PERSONAL PENALTY IN SERVICE TAX

[Dr. Sanjiv Agarwal]

 

 Overview of Penal Provisions

The following Sections of Finance Act, 1994 (as amended upto Finance Act, 2011) deal with interest, penal provisions and power to search —

Section Provisions

73B            Interest on amount collected in excess (inserted by Finance Act, 2006, w.e.f. 18-4-2006)

73C            Provisional attachment to protect revenue in certain cases (inserted by Finance Act 2006, w.e.f. 18-4-2006)

73D            Publication of information in respect of persons in certain cases (inserted by Finance Act, 2006, w.e.f. 18-4-2006)

75               Interest on delayed payment of Service Tax (substituted by the Finance Act, 2006, w.e.f. 18-4-2006)

75A             Penalty for failure of registration (Omitted by the Finance Act, 2004. w.e.f. 10-9-2004).

76               Penalty for failure to pay Service Tax (Substituted by the Finance Act, 2006 w.e.f. 18-4-2006)

77               Penalty for failure to furnish prescribed return (Omitted by the Finance Act, 2004. w.e.f. 10-9-2004).

77               Penalty for contravention of any provision for which no penalty is provided (inserted by the Finance Act 2004, w.e.f. 10-9-2004; substituted by Finance Act, 2008 w.e.f. 10-5-2008.)

78               Penalty for suppressing, etc. of value of taxable services (Substituted by the Finance Act, 2011)

79               Penalty for failure to comply with notice under Section 71 (Omitted by the Finance Act, 2004, w.e.f. 10-9-2004).

80               Penalty not to be levied in certain cases

81               Offences by companies (Omitted by the Finance Act, 2004, w.e.f.10-9-2004).

82               Power to search premises

83A             Power to adjudication (inserted by the Finance Act, 2005)

87               Recovery of any amount due to Central Government

88                Liability under the Act to be First Charge

89               Offences and Penalties

However penalty can not be imposed in each and every case. In Kannappa Corporation v. CCE, Trichy, 2008 -TMI - 31066 - (CESTAT, CHENNAI), it was held that penalty does not arise when activity itself does not attract service tax [Also see Jagdeep Singh Saluja v. CCE 2007 -TMI - 31425 - CESTAT NEW DELHI].

Prosecution provision u/s 89

The prosecution shall apply in the following situations:

(a) Provision of service without invoice;

(b) Availment and utilization of CENVAT credit without receipt of inputs or input services;

(c) Submitting false information; and

(d) Non-payment of collected amount of service tax for a period of more than six months.

The sanction for the prosecution will be granted at the level of Chief Commissioner.

General Penalty u/s 77

Section 77 provides for various general penalties for following offences/ failures –

(a) Failure to furnish information called for by an officer.

(b) Failure to take registration.

(c) Failure to keep or maintain or retain books of accounts and other documents.

(d) Failure to produce documents called for by a Central Excise Officer.

(e) Failure to appear before the Central Excise Officer when issued with a summons to give evidence or to produce documents in an enquiry.

(f) Issuing invoices with incorrect or incomplete details.

(g) Failure to pay service tax electronically through internet, where required.

(h) Any other contravention not provided for in this Chapter.

The maximum penalty u/s 77 for contravention of various provisions is Rs 10000 each case.

Personal Penalty 

Name of the aforementioned provisions provide for personal penalty on partners / proprietor of the firm. However, section 77 talks of any person but such expression ‘any person’ does not imply more than one person or’ firm as well as partner’ for the same offence. If it is meant to be such, it may result in double penalty or even more.

In certain cases, Department seeks to impose personal penalty on the partners u/s 77 of the Finance Act, 1994 (as amended) which has not been specifically provided in the statutory provisions. The SCN levies penalty u/s 77 on the firm and separate penalty on partners  u/s 77 is over and above the penalties proposed to be levied u/s 76, 77 and 78.

Judicial Pronouncements

In such cases, the assessee should  rely on the following judicial pronouncements to defend levy of personal penalty -  

In B.C. Sharma v. Commissioner of Central Excise, Jaipur 2000 -TMI - 49914 - (CEGAT, COURT NO. I, NEW DELHI), where firm was imposed a penalty of Rs. 2 lakhs, it was held that when penalty has been imposed on the partnership firm, a separate penalty cannot be merited on the partner.  

In Kamal deep Marketing Pvt. Ltd. v. Commissioner of Central Excise, Indore (2004) 165 ELT 206 (Cestat, Delhi), where it was held that personal penalty on partners / proprietor in addition to that on the firm was not Imposable.

In Harish Dye. & Ptg. Works v. Commissioner of Central Excise & Customs, Surat-1 2000 -TMI - 50376 - (CEGAT, WEST ZONAL BENCH, MUMBAI), it was held that partnership firm assessee being a partnership firm is not different from its partners and that separate penalty can not imposed on the partner.

In Commissioner of Central Excise, Mumbai v. Metal Press India (2009) 246 ELT 303 (Cestat, Mumbai), it was held that partnership firm and its partners cannot be penalized simultaneously. 

Thus, personal penalty can not be levied on partners / proprietors in case of service tax defaults.

 

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