2021 (2) TMI 6 - AT - Service Tax

Levy of personal penalty - Levy of penalty of ₹ 1 Lakh each on the Managing Director as well as Chief Financial Officer under Section 78A of the Finance Act, 1944 - allegation is that Chief Financial Officer of the company and Managing Director both were well aware of the fact of service tax charged and collected in full but not paid to the Government Account - HELD THAT - During the pendency of these three appeals, the company as well as the Managing Director and the Chief Financial Officer applied under the Sabka Vishwas Legal Dispute Resolution Scheme but only the application filed by the company was cleared by the Department and Discharge Certificate was issued and accordingly the appeal of the company is dismissed as withdrawn but the applications filed by the individuals were rejected. Further, on merit also, there are no material which was considered by both the authorities below while imposing the penalties on these two officers under Section 78A of the Finance Act. The only ground on which both the authorities have imposed penalties is that these officers were negligent whereas there are no material to substantiate that allegation against these officers. These officers have merely complied with the agreement entered into between the parties and no knowledge can be imputed on them that they have deliberately violated the provisions of the Act. In the case of HINDUSTAN STEEL LIMITED VERSUS STATE OF ORISSA 1969 (8) TMI 31 - SUPREME COURT , wherein it was held that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of it obligation - Further, in the SCN also, it has not been established that these individuals have acted in contumacious manner so as to impose penalty. The imposition of penalty on the appellants is not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Imposition of penalties on the Managing Director and Chief Financial Officer under Section 78A of the Finance Act, 1994.
2. Application of Sabka Vishwas Legal Dispute Resolution Scheme and rejection of the applications filed by the Managing Director and Chief Financial Officer.
3. Allegations of negligence against the Managing Director and Chief Financial Officer in the performance of their duties.

Analysis:

Issue 1: Imposition of Penalties
The case involved three appeals against an order confirming demands and imposing penalties on a company and its officers. The company availed the Sabka Vishwas Legal Dispute Resolution Scheme, resulting in the dismissal of the appeal against the company. However, the applications of the Managing Director and Chief Financial Officer were rejected. The authorities imposed penalties under Section 78A of the Finance Act, 1994, alleging negligence in duty performance. The Tribunal found no substantial evidence to support the allegation of negligence against the officers. Referring to the case of Hindustan Steel Ltd. Vs State of Orissa, the Tribunal emphasized that penalties should not be imposed unless there is deliberate defiance of the law or contumacious conduct. As such, the Tribunal set aside the penalties, concluding that they were unjustified.

Issue 2: Sabka Vishwas Legal Dispute Resolution Scheme
The Managing Director and Chief Financial Officer, along with the company, applied under the Sabka Vishwas Legal Dispute Resolution Scheme. While the company's application was accepted, the individual applications were rejected by the Department. The appellant argued that under the Scheme, once the main dispute is resolved, individual penalties should automatically follow. The Tribunal noted the discrepancy in treatment by the Department and highlighted that no material was presented to establish negligence by the officers. Ultimately, the rejection of the individual applications was deemed unjustified.

Issue 3: Allegations of Negligence
The Department alleged that the Managing Director and Chief Financial Officer were negligent in discharging their duties, leading to the imposition of penalties. However, the Tribunal found no evidence to support this claim. It was emphasized that the officers had complied with the agreement and lacked deliberate intent to violate the law. The Tribunal's scrutiny revealed a lack of contumacious behavior or deliberate defiance, warranting the setting aside of the penalties.

In conclusion, the Tribunal allowed the appeals, setting aside the penalties imposed on the Managing Director and Chief Financial Officer. The judgment highlighted the importance of substantiating allegations of negligence and contumacious conduct before imposing penalties, emphasizing compliance with legal obligations and conscious intent in determining liability.