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Judgment
M/s Menzies Aviation India Pvt. Ltd. and its Managing Director, Sh. V.S.Bobba and Sh. Ratnakar B., Chief Financial Officer, have filed three
appeals against the common impugned order dated 13.12.2017 passed by the Commissioner of Central Taxes (Appeals), Bangalore whereby the
Commissioner (Appeals) has confirmed the demand against the company and also imposed penalties to the tune of Rs. 1 Lakh on the Managing
Director Sh. V.S. Bobba and Rs. 1 Lakh on Sh. Ratnakar B., Chief Financial Officer. These three appeals were filed before this Tribunal. During the
pendency of the appeal, M/s Menzies Aviation India Pvt. Ltd. availed the Sabka Vishwas Legal Dispute Resolution Scheme and the Competent
Committee issued the Discharge Certificate in Form-IV and the appeal against the company was dismissed as withdrawn. The Managing Director as
well as the Chief Financial Officer also applied under the Sabka Vishwas Legal Dispute Resolution Scheme vide their application which is on record
but the same was rejected by the Department. Now, we are proceeding to decide the appeals of the Managing Director and the Chief Financial
Officer on merits. In order to appreciate the controversy, it is necessary to discuss about the facts of the present case. M/s Menzies Aviation India
Pvt. Ltd. were engaged in providing the output service like cargo handling service, storage and warehouse service, Business Auxiliary service, Airport
service, Renting of Immovable Property services etc.
During the course of audit of records of appellant, it was noticed that M/s MAIPL was discharging service tax on cargo handling service, storage
& warehouse service and airport services under the head airport services by airport authority. Further, it was noticed the appellant-1 was providing
the service of delivery orders to various customers relating to the cargo carried by the Airlines like Qatar Airways, Lufthansa Airways, Air France
and DHL express (India) private limited (DHL). In respect of like Qatar Airways, Lufthansa Airways, Air France, the bills for providing the service
of issue of delivery orders were raised by the respective airlines on various customers and the appellant-1 was collecting 40% of delivery order
collection fees collected from the above mentioned airlines. But in respect of DHL Express (India) Pvt. Ltd., it was notices, as per the Standard
Ground Handling Agreements dated 09.09.2011, the appellant-I was issuing bills to various customers for providing services on the entire amount of
delivery orders and collecting service tax, but paid service tax on only 40% of the Delivery Order fees indicated in the bills raised and has not paid the
service on the remaining 60% of the delivery order fees collected. The appellant-1 had deducted 60% of the service tax collected from the customers
in respect of the delivery order fees relating to DHL and had paid the service tax only on 40% of the said fees, though they had charged and collected
service tax on 100% of the value of the said bills raised. On enquiry by the audit, the appellant-1 intimated that as per the agreement they retain 40%
of the delivery order fees plus service tax and remit 60% of the delivery order fees including 60% of service tax to DHL by issue of credit notes and
since their income was only 40% of the delivery fees collected, they had paid service tax on 40% of the value. It appeared that, the appellant-1 had
short paid service tax on delivery order fees collected to the extent of 60% of the said fees for which they had raised credit notes to DHL. The
appellant-1 also appeared to have contravened the provisions of Section 70, recoverable under Section 73 along with interest under Section 75 of the
Finance Act, 1994. The service tax which was collected and short paid on the taxable value of Rs.5,33,73,928/- works out to Rs.64,94,194/- for the
period from 10/2011 to 03/2015.
2.1. Further, the appellant-1 had issued credit notes on DHL for passing on the volume discount in respect to unitization/breakdown, unitization/build-
up, x-ray handling charges covering the period from 01.10.2012 to 30.09.2013 and from 16.01.2013 to 15.01.2014 and credit note were issued for the
value of Rs.196671/- & Rs.533362/- with service tax of Rs.24309/- and 65924/-. The service tax amounts shown in the credit notes were deducted
respectively. The appellant-1 cannot reduce the tax liability by raising credit notes for the quantity discount calculated for the earlier months.
Therefore, such adjustment has resulted in short payment of service tax. The service tax which was collected and short paid on the taxable value of
Rs.730033/- works out to Rs.90232/-. The Department alleged that the appellant-1 had suppressed the above facts from the department with and
intent to evade payment service tax, in as much as, the appellant-1 had not informed the department, the facts regarding the said activities. The act of
suppression, had rendered the appellant-1 liable for invoking the extended period of five years under the proviso to sub-section (1) of Section 73 of the
Act and they are liable for penal action under section 78(1) of the Finance Act, 1994.
2.2. In view of the above, the appellant-1 appeared to have contravened the provisions of Section 68 and rendered themselves liable of penal action
under Section 78(1), and to pay interest under Section 75 of the Act. It was alleged that Sh. Ratnakar B, Chief Financial Officer of the company and
Sh. V.S. Bobba, Managing Director both were well aware of the fact of service tax charged and collected in full but not paid to the Government
Account. They appeared to have failed in their capacity and were responsible for evasion of service tax and non-payment of service tax collected to
the credit of the central government and rendered themselves liable for penal action under Section 78A of the Finance Act, 1944.
2.3. On these allegations, a SCN dated 18.12.2015 was issued under Section 673(1) of the Finance Act along with proposal to demand interest and
also imposed penalty. After following the due process, the Original Authority confirmed the demand and also imposed penalty of Rs.1 Lakh each on
the Managing Director as well as Chief Financial Officer under Section 78A of the Finance Act, 1944. Aggrieved by the Order-in-Original, the
appellant filed appeal before the Commissioner (Appeals) who rejected the appeal. Hence the present appeals.
Heard both the parties and perused the records of the case.
Learned Counsel for the appellant submitted that it is undisputed that the company as well as its Managing Director and Chief Financial Officer
sought to avail the benefit under Sabka Vishwas Legal Dispute Resolution Scheme but the Department has only allowed company to avail the Scheme
and issued the Discharge Certificate which is on record but the application filed by Managing Director and the Chief Financial Officer was not found
legally correct and was rejected. He further submitted that under the Scheme, once the main dispute has been settled by the company then the
individual penalty on the officer is automatically goes as per the various conditions of the scheme but the Department has wrongly rejected the
application filed by the Managing Director and the Chief Financial Officer. He further submitted that otherwise on merit also, the penalty is not liable
to be imposed on the Managing Director and the Chief Financial Officer because the Department has not brought anything on record to show that
how the Managing Director and the Chief Financial Officer were negligent in performance of duty.
On the other hand, learned AR has submitted that the applications of the Managing Director and the Chief Financial Officer are rightly rejected and
penalties have been rightly imposed on them as they were negligent in performance of their duties.
After considering the submissions of both the parties and perusal of the material on record, we find that during the pendency of these three appeals,
the company as well as the Managing Director and the Chief Financial Officer applied under the Sabka Vishwas Legal Dispute Resolution Scheme
but only the application filed by the company was cleared by the Department and Discharge Certificate was issued and accordingly the appeal of the
company is dismissed as withdrawn but the applications filed by the individuals were rejected. Further, on merit also, we do not find any material
which was considered by both the authorities below while imposing the penalties on these two officers under Section 78A of the Finance Act. The
only ground on which both the authorities have imposed penalties is that these officers were negligent whereas we do not find any material to
substantiate that allegation against these officers. These officers have merely complied with the agreement entered into between the parties and no
knowledge can be imputed on them that they have deliberately violated the provisions of the Act. Further, we find that in the case of Hindustan Steel
Ltd. Vs State of Orissa, 1978 (2) ELT J.159 (SC), wherein it was held that penalty will not ordinarily be imposed unless the party obliged either acted
deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of it obligation. Further, we find
that in the SCN, it has not been established that these individuals have acted in contumacious manner so as to impose penalty.
In view of our discussion above, we find that imposition of penalty on the appellants is not justified and therefore, we set aside the imposition of
penalties on the appellants by allowing their appeals. Consequently, both the appeals are allowed.
(Order pronounced in the open court on 29.01.2021)