are certainly retrospective, and literally both concerning and after the facts committed. But I do not consider any law ex post facto within the prohibition that mollifies the rigour of the criminal law, but only those that create or aggravate the crime, or increase the punishment or change the rules of evidence for the purpose of conviction ..... There is a great and apparent difference between making an unlawful act lawful and the making an innocent action criminal and punishing it as a crime."
To illustrate, if Parliament were to re-enact s. 302 of the Indian Penal Code, 1860 and provide that the punishment for an offence of murder shall be sentence for imprisonment for life, instead of the present sentence of death or imprisonment for life, then it cannot be that the Courts would still award a sentence of death even in pending cases. In Rattan Lal v. The State of Punjab, the question that fell for consideration was whether an appellate court can extend the benefit of Probation of Offenders Act, 1958 which had come into force after the accused had been convicted of a criminal offence. The court by majority of 2 : 1 answered the question in the affirmative. Subba Rao, J. who delivered a majority opinion, concluded that in considering the question, the rule of beneficial construction required that even ex post facto law of the type involved in that case should be applied to reduce the punishment.
I find myself also in agreement with the contention of the Respondent that since Section 78 of the Act has not been amended, but has been substituted, the provisions of Section 78 as they existed prior to 08.04.2011 cannot be applied while imposing penalty under Section 78 of the Act after 08.04.2011. It is settled law that when a new penal provision substitutes an earlier provision, and the offence remains the same, then the earlier legal provision is obliterated.
It clearly emerges that neither there was any intention to save the tougher provisions of Section 78 of the Act after 08.04.2011, nor Section 38A of the Central Excise Act is legally capable of saving the provisions of erstwhile Section 78 of the Act as Section 78 is not a delegated piece of legislation. Erstwhile Section 78 does not exist after 08.04.2011. The principle of Beneficial Construction also does not allow imposition of higher penalty under the provisions of erstwhile provisions of Section 78.
The CBEC should clarify this position to avoid useless litigation. This issue is sure to exist in every Commissionerate.
Interestingly, the Adjudicating Authority extended the benefit of 25% penalty under the Second proviso to Section 78(1) if the amount is paid within 30 days. However, the Adjudicating Authority wrongly mentioned the penalty as Rs 3,15,050/- instead of Rs 6,30,100/-. (That is 25% of the penalty instead of 25% of the tax). The Commissioner (Appeals) held that the benefit of 25% penalty is not admissible on the ground that though the amount was wrongly mentioned by the Adjudicating Authority, it will not alter the legal position and the assessee should have correctly paid the 25% penalty within 30 days.