Penalties Withdrawn under Sabka Vishwas Scheme: Tribunal Emphasizes Lack of Mens Rea

The Tribunal set aside penalties imposed on the appellants under Order-in-Original by the Commissioner of Central Tax & GST, Thane. The penalties were deemed withdrawn under the Sabka Vishwas Scheme, with one appeal already withdrawn and Form-4 issued. Although the appellants applied for settlement under SVLDRS, Form-4 was pending issuance. The Tribunal emphasized the lack of "mens rea" in imposing penalties, following precedents from Karnataka and Punjab & Haryana High Courts. Relying on these precedents, the Tribunal disposed of the appeals, noting that penalties on employees would not stand once the main company's duty demand issue was settled under SVLDRS.

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Issues:
Penalties imposed on appellants under Order-in-Original, Deemed withdrawal of appeal under Sabka Vishwas Scheme, Application for settlement under SVLDRS, Imposition of penalty without establishing "mens rea", Precedents from Karnataka and Punjab & Haryana High Courts on penalty imposition under Rule 26.

Penalties Imposed:
The appellants filed appeals against penalties imposed under Order-in-Original by the Commissioner of Central Tax & GST, Thane. One appeal was deemed withdrawn under the Sabka Vishwas Scheme, and Form-4 was issued. The appellants also applied for settlement under SVLDRS, but Form-4 was not yet issued, leading to the current appeal.

Sabka Vishwas Scheme & SVLDRS Application:
The Sabka Vishwas Legacy Dispute Resolution Scheme, as per the Finance Act, 2019, outlines procedures for issuing statements by the designated committee based on the amount declared by the declarant. The scheme also addresses situations where penalties are imposed and the subsequent settlement under SVLDRS, requiring proof of withdrawal of appeals for discharge certificates.

Imposition of Penalty without "Mens Rea":
The Tribunal noted that penalties were imposed on the appellants without establishing "mens rea," a crucial element for penalty imposition under Rule 26 of the Central Excise Rules, 2002. Citing precedents from Karnataka and Punjab & Haryana High Courts, the Tribunal emphasized the necessity of proving intent or knowledge for penalty imposition, which was lacking in the present case due to the appellants' roles as employees.

Precedents & Disposal of Appeals:
Drawing from decisions of the Karnataka and Punjab & Haryana High Courts, the Tribunal concluded that the penalties imposed lacked the essential element of "mens rea." Referring to a specific case, the Tribunal highlighted that once the main company's duty demand issue was settled under SVLDRS, penalties under Rule 26 on employees would not stand. Consequently, the appeals were disposed of, setting aside the penalties, which would have been waived off under SVLDRS due to the settlement of the main appellant's case.

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