Section 78A introduced for the
purpose of imposing personal penalty is reproduced below:—
"78A. Where a company has
committed any of the following contraventions, namely:—
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(a)
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evasion of service tax, or
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(b)
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issuance of invoice, bill or,
as the case may be, a challan without provision of taxable service in
violation of the rules made under the provisions of this Chapter, or
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(c)
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availment and utilisation of
credit of taxes or duty without actual receipts of taxable service or
excisable goods either fully or partially in violation of the rules made
under the provisions of this Chapter, or
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(d)
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failure to pay any amount
collected as service tax to the credit of the Central Government beyond a
period of six months from the date on which such payment becomes due, then
any director, manager, secretary or other officer of such company, 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 shall be liable to penalty which may extend
to one lakh rupees."
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Company is not defined in the
section or anywhere in the Finance Act. However, for imposing the personal
penalty the erstwhile section 81 had defined company as follows:
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"Company" means any
body corporate and includes a firm or other association of individuals; and
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"director" in
relation to a firm means a partner in the firm.
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Question : What is the quantum of penalty under Section 78A ?
Answer: The
maximum penalty that can be imposed under section 78A is Rs. 100,000.
Question: whether partners or employees of the partnership firm are covered within the
scope of section 78A?
Answer : Till an Explanation is added in the erstwhile
section 81 or is clarified by CBEC a view can be taken that partnership firm is
not covered within the scope of section 78A.
Question : What are the conditions for attracting the penalty on Director, Manager, Secretary or other officers of the company ?
Answer: The liability for personal
penalty would be attracted only when the following conditions are satisfied:
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(i)
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the accused was in-charge of
and was responsible to the company for the conduct of its business, and
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(ii)
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was knowingly concerned with
such a contravention.
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Both the conditions are
cumulative.
if
there is any evidence to prove that the Managing Director had instructed the
employee to do an act which constituted an offence listed in (a) to (d)
of section 78A he will be held responsible and section 78A can be invoked. In Wipro
Ltd. v. CCE 2006 (196) ELT 226 (Trib. – Mum.) it was held that it is
sufficient if directions are given to the subordinates to act in a manner which
results in contravention of law.
No personal penalty can be
imposed on the employee, if the employee acted as per the directions of the
director or employer. [Commissioner of Customs, LCD, TDK v. Cyber
Express (P.) Ltd. 2004 (172) ELT 388 (Delhi); Welcure Drugs &
Pharmaceuticals Ltd. v. CCE 2007 (213) ELT 710 (Trib. – Delhi); O.P.
Agarwal v. Commissioner of Customs 2005 (185) ELT 387 (Trib. –
Delhi); Vinod Kumar v. CCE 2006 (199) ELT 705 (Trib. – Delhi) ]
Question : Whether the Personal Penalty can be imposed without the Show cause Notice ?
Answer:No, Show cause Notice must be served and opportunity of being heard must be given to the Assessee.Mens rea is essential to impose
personal penalty - mere contravention is not sufficient.
-The onus is on the
Department to prove that the contravention was with the knowledge of the
accused. [Cipta Coated Steels Ltd. v. CCE 1999 (113)ELT 490
(Trib.); Bindu S. Mehta v. CCE 2000 (121) ELT 281 (Trib.)]. In Caltron
Instruments (P.) Ltd. v. CCE 2004 (165) ELT 174 (Trib. – Delhi)
- it
was held that personal penalty on Director could not be imposed unless there
was a finding that there was intention on his part to evade payment of duty. In
Dayaram Agarwal v. CCE 2007 (218) ELT 33 (Trib. – Ahd.) it was
held that Chairman of the company could not say that he was aware of all
activities of the company and, hence, was liable to penalty. Positive evidence
of personal knowledge or belief is required. It is not sufficient that the
accused is charged with personal penalty but there should be discussion in the
show cause notice of the role of the person in the alleged offence. [Chowbey
Sugandhit Tamaku Co. v. CCE 2001 (131) ELT 222 (Trib. - Kol.); Metro
Appliances Ltd. v. CCE 2001 (137) ELT 554 (Trib. – Delhi)]
-A show cause notice can be served on the employee even after the employee leaves
the organization if he was responsible for the contraventions specified in (a)
to (d) of section 78A
Question : Does the Personal penalty Continue if the employee leaves the organisation/ company?
Answer: Yes, the wording of Section 78A is "who
at the time of such contravention was in-charge of ……"
Question: Can the personal penalty be imposed after the death of the employee or can it be recovered from the legal heirs ?
Answer: No
personal penalty can be imposed after the death of the employee and even if it
is imposed it cannot be recovered from the legal heirs. [Manjit Sethi v.
Collector of Customs 1996 (85) ELT 121 (Trib.); AL Jabel Ali Exports
& Imports v. Commissioner of Customs 2001 (137) ELT 220 (Trib. -
Chennai); Nandesari Rasayanee Ltd. v. CCE & C 2009 (244) ELT
289 (Trib. - Ahd.)].
