2022 (1) TMI 1058 - AT - Service Tax

Levy of penalties on the employee of the company - main case against the company has been withdrawn - mens rea on the part of employees or not - HELD THAT - The issue decided in the case of A/86667-86668/2021 2021 (7) TMI 1307 - CESTAT MUMBAI where it was held that once the issue of the main company against whom the demand for duty was made under Section 11A of Central Excise Act, 1944, has been settled under SVLDRS, case for imposition of penalty under Rule 26 on the employees will fail. The penalties which otherwise would be waived off in terms of SVLDRS, is set aside as the case of the main appellant has been settled under the said scheme - appeal disposed off.

Summary

Issues:
Penalties imposed on appellants under Order-in-Original, Deemed withdrawal of appeal under Sabka Vishwas Scheme, Application for settlement under SVLDRS, Imposition of penalty without establishing "mens rea", Precedents from Karnataka and Punjab & Haryana High Courts on penalty imposition under Rule 26.

Penalties Imposed:
The appellants filed appeals against penalties imposed under Order-in-Original by the Commissioner of Central Tax & GST, Thane. One appeal was deemed withdrawn under the Sabka Vishwas Scheme, and Form-4 was issued. The appellants also applied for settlement under SVLDRS, but Form-4 was not yet issued, leading to the current appeal.

Sabka Vishwas Scheme & SVLDRS Application:
The Sabka Vishwas Legacy Dispute Resolution Scheme, as per the Finance Act, 2019, outlines procedures for issuing statements by the designated committee based on the amount declared by the declarant. The scheme also addresses situations where penalties are imposed and the subsequent settlement under SVLDRS, requiring proof of withdrawal of appeals for discharge certificates.

Imposition of Penalty without "Mens Rea":
The Tribunal noted that penalties were imposed on the appellants without establishing "mens rea," a crucial element for penalty imposition under Rule 26 of the Central Excise Rules, 2002. Citing precedents from Karnataka and Punjab & Haryana High Courts, the Tribunal emphasized the necessity of proving intent or knowledge for penalty imposition, which was lacking in the present case due to the appellants' roles as employees.

Precedents & Disposal of Appeals:
Drawing from decisions of the Karnataka and Punjab & Haryana High Courts, the Tribunal concluded that the penalties imposed lacked the essential element of "mens rea." Referring to a specific case, the Tribunal highlighted that once the main company's duty demand issue was settled under SVLDRS, penalties under Rule 26 on employees would not stand. Consequently, the appeals were disposed of, setting aside the penalties, which would have been waived off under SVLDRS due to the settlement of the main appellant's case.