2018 (8) TMI 1292 - HC - Service Tax

Evasion of Service Tax - liability of outgoing Director of the company - Summons under Section 14 of the Central Excise Act, 1944 - violation of the provisions of Section 89 (1) (ii) of the Finance Act, 1994 read with Section 174 of the Central Goods & Services Act, 2017 - the petitioner is alleged to have resigned from the directorship of the Company in question i.e. M/s. Proplarity Infratech Private Limited in the year 2016 and therefore he is denying to have any liability towards payment of any dues concerning service tax and is taking the plea that the liability for the same is upon the other two Co-Directors who are still running the business of the said Company. Held that - The petitioner has also been issued a notice under Section 14 of the Central Excise Act, 1944 as made applicable to service tax matters vide Section 83 of the Finance Act, to interrogate the petitioner, to which the petitioner avoided from appearing before the investigating officer and has taken shelter of court by filing the present writ petition. It is also apparent that as per the scheme of the Finance Act an offence under Section 89 of Act is a cognizable offence by virtue of Section 90 and in Section 91 power of arrest is conferred upon an officer of the Central Excise Department not below the rank of Superintendent of Central Excise nominated by the Principal Commissioner of Central Excise or Commissioner of Central Excise who would adopt the same procedure as provided under Cr.P.C. for arrest. It is also made clear by the respondents that even if any Director resigns, he cannot seek exoneration from liability of making payment of service tax, simply because he resigned from the post of Director, if the service tax due is for the period when the accused was a Director. In the case at hand it is clarified by the respondents that there is a huge amount of service tax outstanding belonging to the period when the petitioner was one of the Directors of the said Company, therefore he cannot take the plea of not being liable to pay in terms of the Deed of Settlement which is alleged to have been executed between other two Co-Directors and him, the dues being statutory duty to be cleared. No case is made out in favour of the petitioner to pass any order prohibiting his arrest, if the same has to be carried out in accordance with the provisions as provided under the Finance Act - prayer dismissed.

Summary

Issues Involved:
1. Legality of the petitioner’s arrest in connection with the investigation of service tax evasion.
2. Petitioner's liability for service tax dues post-resignation from the directorship.
3. Validity of the "Deed of Settlement" in exonerating the petitioner from statutory liabilities.

Issue-wise Detailed Analysis:

1. Legality of the petitioner’s arrest in connection with the investigation of service tax evasion:
The petitioner sought a mandamus directing the respondent not to arrest him during the investigation of service tax evasion by M/s Proplarity Infratech Private Limited. The petitioner argued that his arrest would be arbitrary and illegal, referencing the Supreme Court's rulings in Joginder Singh Vs. State of U.P. and Arnesh Kumar Vs. State of Bihar, which emphasize that arrests in cases punishable with imprisonment up to 7 years should only occur under exceptional conditions as specified in Section 41 of Cr.P.C. The respondents countered that the petitioner avoided appearing before the investigating officer despite being summoned and had not shown any intention to cooperate or deposit the due service tax. The court found that the petitioner had been issued a notice under Section 14 of the Central Excise Act, 1944, and that an offence under Section 89 of the Finance Act is cognizable, giving the authorities the power to arrest. The court concluded that no case was made out to prohibit the petitioner's arrest if conducted per the Finance Act's provisions.

2. Petitioner's liability for service tax dues post-resignation from the directorship:
The petitioner claimed he had resigned from the directorship of M/s Proplarity Infratech Private Limited in 2016 and thus had no liability for the company's service tax dues. The respondents argued that as per Section 9AA of the Central Excise Act, 1944, and Section 168 of the Companies Act, 2013, directors are liable for offences committed during their tenure, and resignation does not absolve them of statutory liabilities. The court noted that the petitioner was a director during the period when the service tax dues were accrued and thus could not evade liability by resigning. The court emphasized that statutory duties must be cleared regardless of the petitioner's resignation.

3. Validity of the "Deed of Settlement" in exonerating the petitioner from statutory liabilities:
The petitioner referenced a "Deed of Settlement" executed with his co-directors, which purportedly allocated responsibilities for company liabilities. The respondents contended that statutory liabilities, such as service tax dues, cannot be overridden by a private contractual agreement. The court concurred, stating that the "Deed of Settlement" does not stand scrutiny of law concerning statutory obligations. The court held that the petitioner could not use the settlement deed to escape liability for service tax dues accrued during his tenure as a director.

Conclusion:
The court dismissed the writ petition, concluding that the petitioner had no grounds to seek protection from arrest if conducted according to the Finance Act's provisions. The interim order, if any, was vacated, and the petition was dismissed.