2021 (9) TMI 1247 - AT - Service Tax

Levy of penalty u/s 78A of FA - tax not deposited - case of appellant is that the entire liability towards the impugned demand stands discharged by the Company under SVLDR Scheme - collusion of facts - HELD THAT - The penalty under the Section is imposed for the same reasons as it is being imposed under Section 78 but for the similar offence being committed by the Director of the concerned Company - perusal of the section makes it abundantly clear that the penalty under these Sections can be imposed, if and only if, there has been an evasion of tax that too with utmost intent to not to pay the said tax. Reverting to the facts of the present case, the period of demand is from April 2013 to June 2017. The appellant was appointed as Director on 1st December, 2016. This apparent fact is sufficient to falsify any involvement as that of intent/knowledge of the appellant being the Director about tax evasion by the appellant for the period from April, 2013 to November, 2016. For the remaining period, no doubt, there is an admission of the appellant that the impugned demand was not paid at the relevant time, but the admission is rather more in the form of acknowledgement that the non-payment was due to unavoidable circumstances as that of grave medical illness of the spouse of the appellant who finally succumbed to that illness on 24th June, 2017. This fact has been brought to the notice of the Department since the time the Show Cause Notice has been issued but the same has not at all been considered by the Adjudicating Authority below. The authority has miserably failed to distinguish the nonpayment of tax for the reasons beyond the control of the assessee from the situation where the assessee has failed to deposit tax with the sole intention to not to deposit the same. Section 78 / 78A can be attracted only in the later situation - The financial statements in the form of balance-sheets, tax returns etc. as placed on record bear his signature as the person authorized for the Company. None of those documents bear the signature of the appellant. Department has not produced any such documents for a subsequent period where the appellant would have been a signatory to such returns. Mere oral submission of Mr. Amar Singh Gautam that he was acting under the guidance of the appellant cannot be fully sufficient for holding at least that the appellant had the knowledge and the intent to not to make the impugned payment. Fraud and collusion or not - HELD THAT - It is evident that the intent to evade duty is build into these words. So far as the misstatement or suppression is concerned, they are clearly qualified by the word wilful preceding the words mis-statement or suppression of facts which again means intent to evade duty. Apparently, there is no deliberate intent on part of appellant to not to pay the duty. The Commissioner has erred while imposing penalty upon the appellant while ignoring the unavoidable circumstances as were explained to be reasons for not depositing duty in time - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Imposition of penalty under Section 78A of the Finance Act, 1944.
2. Appellant's liability despite availing the Sabka Viswas (Legacy Dispute Resolution) Scheme.
3. Consideration of appellant's personal circumstances and involvement in day-to-day affairs.
4. Distinction between intentional tax evasion and non-payment due to unavoidable circumstances.

Detailed Analysis:

1. Imposition of Penalty under Section 78A of the Finance Act, 1944:
The appeal challenges the penalty imposed under Section 78A, which penalizes directors or officers responsible for company contraventions related to service tax evasion. The penalty under Section 78A is akin to Section 78 but specifically targets directors or officers of the company. The Tribunal noted that the appellant was appointed as Director on 1st December 2016, making it implausible for her to be responsible for tax evasion from April 2013 to November 2016. For the period post-December 2016, the appellant's non-payment was attributed to her husband's severe medical condition, which the Adjudicating Authority failed to consider.

2. Appellant's Liability Despite Availing the Sabka Viswas (Legacy Dispute Resolution) Scheme:
The appellant argued that the company had availed the Sabka Viswas Scheme, and a Discharge Certificate was issued, which she believed covered her liability as well. The Revenue countered that the director should have applied separately under the scheme. The Tribunal observed that the company had already discharged its liability under the scheme, and the appellant had no malafide intent to evade tax, as a significant portion of the tax was paid before the Show Cause Notice was issued.

3. Consideration of Appellant's Personal Circumstances and Involvement in Day-to-Day Affairs:
The appellant contended that she was not in charge of the company's daily affairs, which were managed by Mr. Amar Singh Gautam, the Finance Director. The Tribunal found substantial evidence, including financial statements and tax returns signed by Gautam, supporting this claim. The appellant's personal circumstances, including her husband's terminal illness, further substantiated her lack of involvement and knowledge of the tax issues.

4. Distinction Between Intentional Tax Evasion and Non-Payment Due to Unavoidable Circumstances:
The Tribunal emphasized that penalties under Sections 78 and 78A require an intent to evade tax. The appellant's situation, characterized by her husband's severe illness and subsequent death, was deemed beyond her control. The Tribunal criticized the Adjudicating Authority for not distinguishing between deliberate tax evasion and non-payment due to unavoidable circumstances. The Tribunal referenced case laws, including Hindustan Steel Ltd. vs. State of Orissa and Continental Foundation Joint Venture vs. CCE, Chandigarh, to underline that penalties should not be imposed without evidence of deliberate intent to evade tax.

Conclusion:
The Tribunal concluded that the appellant did not act with the intent to evade tax, and her circumstances justified the non-payment. The penalty under Section 78A was deemed unsustainable, and the order was set aside. The appeal was allowed, recognizing the appellant's lack of malafide intent and the significant tax payments made before the Show Cause Notice.

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