PERSONAL PENALTY ON COMPANY DIRECTORS

[Dr. Sanjiv Agarwal]

Penalty for Offences by Director etc. of Company (section 78A - w.e.f. 10.05.2013)

Finance Act, 2013 has inserted a new section 78A in the Finance Act, 1994 to provide for penalty for offences by director etc of a company w.e.f. 10.05.2013.

Section 78A reads as under -

"78A. Where a company has committed any of the following contraventions, namely:-

1. evasion of service tax; or
2. issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter; or
3. availment and utilisation of credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter; or
4. failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention, shall be liable to a penalty which may extend to one lakh rupees.".

section 78A has been inserted so as to impose penalty, which may extend up to one lakh rupees, on director, manager, secretary or other officer of the company for knowingly involved in the contraventions specified therein.

Thus, section 78A provides for imposition of penalty on director, manager secretary, or other officer of the company, who is in any manner knowingly concerned with specified contraventions.

Salient features of Penalty for Offences by Company Officials under Section 78A -

• To impose penalty for contraventions/violations by Company
• Penalty may extend up to Rs. one lakh per official
• Penalty on any director, manager, secretary or officer of Company
• Incharge/responsible to Company for conduct of business of Company
• If knowingly involved in specified contraventions
• Penalty may be levied on more than one person for single contravention/offences

Specified Contraventions

• Evasion of Service Tax
• Issuance of bill/Invoice/challan without provision of service in violation of rules.
• Availment and utilization of credit of taxes /duties without actual receipt of services / goods either fully or partially.
• Failure to pay amount collected as service tax to the credit of Central Government beyond 6 months of the due date.

Who is Punishable

Any person who is

• director
• manager
• secretary
• other officer

and who at the time of contravention was in charge of/was responsible to company

• for conduct of business, and
• was knowingly concerned with such contravention.

Personal Penalty on Partners / Proprietors

None of the aforementioned provisions provide for personal penalty on partners/proprietor of the firm. However, section 77 talks of any person but such expression 'any person' does not imply more than one person or 'firm as well as partner' for the same offence. If it is meant to be such, it may result in double penalty or even more.

In certain cases, Department seeks to impose personal penalty on the partners u/s 77 of the Finance Act, 1994 (as amended) which has not been specifically provided in the statutory provisions. The SCN levies penalty u/s 77 on the firm and separate penalty on partners u/s 77 is over and above the penalties proposed to be levied u/s 76, 77 and 78.