The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad, has granted partial relief to Quilon Real Industries Pvt. Ltd., a Bharuch-based engineering services company, by setting aside the equal penalty imposed under Section 78 of the Finance Act, 1994. The bench, however, upheld the firm’s liability to penalty under Section 76 for delayed payment of service tax.
The bench of Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) ruled that a penalty of about Rs. 16 lakh (10% of the tax liability) would be appropriate under Section 76. Since the company had already deposited over ₹40 lakh towards penalty earlier, it was given the option to adjust the amount accordingly.
The case stemmed from a show cause notice dated June 26, 2018, issued after tax officials unearthed non-payment of service tax amounting to ₹1.60 crore during inspections at the company’s premises. The firm, engaged in erection, commissioning, installation, manpower supply, and repair services, had also rendered services to Samsung Engineering Co. Ltd., located in a Special Economic Zone (SEZ), without furnishing the mandatory A-2 form.
During investigation, the company’s Managing Director admitted a tax liability of over ₹2.43 crore, including obligations under reverse charge and services to SEZ clients. While the company subsequently paid the full tax dues and interest, the adjudicating authority imposed a penalty equal to the tax demand under Section 78, citing suppression of facts with intent to evade.
The company challenged this penalty, arguing that the non-payment was not intentional but due to severe financial distress, as two major clients — Inox Wind Ltd. and Aneja Constructions India Ltd. — had defaulted on payments worth nearly ₹97 lakh. The appellant contended that invoices were duly raised, service tax was shown in the books, and partial payments had been made even before the search, demonstrating no intent to evade.
The tribunal, after reviewing submissions, held that the ingredients for invoking Section 78 were not satisfied, since the shortfall arose out of financial hardship rather than deliberate suppression. However, it noted that the firm had indeed failed to discharge its tax obligations on time, warranting a penalty under Section 76, which prescribes up to 10% of the tax amount as penalty in cases of non-payment without fraud or suppression.
The tribunal partly allowed the appeal, with the equal penalty under Section 78 being quashed, but a reduced penalty under Section 76 being imposed.
Case Details
Case Title: M/s Quilon Real Industries Pvt. Ltd. Versus CGST & Central Excise- Vadodara-II
Case No.: Service Tax Appeal No. 11044 of 2019
Date: 28.08.2025
Counsel For Appellant: Vinay Kansara, Advocate
Counsel For Respondent: M. P. Solanki, Assistant Commissioner (AR)
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