Hemangi Enterprises vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

Appeal No. ST/239/11

(Arising out of Order-in-Original No. PI/COMMR/Service Tax/14/2011 dated 25.01.2011 passed by Commissioner of Central Excise, Pune I)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

Hemangi Enterprises Appellant Vs.

Commissioner of Central Excise Pune I Respondent

Appearance:

Shri Anupam Dighe, Advocate with Ms Chandani Tanna, Advocate for appellant

Ms. Vinitha Sekhar, Dy. Commr. (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 15.09.2015 Date of Decision: ..

ORDER NO

Per: M.V. Ravindran

This appeal is directed against order-in-original No. PI/COMMR/Service Tax/14/2011 dated 25.01.2011.

2. The relevant facts that arise for consideration are appellant herein is registered with the authorities under service tax for the services rendered under Manpower Recruitment or Supply Agency Services. It was noticed by the lower authorities that during the period June 2005 to March 2010, there was an evasion of service tax to the tune of Rs.1.13 crore due to fabrication/alteration of TR-6/GAR-7 challans and bogus challans. After an investigation show-cause notice was issued to the appellant for demand of tax liability and also for demand of interest and imposition of penalty. Adjudicating authority after following due process of law, confirmed the tax liability with interest and imposed equivalent amount of penalty under Section 78 of Finance Act, 1994.

3. Learned Counsel would submit that appellant is in fact at receiving end due to the Consultants embezzlement of the amounts. He submits that appellant had appointed one Mr. Deepak Joshi, Consultant to look into the regular activities of discharge of service tax and also for payment of the service tax. His submission is that the appellant had in fact paid various amounts in cash by withdrawing from the Bank and giving it to the said Consultant Mr. Deepak Joshi who used to file service tax returns with its challans indicating proper payment of tax liability. It is his submission that the said Mr. Deepak Joshi played fraud on the appellant and used to fabricate challans by showing more amounts paid towards the service tax and used to pocket the difference amounts. It is his submission that appellant has discharged the entire service tax liability and the interest thereof as has been worked out based upon the statement of Mr. Deepak Joshi. It is his submission that appellant is not contesting the service tax liability but is seeking setting aside the penalties imposed on the ground that they are in fact hurt by the action of the Consultant. He would submit that the appellant now produces the copy of the cash book for the relevant period which indicates withdrawal of cash from the bank for paying service tax and duly certified by the Chartered Accountant. He would submit that on an identical issue, in the case of CCE v. Ganesh Enterprises  2015-TIOL-1650-CESTAT-MUM, the Bench had held that no penalty could be imposed for the fraudulent act on the part of a Consultant and appellant was under bonafide belief that the Consultant has deposited an amount towards service tax liability. He would also submit that again in an identical issue in the case of Shri Sai Enterprises  2015-TIOL-1586-CESTAT-MUM same view was reached by the Tribunal and held that penalty is not imposable on the assessee.

4. Learned D.R. on the other hand, would submit that the appellant was in the knowledge of the activity undertaken by the Consultant. It is her submission that the statement of the Consultant Mr. Deepak Joshi clearly indicates that appellant had paid only 50% of the amount as has been recorded in the said statement. It is her submission that the cash book and the certificate of the C.A. as produced now cannot be considered as they were not before the authorities and the withdrawals from the banks was not on record. It is her submission that no criminal complaint has been filed by the appellant against the said Consultant and it is incomprehensible that the appellant had entrusted the payment of service tax by cash instead of by cheque. It is her submission that there is no reasonable cause shown for setting aside the penalties imposed. She would submit that this view has been taken by the Honble High Court of Gujarat in the case of Indsur Global Ltd. V. Commissioner of Service Tax  2015 (38) STR 14 (Guj.). It is also her submission that the vicarious liability of any payment of service tax and interest thereof lies on the appellant. For this purpose she would read Section 238 of the Indian Contract Act and submit that appellant is liable to be penalized for mis-representation or fraud by agents. It is her submission that this view has been upheld by the Honble Bombay High Court in the case of V.S. Ubhayakar vs. Directorate of Enforcement  2012 (282) ELT 209 (Bom.). She would submit that the appellant had signed the ST-3 returns wherein there was a declaration that the facts and figures shown in the tax returns were correct.

5. Considered the submissions made by both sides and perused the records.

6. The issue involved in this case is regarding the imposition of penalty on the appellant for the fraudulent act on the part of the Consultant who had pocketed the amounts of service tax which has been paid by the appellant to him to pay into the Govt. treasury. On detailed perusal of the records, we do find that the appellant herein, in the statement recorded by the investigating authorities, has clearly recorded that he had given the amounts to Mr. Deepak Joshi who was the Consultant. It is also recorded that the appellant had insisted Mr. Deepak Joshi that they should pay the amount of service tax by cheque but Mr. Deepak Joshi, the Consultant, had convinced them that the time taken for realization of cheque is more while in the case of cash payment, the challans gets cleared. It is also seen from the statement that Proprietor of the appellant firm was counter that the statement of Mr. Deepak Joshi as to the fact that they had given only 50% of the challan amount, to which the Proprietor has declined the allegation stating that they had no knowledge about this fraud committed by Mr. Deepk Joshi.

6.1 On a specific query from the Bench as to what is the evidence available with the appellant to show that they had withdrawn the cash from the bank and given them to the said Mr. Deepak Joshi for discharging the service tax, the certificate produced today by the learned Counsel indicates that the cash book of the appellant during the period June 2006 to April 2009 indicates recording of an amount as payment of service tax. The said amounts were tallied by us with the amounts showing in paragraph 4 of the impugned order and the figures are identical. It can be presumed that the appellant had withdrawn the cash and given the same to the Consultant for discharging the service tax liability. It is also on record that the Consultant whose statement was recorded by the authorities indicates that he had been playing fraud of these amounts in respect of various other assesses also.

6.2 We find strong force in the contentions raised by the learned Counsel that the activity of the Consultant to embezzle the amount fraudulently cannot be held as has been done with the knowledge of the appellant herein. The fraudulent act of the Consultant seems to be driven by the greed of the Consultant to enrich himself. To our mind it cannot be attributable to the appellant as nothing is brought on record that the appellant had knowledge of such an activity undertaken by the Consultant. It is also not on record that the appellant had not paid any amount to the Consultant for the payment of service tax to the department. We find that the Consultant has defrauded the appellant by breaching GAR-7/TR-6 challans. It is also on record that the appellant had discharged the entire service tax liability and the interest thereon. In circumstances herein above we find that the judgement of the Tribunal in the case of Ganesh Enterprises (supra) Shri Sai Enterprises (supra) would cover the situation and in these two cases also facts were identical.

6.3 As regards the submissions made by learned D.R. that appellant has to be penalized for the activity of the Consultant as the Consultant has been appointed as an agent and reading of Section 238 of India Contract Act, he becomes liability on the action of the Consultant, will not carry the case of Revenue any further. As per the Indian Contract Act, the Section 238 talks about the vicarious liability only in the case if the principal is authorized an agent to do an act in the course of business for the principals. In the case in hand it is on record that the appellant had appointed an agent to discharge the appropriate service tax liability and had not appointed him for making any mis-representation or to commit fraud that also for the Consultants own benefit. In view of the above, the question of vicarious liability on the part of the appellant does not arise.

6.4 As regards the decision relied upon by the learned D.R. in the case of Indsur Global Ltd (supra), we find that in that case the Honble High Court of Gujarat was considering the appeal of the assessee therein in which the appellant could not have had reasonable cause for the failure of discharge of service tax liability, what would constitute reasonable failure in a given case was held as essentially be a question of fact. In the case in hand the reasonable cause could be that in favour of the appellant as he had every reason to believe the Consultant that he has discharged the service tax liability as per the records.

6.5 We find that the point raised by learned D.R. that the service tax returns were signed by the appellant indicating that the tax liability has been discharged will also not carry the case of Revenue any further. It is on records that such reports was prepared by the Consultant Mr. Deepak Joshi and signed by appellant that they were correct.

6.6 In our considered view, appellant being unaware of the fraudulent activity of the Consultant, and having discharged the service tax liability and interest thereof on being pointed out, have made out a justifiable reason for setting aside the penalties imposed on them.

6.7 Invoking the provisions of Section 80 of the Finance Act, 1994, we set aside the penalties imposed by the adjudicating authority

7. To that extent the appeal is allowed.

(Pronounced in Court on )

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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