2014 (1) TMI 202 - AT - Service Tax

Appeal partially allowed in Service Tax case due to fraudulent activity; vicarious liability upheld.

M/s Mahisagar Welding Works Versus CCE Ahmedabad

The appellant's appeal against the OIA upholding the OIO regarding Service Tax payment delay was partially allowed. The penalties imposed were upheld due ... Demand of service tax - Penalty u/s 76 & 78 - Delay in payment of tax - Held that:- there was short payment of Service Tax due to forging of duty payment figures in the challans under which Service Tax was paid. One digit was added before the challan amount paid in the bank. Appellant has argued that this has happened due to the mis-deeds of their accountant to whom the full amount was given for payment - there is a clear cut forging of duty paying challans to project as if higher amounts of Service Tax due have been paid. Appellant cannot escape the vicarious responsibility by saying that any other person, acting as an agent on their behalf, has committed a wrong act and appellant should not be held responsible for the fraud - where in a similar situation of forging of TR-6 challans was held to be a fit situation for imposing penalty. Appellants alternative argument that penalty under Section 76 of the Finance Act, 1994 is however, required to be allowed as both penalties under Section 76 and 78 cannot be invoked as per the provisions of Section 78 of the Finance Act - Decided partly in favour of assessee. Issues:1. Appeal against OIA upholding OIO regarding Service Tax payment delay.2. Argument for no penalties due to delay attributed to accountant's conduct.3. Defense of penalties upheld based on fraudulent forging of duty payment figures.4. Applicability of CBEC circular and case laws in penalty imposition.Issue 1: Appeal against OIA upholding OIO regarding Service Tax payment delayThe appellant filed an appeal against OIA No.82/2012 upholding OIO No.AHM-Service Tax-003-ADC-034-11, which was passed by the Additional Commissioner, Ahmedabad-III. The appeal was based on the delay in payment of Service Tax and the subsequent imposition of penalties.Issue 2: Argument for no penalties due to delay attributed to accountant's conductThe appellant's representative, a Chartered Accountant, argued that the delay in payment occurred due to the conduct of the accountant responsible for the Service Tax payment. It was contended that once the shortfall in payment was noticed, it was rectified along with interest. The argument emphasized that the delay was not intentional fraud or suppression to evade tax, citing CBEC Circular and a case law to support the position. Additionally, an alternative argument was presented that penalties under Section 76 & 78 should not both apply as per the proviso to Section 78 of the Finance Act, 1994.Issue 3: Defense of penalties upheld based on fraudulent forging of duty payment figuresThe respondent's representative argued against the appellant's position, highlighting that the proprietor's son was overseeing the Service Tax payment process, and there was evidence of forging duty payment figures in the challans to show higher amounts paid. This fraudulent activity was deemed as the appellant's responsibility under the doctrine of vicarious liability. Case laws were cited to support the imposition of penalties in such cases.Issue 4: Applicability of CBEC circular and case laws in penalty impositionAfter hearing both sides and examining the case records, the judge observed that the appellant's reliance on CBEC circular and case laws was not applicable to the present situation. The judge noted that the situation involved clear forging of duty payment challans, indicating fraudulent activity to evade Service Tax. It was concluded that the penalties were justified, as seen in a similar case law cited by the respondent's representative. The judge also addressed the appellant's alternative argument regarding the imposition of penalties under different sections of the Finance Act, 1994.In the final decision, the appeal of the appellant was allowed only to a limited extent based on the observations made during the proceedings.