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Shri. T.R. Venkatadari, Shri. Sanjay Aggarwal, Shri. A. Raghunathan, Shri. Vijay Mallya Versus Commissioner of Service Tax-I, Mumbai

2017 (10) TMI 455 - CESTAT MUMBAI

Levy of personal Penalty u/r 77(2) on directors / employees - non payment of service tax by the company - retrospective effect of Section 77(2) - whether the appellants are liable to penalty under Section 77(2) of the Finance Act, 1994 for the offence of non payment of service tax committed by the company M/s Kingfisher Airlines Ltd. wherein the appellants are either directors or employees? - Held that: - penalty can be imposed on any person who contravenes any of the provisions of this chap .....

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Therefore by not paying the dues, the company admittedly contravened the provisions of the chapter of Finance Act,1994 and rules made thereunder. As regards individual persons, in the present case, directors and employees of the KAL are not liable to discharge the service tax liability of KAL, therefore the appellants have not contravened the provisions of Act or rules made thereunder. - Rule 26 of CER, 2002 is invokable on the individual person for the specific acts of the individual perso .....

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enalty on individual person can be imposed in connection with evasion of service tax by the assessee (KAL). - For service tax matters, when legislators thought deem fit that individual persons such as director, manager, secretary or other officer, of the company who committed specified contraventions a penal provision by way of insertion of Section 78A was enacted in the Finance Act, 1994. Had the provision of Section 77(2) sufficient for penalising individual person, there was no need of Se .....

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ed - decided in favor of appellant. - ST/87398, 87399, 87401 & 87402/13 - A/89947-89950/17/STB - Dated:- 26-9-2017 - Mr Ramesh Nair, Member (Judicial) And Mr. Raju, Member (Technical) Shri. Prasad Paranjape, Advocate for the Appellants Shri. R. Kapoor, Commissioner ( A.R. ) for the Respondent ORDER Per : Ramesh Nair The fact of the case is that appellants were imposed penalties under Rule 77(2) of the Finance act, 1994 for nonpayment of admitted liability of Service Tax by Company M/s. Kingfishe .....

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rospectively to any offence committed prior to the said date. Both the above propositions are upheld by the Hon ble Bombay High Court and approved by the Hon ble Supreme Court by dismissing the SLP filed by the government against the judgment of the Hon ble Bombay High Court in case of S.L. Korloskar Vs. Union of India [1993(68) ELT 533(Bom)]. He further submits that the SPL filed by the Revenue against the above judgment of the Hon ble Bombay High Court has been dismissed by the Hon ble Supreme .....

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n ble Court uses the word 'manufacturer'. There is no doubt about the proposition that if the word used is either 'manufacturer' or 'any other person who is liable to pay service tax..... (which has been used in Sec 77(a) of the Finance Act, 1994) would not make an individual liable for penal action. It was submitted during the course of hearing that Sec 77(b), as well as Sec 77 (c) (i,ii,iii) does not deal with either "manufacture" or "any person who is liable .....

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overnment. This fact was admitted by all the four persons. (c) Collecting of Service Tax and not paying the same is an offence under the Service Tax Act, and as such any person who has taken the decision to violate the law would be liable for penal action under the provision of Sec 77. (d) An alternate plea which had been taken by the appellant is that a provision for specific penalty on Directors has been introduced only w.e.f 10.05.2013, where the Director, manufacturer, secretary or other off .....

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he Rules and other provisions under the Finance Act 1994 in Section 77 even before Section 78A was introduced. (d) It was also submitted that the judgment in the case of Diwan Rahul Nanda Vs. CCE Goa [2013 (29)STR 544 (Tri-Mum)] cannot be treated as good law as it has not given any findings or any reasoning while observing that there is no provision under the Act to impose penalty on individuals. As such it cannot be treated as a binding precedent in the absence of cogent legal reasoning. (e) It .....

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on the Director. It is, therefore, implied that the Hon ble Tribunal had accepted the provision of imposition of penal action on Director under the provisions of Finance Act 1994. (f) The case of M/s. United Enterprises Vs. Commissioner of Central Excise & Service Tax, Patna [2013 (29) STR 605 (Tri-Kolkata)], was also brought to the notice of the Bench wherein the Co-ordinate Bench at Kolkata had, while setting aside the penalty on the Director, had observed that the said penalty is set asi .....

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f the Ld. A.R. he placed reliance on the following judgments: (a) Hatkesh Cooperative Housing Society Ltd V/s. Assistant Commissioner of Income Tax[2016-TIOL-2073-HC-MUM-IT] (b) M/s. Kripa Outdoor Publicity Vs. CESTAT, Chennai[2016-TIOL-132-HC-MAD-ST] 4. We have carefully considered the submissions made by both the sides and perused the records. 5. The short issue to be decided in the present case is that whether the appellants are liable to penalty under Section 77(2) of the Finance Act, 1994 f .....

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ified elsewhere. (1) - (2) Any person, who contravenes any of the provisions of this Chapter or any rules made thereunder for which no penalty is separately provided in this Chapter, shall be liable to a penalty which may extend to2[ten thousand rupees].] From the reading of the above rules, it is understood that penalty can be imposed on any person who contravenes any of the provisions of this chapter of the Finance Act, 1944 or any rules made thereunder for which no penalty is separately provi .....

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it is the company against whom the action of recovery of such unpaid tax can be made under the statute. Therefore by not paying the dues, the company admittedly contravened the provisions of the chapter of Finance Act,1994 and rules made thereunder. As regards individual persons, in the present case, directors and employees of the KAL are not liable to discharge the service tax liability of KAL, therefore the appellants have not contravened the provisions of Act or rules made thereunder. 7. In s .....

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d to comply the various provision of chapter of Finance Act,1994 and/or rules made thereunder. As regards provisions of the chapter of Finance Act, 1994 and/or rules made thereunder it is meant for levy of service tax and prescribed procedures therefore. The person liable for payment of service tax and compliance of various provisions is that person who is liable to pay the service tax and to comply the prescribed procedure under the rules. Therefore for the purpose of Section 77(2) of the Finan .....

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7(2). 8. The legislators, if have conscious intention to make any act as an offence and to make such offence punishable, enact a law. Taking reference of customs and central excise acts, we find that in Central Excise, for offence of evasion of excise duty, various penal provisions were made under Section 11AC of the Central Excise Act, 1944, Rule 25 of Central Excise Rules, 2002 and for contravention of any provisions or rules under central excise, a separate penal provision was made under Rule .....

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We reproduce the provision of Rule 26 and 27 of Central Excise Rules, 2002 for more clarity: Rule 26. Penalty for certain offences. - (1) Any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or in any other manner deals with, any excisable goods which he knows or has reason to believe are liable to confiscation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such g .....

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to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater. Rule 27. General penalty. - A breach of these rules shall, where no other penalty is provided herein or in the Act, be punishable with a penalty which may extend to five thousand rupees and with confiscation of the goods in respect of which the offence is committed. From the above rules, it is found, Rule 26 is invokable on the individual person for the specific acts of the individual person pres .....

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on individual person can be imposed in connection with evasion of service tax by the assessee (KAL). 9. Similar to penal provision of Rule 26 of CER, 2002, in Customs Act, 1962 also separate penal provisions for individual person have been provided under Section 112/114AA of Customs Act and similar to Rule 27 of CER, 2002, in customs there is a provision under Section 117 for the assessee wihch is similar to Section 77(2) of Finance Act, 1994. The aforesaid sections in Customs Act, 1962 are rep .....

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s or has reason to believe are liable to confiscation under section 111, shall be liable, - (i) in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty4[not exceeding the value of the goods or five thousand rupees, whichever is the greater; (ii) in the case of dutiable goods, other than prohibited goods, subject to the provisions of section 114A, to a penalty not exceeding ten per cent. of the duty sought to b .....

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ed in the entry made under this Act or in the case of baggage, in the declaration made under section 77 (in either case hereafter in this section referred to as the declared value) is higher than the value thereof, to a penalty not exceeding the difference between the declared value and the value thereof or five thousand rupees, whichever is the greater; (iv) in the case of goods falling both under clauses (i) and (iii), to a penalty not exceeding the value of the goods or the difference between .....

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e, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of this Act, shall be liable to a penalty not exceeding five times the value of goods. SECTION 117. Penalties for contravention, etc., not expressly mentioned. - Any person who contravenes any provision of this Act or abets any such contravention or who fails to comply with any provision of this Act with which it was his duty to com .....

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cts or rules made thereunder is only relates to the assessee, the penalty for such contravention can be imposed only upon the assessee and not on the individual person. The obligation and responsibility of not contravening the provisions of act and rules made thereunder is only on the assessee and not on any other person. The general penalty for an offence of contravention of provision of act/rules cannot be imposed on other than the person who is an assessee. Whenever the legislators had intent .....

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le for penalty are such which can be acted only by an individual person and not by artificial person like a Company. Therefore for penalising an individual person an independent provision is must, which is absent in the Finance Act, 1994. For this reason, general penal provision for contravention of the provision of act/rules provided under Section 77(2) of the Finance Act, 1994 can not be invoked to penalise an individual person. 11. It is pertinent to note that for service tax matters, when le .....

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