Service Tax | Penalty U/S 78A Cannot Be Imposed On Director Without Proof Of Knowledge Or Wilful Default: CESTAT Mumbai
The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that a penalty under Section 78A of the Finance Act, 1994, cannot be imposed on a director unless it is established that the director was responsible for the company's business and was knowingly involved in the tax evasion. C J Mathew (Technical Member) referred to Section 78A of the Finance Act,...
The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that a penalty under Section 78A of the Finance Act, 1994, cannot be imposed on a director unless it is established that the director was responsible for the company's business and was knowingly involved in the tax evasion.
C J Mathew (Technical Member) referred to Section 78A of the Finance Act, 1994 and noted that the prerequisites for imposition of penalty under Section 78A of the Finance Act, 1994 are that the director concerned was responsible to the company for the conduct of business of such company and was knowingly concerned with such contravention.
In the case at hand, a penalty of Rs. 1 Lakh was imposed on the assessee/appellant under Section 78A of the Finance Act, 1994, in connection with service tax proceedings initiated against M/s Fox Lights & Grips Pvt. Ltd, where he was a director till 5 October 2017.
A show-cause notice was issued to the assessee alleging non-payment of service tax amounting to ₹1,93,85,973 973/- for the period from 2012-13 to 2017-18 up to June 2017.
The Chartered Accountant appearing for the assessee submitted that the notice was issued long after the termination of Directorship and that the notice itself was invalid in the light of the authentication prescribed in the circular of the Central Board of Indirect Taxes & Customs (CBIC) for the purpose of issue of notice under section 73 of the Finance Act, 1994.
The Tribunal noted that the show cause notice itself has set out only vaguely, and without any supporting evidence, the manner in which the assessee was directly responsible for the discharge of correct service tax liability.
The bench further observed that the conclusion in the impugned order is also lacking in any material fact for determining that, as Director, the assessee was knowingly concerned with any alleged contravention of provisions of the Finance Act, 1994.
It is on record that neither assessee nor assessee had participated in the proceedings and, consequently, the determination appears to have been entirely drawn from the show cause notice, stated the Tribunal.
The bench concluded that the ingredients mentioned in Section 78A of the Finance Act, 1994, have not been either alleged in the show cause notice nor established in the impugned order.
In view of the above, the Tribunal allowed the appeal and set aside the penalty under section 78A of the Finance Act, 1994.
Case Title: Mr Ali Akbar Ratansi v. Commissioner of CGST Mumbai West
Case Number: SERVICE TAX APPEAL NO. 85821 OF 2023
Counsel for Appellant/ Assessee: Sunit Jhunjhunwala, Chartered Accountant
Counsel for Respondent/ Department: SBP Sinha, Superintendent Commissioner (AR)