2015 (10) TMI 1732 - AT - Service Tax

Imposition of penalty fabrication/alteration of TR-6/GAR-7 challans and bogus challans - fraudulent act on the part of the Consultant who had pocketed the amounts of service tax which has been paid by the appellant to him to pay into the Govt. treasury - Case of Revenue is that no criminal complaint filed against consultant by appellant Further service tax returns were signed by appellant indicating the tax liability penalty imposed is thus sustainable. - Manpower Recruitment or Supply Agency Services Held that - Amount embezzled by Consultant was without knowledge of assessee and same was done to enrich himself Appellant discharged entire service tax liability and interest thereon - Question of vicarious liability on part of Appellant does not arise as consultant was not appointed for any mis-representation Reports prepared by Consultant and signed by appellant that they were correct Penalty imposed not sustainable - Decided against the Revenue.

Summary

Issues:
Imposition of penalty on the appellant for fraudulent acts of Consultant

Analysis:
The appeal addressed an order-in-original concerning an evasion of service tax by the appellant, a Manpower Recruitment or Supply Agency Services provider. The lower authorities discovered a tax liability of Rs. 1.13 crore due to fabrication of challans. The appellant claimed innocence, attributing the evasion to the Consultant's embezzlement. The Consultant, Mr. Deepak Joshi, allegedly manipulated challans and pocketed excess amounts, leading to penalties on the appellant. The appellant presented evidence of cash withdrawals for tax payments, certified by a Chartered Accountant. The issue revolved around the appellant's liability for penalties due to the Consultant's actions.

The Tribunal examined the evidence, noting the appellant's lack of knowledge regarding the Consultant's fraud. The Consultant's statement indicated partial payments made by the appellant, which the appellant denied. The appellant's cash book, presented during the appeal, aligned with the tax amounts in question, suggesting genuine tax payments. The Tribunal found the Consultant solely responsible for the fraudulent activities, driven by personal gain. The appellant had fulfilled the tax liability, indicating good faith in their dealings.

Regarding vicarious liability, the Tribunal rejected the Revenue's argument, citing the Indian Contract Act's Section 238, which pertains to authorized acts in the course of business. As the Consultant's actions exceeded the scope of the agency, the appellant couldn't be held vicariously liable. The Tribunal distinguished the case from precedents where reasonable cause for tax liabilities' non-payment was absent.

The Tribunal emphasized that the appellant's signature on tax returns, prepared by the Consultant, didn't imply knowledge of fraud. Given the appellant's unawareness of the Consultant's actions and the discharge of tax liabilities upon discovery, the penalties were deemed unjust. Relying on Section 80 of the Finance Act, 1994, the Tribunal set aside the imposed penalties, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, highlighting the appellant's innocence in the Consultant's fraudulent activities and the diligent discharge of tax liabilities upon realization, leading to the penalties' annulment.