2024 (3) TMI 799 - AT - Service Tax

Imposition of personal penalty on the appellant in terms of Section 78A of the Finance Act, 1994 - appellant was one of the partner of the main notice - HELD THAT - From Section 78A it is evident that penalty under this section can be imposed only on a person who at the time of such contravention was in charge of, and was responsible to, the company for the conduct of business of such company and was knowingly concerned with such contravention. Original authority has instead brushed aside the submissions made by the appellant on the basis of supplementary agreement, as afterthought, without examining the same. In absence of any finding to the effect that appellant was responsible for the conduct of business of the firm at the time of contravention, there are no merits in the orders of lower authorities imposing penalty on the appellant under Section 78A. There are no merits in the impugned order which is set aside - appeal allowed.

Issues Involved:
1. Imposition of personal penalty u/s 78A of the Finance Act, 1994.
2. Liability of partners in a partnership firm for tax evasion.
3. Validity of supplementary agreements and indemnity bonds in escaping tax liability.

Summary:

Issue 1: Imposition of personal penalty u/s 78A of the Finance Act, 1994.
The case pertains to a personal penalty imposed on the appellant u/s 78A of the Finance Act, 1994. The Original Authority had imposed a penalty of Rs.5 lakhs, which was reduced to Rs.1 lakh by the Commissioner (Appeals). The matter was taken up for consideration in the absence of the appellant, who had not been appearing or communicating with the Bench.

Issue 2: Liability of partners in a partnership firm for tax evasion.
The appellant, a partner in M/s Health Sanctuary, Noida, was held jointly and severally responsible for the payment of adjudged dues and a personal penalty of Rs.5,00,000/- was imposed on each partner by the Additional Commissioner. The Commissioner (Appeals) noted that partners of a firm are to be dealt with similarly to directors of a company, making them liable for business conduct and mischief. The appellant's status as a partner was confirmed through various government submissions, including Income Tax returns and STI applications.

Issue 3: Validity of supplementary agreements and indemnity bonds in escaping tax liability.
The appellant contended that a supplementary agreement dated 31.03.2012 transferred all tax liabilities to Orb Health Sanctuary. However, the Commissioner (Appeals) found that such agreements were not communicated to the department timely and deemed them as afterthoughts to escape responsibility. An indemnity bond signed on 14.12.2017 was also dismissed as an attempt to evade liability, as it was made after the issuance of the Show Cause Notice on 14.11.2017.

Findings:
Upon review, it was noted that the Original Authority did not find any specific evidence of the appellant being actively involved in the business operations of "Health Sanctuary." The section 78A of the Finance Act, 1994 stipulates that penalties can only be imposed on individuals who were in charge and knowingly involved in the contravention. The Original Authority dismissed the appellant's submissions without proper examination. The absence of findings that the appellant was responsible for business conduct at the time of contravention led to the conclusion that the penalty u/s 78A was not justified.

Precedent:
The judgment referenced the case of Manjeet Kaur Bansal [2022 (56) G.S.T.L. 295 (Tri. - Del.)], where it was held that penalties under Sections 78/78A require evidence of intent to evade tax. The appellant's personal circumstances and lack of involvement in financial matters were considered, leading to the conclusion that Section 78A could not be invoked.

Conclusion:
The impugned order was set aside, and the appeal was allowed, as no merits were found in the orders of the lower authorities imposing the penalty on the appellant u/s 78A of the Finance Act, 1994.

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