TMI Blog2015 (7) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... . All the partners having been well aware of the demand on the firm and having undertaken to make good the demand before the adjudicating authority, now, cannot take a plea that they could not contest the said cause due to insufficient notice - Demand confirmed - Decided in favor of revenue. Extended period of limitation - Held that:- The plea of knowledge in respect of activities of Lakshmi Travels being attributed to the Department has no legs to stand. The Tribunal clearly was in error in comparing the activities of one Sanjeevi to the activities of the firm, Lakshmi Travels, Karaikal, which is in a totally different place altogether. Therefore, the reasoning given by the Tribunal, on the plea of limitation is fallacious and not tenable in law. - Demand confirmed - Decided in favor of revenue. - C. M. A. Nos. 1175, 1176, 1177, 1178 of 2010 - - - Dated:- 10-7-2015 - R. Sudhakar and Ms. K.B.K. Vasuki, JJ. M. Santhanaraman for the appellant. M. N. Bharathi for M/s. Ramesh Venkatachalapathy and A. Sivasubramanian for the respondents. JUDGMENT Aggrieved by the order of the Tribunal in allowing the appeals filed by the respective first respondent herein, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to pay the service tax. The matter was investigated by the officers of the Central Excise Head Quarters Anti Evasion, Trichy. From the details gathered from Oil Natural Gas Corporation (for short ONGC ), Karaikal, Chennai Petro- Chemicals Ltd. (for short CPCL ), etc., it was found that one Lakshmi Travels, No. 36/1, 1st floor, Kennadiar Street, Karaikal, have entered into comprehensive periodical contract with these two companies for providing cab services on rent basis and received payment to the tune of ₹ 32,54,751 from ONGC and ₹ 42,19,567 from CPCL for the periods 2000-01 to 2003-04. The services rendered by M/s. Lakshmi Travels, a partnership firm, under the contract agreement with ONGC and CPCL falls under the category of rent-a-cab services as per section 65(91) of the Finance Act, 1994. In the course of investigation, summons were issued to the last known address of Lakshmi Travels for production of records. The summons issued to the address of the firm and the address of one of the partners returned with endorsement No such address . However, on October 21, 2005, statement was recorded from N. Muruganantham, one of the partner of Lakshmi Travels, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ST3 returns or have not furnished returns as prescribed in terms of section 70 of Chapter V of the Finance Act, 1994; (vi) Are liable for payment of interest under section 75 of Chapter V of the Finance Act, 1994. 10. Now, therefore, Lakshmi Travels, No. 36/1, First Floor, Kenna- diar Street, Karaikal 609 602 are hereby required to show cause to the Deputy Commissioner of Central Excise, Karaikal Division, No. 1, Noolkadai Street, Karaikal, within 30 days from the date of receipt of the notice as to: (i) Why the service tax of ₹ 3,87,881 (rupees three lakhs eighty seven thousand eight hundred and eighty one only) as detailed in annexure A to this notice should not be demanded from them for the period from April, 2000 to October, 2003 under section 73(1)(a)/erst- while section 73 and proviso to sub-section (1) of section 73 of Chapter V of the Finance Act, 1994; (ii) Why penalty should not be imposed on them under: (a) Section 76; (b) Section 77; and (c) Section 78 of the Chapter V of the Finance Act, 1994; (iii) Why interest should not be demanded from them under section 75 of Chapter V of the Finance Act, 1994 at the appropriate rate from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income-tax stating that he is the sole proprietor of M/s. Lakshmi Travels. However they have admitted that their share of tax liability of 1/3 each and agreed to pay within 30 days. Muruganantham and Govindaraj have, however, stated in the letter dated November 27, 2006 that it was Sanjeevi, who was operating Lakshmi Travels as one man show and they have nothing to do with the business of Lakshmi Travels, Karaikal and they requested that they should not be mulcted with service tax liability. In fact, the stand of Muruganantham and Govindaraj was that Sanjeevi was the master-mind and they should be left out except for the purpose of sharing the tax liability to an extent of one- third each, which they admitted and we have referred to above. The nature of business activity of the three partners of the firm and the way the business was managed, have been discussed in the adjudication order, whereinafter the adjudicating authority has concluded that there is a clear case of deliberate evasion of payment of service tax. The adjudicating authority has further recorded the undertaking given by the partners to share the liability consequent to the closure of business. For better ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,29,294. More so during the period in question when demand is payable to M/s. Lakshmi Travels, all the three partners were very much covered by the registered partnership deed. When the partners Shri N. Muruganantham and Shri G. Govindaraj can cleverly unearthen the income-tax return refund order filed by the other partnerwith Income-tax Department, in order to make an attempt from getting out of the tax responsibility, they being educated persons can understand the tax provisions of the Indian Partnership Act, service tax rules and would have made voluntary compliance if not earlier or at least on receipt of SCN. It is very painful to note that even though all the partners have agreed to pay 1/3 of their tax liability, they have not done the same till today. From the xerox copy of the income-tax return and connected papers submitted by Shri G. Sanjeevi to the Income-tax Department, even though he was only a managing partner of M/s. Lakshmi Travels, he has to do so as and sole proprietor, shows his criminal mind in getting tax relief by cook or crook. But being such a perverted intelligence, he has deliberately avoided payment of service tax to the Department in time. Keeping in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner (Appeals) against the order-in-original dated November 30, 2006. The Commissioner (Appeals) heard all the three appeals in Appeal Nos. 17, 18, and 19/2007 and vide Order-in-Appeal No. 25/2007 dated April 2, 2007, upheld the order passed by the adjudicating authority and rejected the appeals filed by the partners. In the meanwhile, the Commissioner (Appeals), on going through the adjudication order, realizing that the show-cause notice as against the firm has been withdrawn, to correct the error, issued a show-cause notice by virtue of powers conferred under section 84 of the Finance Act, 1994, which reads as under: 84. Revision of orders by the Commissioner of Central Excise.-(1) The Commissioner of Central Excise may call for the record of a proceeding under this Chapter which has been taken by the Central Excise Officer subordinate to him 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) The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he partners. Consequently Appeal Nos. 76, 77 and 139 of 2007 were allowed. The relevant portion of the order is extracted hereunder: 3. I have heard both sides. I see force in the submission of the three partners that no demand can be confirmed against them in the absence of any show-cause notice proposing recovery of tax from them. Marking of the copies of the show-cause notice dated October 21, 2005 and October, 2006 to the partners without raising any demand in the notice for recovery from the three partners is not sufficient and the marking of the copy is not a substitute for the show- cause notice against the individuals. I, therefore, set aside the demands confirmed against the partners vide Order-in-Appeal No. 25/2007 dated April 2, 2007 and allow Appeal Nos. ST/76, 77 and 139/2007. In respect of the other three appeals against Order-in-Revision No. 5/08, the Tribunal went on the premise that the claim is barred by limitation because of the knowledge of the Department even as early as December, 2001 relating to the activities of Sanjeevi. Therefore, the Tribunal held that larger period of limitation will not lie. On the plea of time-bar, the appeals were allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Partnership Act read with rule 26 of the Partnership Rules. Insofar as limitation is concerned, it is the plea of the learned standing counsel for the Department that what has been recorded in the adjudication order is in relation to activities of certain rent-a-cab operators and reference is made to one Sanjeevi. The address of Sanjeevi is not in any way relatable to the address of the firm, viz., Lakshmi Travels. There is no link between the two addresses and, therefore, the plea of knowledge in December, 2001, raised by the assessees, has, no legs to stand. Per contra, Mr. M. N. Bharathi, learned counsel appearing for the respondents raised a preliminary objection on the ground that the tax liability falls within the parameters of the National Litigation Policy and, therefore, the appeals at the behest of the Department is not maintainable. Secondly, it is contended that since the show-cause notice against Lakshmi Travels has been withdrawn and no notice has been issued to the partners, the same is fatal to the Department, which cannot be cured by a subsequent notice issued by the Commissioner (Appeals) under section 84 of the Finance Act, 1994. Thirdly, the plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification, it is clear that the threshold limit of ₹ 2 lakhs is the decisive element for the purpose of deciding whether appeal should be filed or not. In the case on hand, the tax demand is over and above ₹ 2 lakhs fixed in the above notification. Further, the notification only speaks about the total demand and not splitting up of the same between two/more entities. Such being the case, the demand being above ₹ 2 lakhs, this court is unable to accept such a plea, as the primary liability of service tax is on the firm, represented by its partners, which has been confirmed as against the firm in a sum of ₹ 3,87,881. This court is of the considered view that the notification referred to above will not have any application to the case on hand. Accordingly, the first substantial question of law is answered in favour of the appellant/Department and against the respondent/assessees. The next contention of the Department is that the Tribunal erred in holding that marking of notice to the partners is not sufficient and not substitute for notice to the individuals. It is contended that the Tribunal, on a wrong premise, held that the show-cause notice should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gency properly confines that liability only to acts of the firm done while he is a partner. What is required to bring a case under this section is that the act of the firm in respect of which liability is sought to be enforced against a party must have been done while he was a partner. If an act is binding on the firm, every partner will be liable for it. This is irrespective of the fact that a partner was not known as a dormant or a secret partner. The true principle of partnership liability being the existence of an implied agency, it follows that every partner should be liable for all acts of the firm. 6. Section 26 provides for the liability of the firm for wrongful acts of a partner in general. The general rule is that a firm is liable for any loss or injury caused to a third party by the wrongful acts or omissions of a partner if they were done by him while acting: (a) in the ordinary course of the partners; and (b) with the authority of the partners. To bring a case within the purview of section 26, it is necessary to show either that the act of the partner was authorized by his co-partners or that in doing it he was acting in the ordinary course of the business of the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt payable and the circumstances under which the levy was made. His explanation was that he did not attach any importance to that reference, because, according to him, the third respondent was frequently asking financial calls with a view to exploit him. This explanation is not believable. On the admission of the first petitioner it is clear that the third respondent, as the managing partner, also brought to the notice of the other partners that the firm had been dealt with for the importation in question and that penalty had been levied. The other partners took no action to absolve themselves from liability until they were proceeded against to recover the balance of the penalty. Section 25 of the Partnership Act clearly mandates that all the partners are jointly and severally liable for all acts of the firm done while he is a partner. Further, in the case on hand, notice has been issued on the firm, which has also been marked to all the partners. It is also borne out by record that all the partners have accepted the liability and undertaken to make good the demand raised against the firm. Such being the case, correcting the technical error by the Commissioner (Appeals) by issu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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