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2023 (11) TMI 1132 - HC - Service TaxDefault in payment of service tax - Prosecution proceedings against the director of the company - offence punishable u/s 89 of Finance Act, 1994 r.w.s. 9 and 9AA of Central excise Act - Period covered is 2011-12 to 2015-16 - Prosecution launched in 2018 - CIRP Proceeding under IBC - Closure of Liquidation proceedings against Corporate Debtor since the company was sold as going concern - all the liabilities, dues of the company stand extinguished as per the provisions of IBC - HELD THAT - A perusal of record discloses that the Liquidator of the accused No. 1-company has filed application praying for closure of the liquidation process of the corporate debtor and the National Company Law Tribunal, Hyderabad Bench-II vide order dated 07.02.2023 held that the assets of the Corporate Debtor were sold to the successful bidders; that as seen from Form-H, an amount of Rs. 10,23,89,263/- realized from the sale of Liquidation Estate was distributed among the stake holders as per Section 52 or 53 of the Code, 2016 and that the Final Report discloses that the Liquidator has sold the Corporate Debtor as a going concern as such it is a fit case for closure of liquidation process, and accordingly ordered for closure of the liquidation proceedings against the corporate debtor. As per the judgments of the Hon ble Supreme Court in GHANASHYAM MISHRA AND SONS PRIVATE LIMITED THROUGH THE AUTHORIZED SIGNATORY VERSUS EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED THROUGH THE DIRECTOR ORS. 2021 (4) TMI 613 - SUPREME COURT and various other Courts, the amendment, which comes into existence subsequent to the launching of the proceedings are not applicable to the past acts. The laws or amendments made shall be prospective in nature and not retrospective and they cannot be ex post facto laws for punishing the accused. If the Legislature itself thought of clarifying the position of law, it would not be appropriate for the Court to assume that something else and then to go on to punish the person for criminal offences. Therefore, this Court is of the considered opinion that the petitioner shall not be punished for the offences registered under the amended provisions, which come into existence subsequent to the launching of the proceedings. Petition allowed.
Issues Involved:
1. Non-compliance with service tax payment and misclassification of services. 2. Liability of the petitioner (accused No. 2) for the company's service tax evasion. 3. Validity of prosecution without issuing a show cause notice to the petitioner. 4. Impact of liquidation and insolvency proceedings on the continuation of prosecution. 5. Applicability of Section 32A of the Insolvency and Bankruptcy Code, 2016 on the prosecution. Summary: Non-compliance with Service Tax Payment and Misclassification of Services: The petitioner, Chairman and Managing Director of M/s. ICSA (India) Ltd. (accused No. 1), faced allegations of non-compliance with service tax payment and misclassification of services for the period 2011-12 to 2015-16, resulting in a shortfall of Rs. 34,28,85,410/-. The Anti Evasion Wing conducted a detailed investigation, leading to a show cause notice dated 21.12.2016 and a subsequent order dated 31.03.2017. Liability of the Petitioner for the Company's Service Tax Evasion: The petitioner was held responsible for the company's business conduct and alleged to have committed offenses punishable under Section 89 of the Finance Act, 1994, read with Section 9 and 9AA of the Central Excise Act, 1944. The prosecution was initiated based on administrative approval and necessary sanction by the Chief Commissioner of Central Tax & Customs. Validity of Prosecution Without Issuing a Show Cause Notice to the Petitioner: The petitioner contended that no show cause notice was issued to him before launching the prosecution, which is a procedural requirement. The petitioner argued that he was not responsible for the day-to-day activities of the company and that the order in original dated 31.03.2017 was based on assumptions and surmises. Impact of Liquidation and Insolvency Proceedings on the Continuation of Prosecution: The petitioner argued that the company's liquidation under the Insolvency and Bankruptcy Code, 2016, extinguished all liabilities, including service tax dues, and therefore, the prosecution should not continue. The National Company Law Tribunal, Hyderabad Bench-II, closed the liquidation proceedings, stating that all liabilities were extinguished after the distribution of assets. Applicability of Section 32A of the Insolvency and Bankruptcy Code, 2016 on the Prosecution: The petitioner relied on judgments indicating that post-insolvency, the liability for offenses committed prior to the insolvency process ceases. However, the respondent argued that Section 32A provides exclusions and exceptions, holding individuals responsible for offenses committed by the corporate debtor. Court's Decision: The court held that the petitioner could not be punished under the amended provisions that came into existence after the period of assessment. The laws or amendments made shall be prospective in nature and not retrospective. Consequently, the writ petition was allowed, and the proceedings against the petitioner in C.C. No. 124 of 2018 were quashed. Conclusion: The court quashed the proceedings against the petitioner, emphasizing that amendments and laws cannot be applied retrospectively to punish individuals for past acts. Pending miscellaneous applications were also closed.
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