2015 (7) TMI 1105 - HC - Service Tax

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 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 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 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.

Issues Involved:
1. Sufficiency of show-cause notice to partners.
2. Liability of partners for service tax after dissolution of the firm.
3. Applicability of the extended period for issuing a show-cause notice due to alleged suppression of facts.

Issue-wise Detailed Analysis:

1. Sufficiency of Show-Cause Notice to Partners:
The primary issue was whether marking copies of the show-cause notice to the partners of M/s. Lakshmi Travels without a specific demand for recovery from them is sufficient. The Tribunal held that marking copies was not a substitute for a proper show-cause notice against the partners. However, the High Court disagreed, emphasizing that under Section 25 of the Partnership Act, all partners are jointly and severally liable for the acts of the firm. The court noted that the original show-cause notice was issued to the firm, and the partners had admitted their liability and agreed to pay their share. The Commissioner corrected the error by issuing a notice to the firm under Section 84 of the Finance Act, marking copies to the partners. The court concluded that the partners were well aware of the demand and could not claim insufficient notice.

2. Liability of Partners for Service Tax After Dissolution of the Firm:
The adjudicating authority initially withdrew the show-cause notice against the firm, M/s. Lakshmi Travels, on the ground that it was no longer in existence, but confirmed the demand based on the partners' undertaking to share the liability. The High Court upheld this, stating that even if the firm was dissolved, the partners remained jointly and severally liable for the firm's acts while they were partners. The court referenced Section 25 of the Partnership Act and the partners' admission of their share of tax liability, concluding that they could not escape their legal responsibilities.

3. Applicability of the Extended Period for Issuing a Show-Cause Notice:
The Tribunal had set aside the demand for the period from April 2000 to October 2003, holding that the extended period for issuing a show-cause notice was not available to the Department due to prior knowledge of the firm's activities. The High Court disagreed, stating that the Tribunal erroneously attributed knowledge of the activities of one partner, Sanjeevi, to the firm, Lakshmi Travels. The court noted that the address mentioned in the intimation letter did not relate to the firm's address, and thus, the Department's knowledge of Sanjeevi's activities could not be equated with knowledge of the firm's activities. The court held that the extended period for issuing a show-cause notice was applicable, as the Department did not have prior knowledge of the firm's evasion of service tax.

Conclusion:
The High Court allowed the appeals, setting aside the Tribunal's order. It held that the marking of copies of the show-cause notice to the partners was sufficient, the partners were liable for the firm's service tax dues even after dissolution, and the extended period for issuing a show-cause notice was applicable due to the lack of prior knowledge of the firm's activities by the Department. The court emphasized the partners' joint and several liability under the Partnership Act and rejected the plea of insufficient notice and time-bar.

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