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2015 (7) TMI 1105 - MADRAS HIGH COURT

2015 (7) TMI 1105 - MADRAS HIGH COURT - [2016] 87 VST 344 (Mad), 2016 (43) S.T.R. 45 (Mad.) - Demand of service tax of the dissolved partnership firm from the erstwhile partners - tribunal set aside the demand - marking of copies of the show-cause notice to the three partners along with the firm, without raising any demand in the notice for recovery from the partners - renting the cabs - extended period of limitation - Held that:- Section 25 of the Partnership Act clearly mandates that all the p .....

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Act by marking copies of the notice to the partners would in no way be termed as insufficient notice on the partners. 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 acti .....

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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 appellant/Revenue is before this court by filing the present appeals. This court, vide order dated June 11, 2010, while admitting the appeals, framed the following substantial questions of law for considerat .....

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that marking of copies of the show-cause notice to the three partners along with the firm, without raising any demand in the notice for recovery from the partners is not sufficient/a substitute for show-cause notice ? (2) Whether a demand of service tax could not be confirmed on the partners of the dissolved firm M/s. Lakshmi Travels, Karaikal, when the said firm was found by the adjudicating authority to be liable forpayment of service tax on renting the cabs and the partners duly availed of th .....

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in terms of which mere omission or failure on the part of the assessee to make a return for any prescribed period or to disclose wholly or truly all of the material facts required for verification of the assessment would attract the extended period of five years for issuing a show-cause notice for recovering the amount that escaped assessment ?" The brief facts, that led to the batch of appeals are as under: The appellant/Department, on the basis of specific intelligence gathered, found th .....

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d 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 sec .....

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2003 and after October, 2003, went out of the partnership and submitted application in form 5 with the Registrar of Companies, Nagapattinam. Lakshmi Travels having not registered with theDepartment and since failed to pay service tax, as admitted by the said Muruganantham, and based on records received from ONGC and CPCL, the Department came to the conclusion that Lakshmi Travels is engaged in the business of rent-a-cab from the year 1998 onwards. They received monthly hire charges, but they fa .....

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e during the said period; (iii) Have contravened the provisions of- (a) Section 68 of Chapter V of the Finance Act, 1994 read with rule 6 of the Service Tax Rules, 1994 inasmuch as they have wilfully not paid service tax on the charges received by them for the services rendered to ONGC and CPCL; (b) Section 69 of Chapter V of the Finance Act, 1994 read with rule 4 of the Service Tax Rules, 1994, inasmuch as they have wilfully not registered with the Department; (c) Section 70 of Chapter V of the .....

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ice rendered by them; (b) Section 76 of Chapter V of the Finance Act, 1994, inasmuch as they have wilfully evaded payment of the service tax on the taxable services rendered by them; (c) Section 77 of Chapter V of the Finance Act, 1994, inasmuch as they have failed to file the prescribed 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, 199 .....

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riod 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 date following the stipulated date for the .....

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Letter of Acceptance Ref: CAN:01:048 dated September 7, 2003 addressed to Lakshmi Travels, 36/1, First Floor, Kennadiar Street, Karaikal. (4) Ledger extract of Lakshmi Travels in the books of CPCL. (5) Letter No. ONG/KKL/F&A/01/2005/02, dated September 21, 2005 of ONGC, Karaikal enclosing copies of TDS Certificates for the years 2000-01 (xerox copies) containing details of payments made to Lakshmi Travels. (6) Statement of Shri N. Muruganantham, Partner of Lakshmi Travels dated October 21, 2 .....

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led and, therefore, a personal hearing was fixed on November 8, 2006, which was adjourned to November 17, 2006 and finally to November 23, 2006. The hearing was conducted and it has been recorded that the assessees admitted their share of tax liability of one-third each and agreed to pay their share within thirty days. For better clarity, the said portion is extracted hereinbelow: "During the course of PH held on November 23, 2006 Shri N. Muruganandam and Shri G. Govindaraj jointly appeared .....

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h 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 .....

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consequent to the closure of business. For better clarity, the relevant portion of the order is extracted hereinbelow: "As M/s. Lakshmi Travels is no more in existence, all the three partners in their personal appearance agreed to share tax liability equally. This is a peculiar case coming up for adjudication before me. M/s. Lakshmi Travels is a partnership concern consists of three partners S/Shri G. Sanjeevi, N. Muruganantham and G. Govindaraj as per the registered partnership deed dated .....

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the business. When all the three partners have the equal rights to decide the financial matters and are having equal share and has spared their vehicles for conduct of business all the three partners have equal right to adhere to the legal formalities to be observed and payment of Government dues in time. Hence plea of Shri N. Muruganandam and G. Govindaraj that they have not aware that Shri G. Sanjeevi has not taken out service tax registration and not paid the service tax to the Department an .....

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ilities as envisaged under the provisions of the Indian Partnership Act wherein the Act itself provides unlimited liabilities on their shoulders. Any sketch of information or grounds or allegation thrown on any one or more partners will not entitled the other partners from legal responsibilities. Hence all the three partners on which show-cause notices were issued are liable to clear their 1/3 of the tax liabilities which works out to ₹ 1,29,294. More so during the period in question when .....

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de 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 .....

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x procedure and, but for the investigation by the Department, the evasion would not have come to light. The adjudicating authority, therefore, held that the assessees are liable for payment of tax and consequential penalty under the provisions of Chapter V of the Finance Act, 1994 under the head "rent-a-cab services". In the order, strangely, the adjudicating authority withdrew the show-cause notice issued insofar as the firm, Lakshmi Travels is concerned, primarily on the ground that .....

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share of Shri G. Sanjeevi. (4) I demand service tax amount ₹ 1,29,294 being 1/3 share of N. Muruganantham. (5) I demand service tax amount ₹ 1,29,294 being 1/3 share of G. Govindaraj. (6) I do not propose to impose any penalty under sections 76 and 77 of the Finance Act, 1994 in view of the power conferred under section 80 of the Finance Act, 1994. (7) I impose a penalty of ₹ 1,00,000 (rupees one lakh only) under section 78 of the Finance Act, 1994 to Shri G. Sanjeevi, managin .....

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eals before the Commissioner (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 wit .....

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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 Central Excise shall communicate the order passed by him under sub-section (1) to the assessee, the Central Excise Officer and the Board. (4) No order under this section shall be passed by the Commis sioner of Central Excise in respect of any issue if an appeal against such issue is pendin .....

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be modified and, consequently, the demand of service tax on Lakshmi Travels should be restored with interest and penalty. The show-cause notice was issued invoking section 84 of the Finance Act on November 2, 2007 and was served on all the three partners and they responded to the notice and there again the Commissioner passed an order in Revision No. 5/08, dated February 22, 2008 confirming the demand of ₹ 3,87,881 on Lakshmi Travels and also held that the tax liability should be shared am .....

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ayed in the following manner and one of the appellant is Lakshmi Travels: "1. G. Govindaraj 2 & 4. N. Muruganantham 3. G. Sanjeevi 5. G. Govindaraj 6. M/s. Lakshmi Travels . . . Appellants v. Commissioner of Central Excise (Service Tax), Trichy . . . Respondent" The Tribunal, adverting to the various proceedings as above, came to hold that mere marking of the show-cause notice dated October 21, 2005 and October 16, 2006 to the partners without any proposal to recover tax from them .....

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ctober, 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 prem .....

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r, 2005 covers the period from 2000- 01 to 2003-04 (up to October, 2003) which notice is beyond the statutory period of limitation and the extended period is not available to the Department in the light of the fact that even as far back as December, 2001, the excise authorities had knowledge that Shri G. Sanjeevi, one of the partners of M/s. Lakshmi Travels, had neither registered himself with the Central Excise Department nor paid the appropriate service tax and, therefore, the appellants canno .....

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t by filing the above appeals, primarily contending that section 25 of the Partnership Act fastens liability on every partner, jointly and severally, liable for all the acts of the firm while he is a partner. To buttress this argument, reliance is placed on the decision of this court in Sinnaraju Chettiar v. Union of India [2000] 126 ELT 522 (Mad). The learned counsel for the Department pleaded that the original show- cause notice was issued on the firm in terms of section 25 of the Partnership .....

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iability of the partners stand established. There is no need for a separate show- cause notice to each one of the partners in accordance with the provisions of section 25 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 ad .....

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e 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 of suppression raised by the Department has been negatived by the Tribunal as is evident from the order of the adjudication, since the fa .....

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ment of Revenue, Central Board of Excise and Customs vide Instructions dated October 20, 2010 in F. No. 390/Misc./163/ 2010-JC, mandates that no appeal shall be filed to the High Court against the order of the Tribunal where the tax demand is below ₹ 2 lakhs. In the case on hand, the tax demand on the firm, viz., Lakshmi Travels is to the tune of ₹ 3,87,881, which is above the threshold limit of ₹ 2 lakhs fixed for filing the appeal. The tax demand clearly falls outside the pur .....

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s should not be filed in cases where the duty involved or total revenue including fine or penalty is ₹ 2 lakhs and below. While deciding the thresholds mentioned above the duty involved shall be the decisive element. For example, in a case involving duty of ₹ 1 lakh with mandatory penalty of ₹ 1 lakh besides any other penalty imposed under the relevant provisions of law, no appeal shall hence- forth be filed in the Tribunal as the duty involved is within the monetary limit of & .....

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n 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 ha .....

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spect of the affairs of the firm. There cannot be any dispute on the point that every partner is liable jointly and severally with all other partners for all acts of the firm done while he is a partner. The key word is "all acts of the firm" and, consequently, the liability of the partners jointly and severally along with other partners. In this case, the original show-cause notice is on the partnership firm, which came to be erroneously withdrawn, on the statement made by the partners .....

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an be made to the decision of this court in Sinnaraju Chettiar v. Union of India [2000] 126 ELT 522 (Mad) wherein this court held as under: "5. The general rule as to a person's liability as a partner laid down in section 25 of the Partnership Act confines that liability to all acts of the firm done while he is a partner. This is on the principle of agency. The various grounds on which a person may incur liability as a partner are: (i) A partner may become liable for an act done by anot .....

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e is a partner and that the liability is both joint and several. The expression 'act of a firm' means any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm. The general rule as to a partner's liability for acts of the firm, based as it is on the principle of agency 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 sec .....

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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 w .....

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that notice to individual partners was necessary before the firm was dealt with. None of the authorities is in point. In Syed Cassim v. Collector of Central Excise [1962] II M.L.J. 499 the principle laid down is that the penal provision in the Sea Customs Act should be construed strictly and that the authorities issuing a show-cause notice should comply strictly not only with the letter of the law but also with the spirit of it. In that case, the notice merely mentioned the statutory provision w .....

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ut this principle in the instant case, because all the prescribed notices were given tothe firm and were acknowledged by the managing partner and were also replied to. The decision in Collector of Customs v. Sitaram [1999] 110 ELT 292 (SC); [1966] 2 SCR I was concerned with the meaning of the expression 'in any way concerned in or in any manner dealing with any goods' occurring in section 167(81) of the Sea Customs Act, 1878. That is not relevant for the purpose of this case. 10. It is n .....

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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 othe .....

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undertaken to make good the demand raised against the firm. Such being the case, correcting the technical error by the Commissioner (Appeals) by issuance of notice to the firm under section 84 of the Finance Act by marking copies of the notice to the partners would in no way be termed as insufficient notice on the partners. 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 tha .....

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