Customs, Excise, and Service Tax Appellate Tribunal sets aside Rs. 1 lakh penalty against former director citing insufficient grounds and procedural lapses.
In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) at the Mumbai West Zonal Bench has set aside a penalty imposed on Mr. Ali Akbar Ratansi, a former director of M/s Fox Lights & Grips (I) Pvt Ltd, for alleged service tax evasion. The case, adjudicated by Mr. C.J. Mathew, Member (Technical), revolved around a penalty of Rs. 1,00,000 under Section 78A of the Finance Act, 1994, related to a differential tax recovery notice against the company.
The tribunal's decision, dated December 23, 2025, scrutinized the imposition of the penalty, emphasizing the necessity for clear evidence and proper procedural adherence. The appellant, represented by Chartered Accountant Shri Sunit Jhunjhunwala, contested the penalty on the grounds that the show cause notice and the subsequent order failed to establish any direct responsibility or involvement of Mr. Ratansi in the alleged contraventions.
The proceedings originated from a show cause notice dated September 18, 2020, which accused the company and its directors of failing to remit service tax amounting to Rs. 1.93 crore for services rendered between 2012-13 and June 2017. The notice alleged that Mr. Ratansi and another director, Mr. Allaudin Sirajuddin Syed, were responsible for the statutory non-compliance.
In its defense, the respondent, represented by Superintendent Commissioner (AR) Shri SBP Sinha, maintained that the directors' omissions constituted willful default, thereby justifying the penal action under Section 78A. However, the tribunal found these assertions unsubstantiated, noting the absence of concrete evidence linking Mr. Ratansi to any direct or knowing involvement in the tax evasion activities.
The tribunal highlighted that the imposition of penalties under Section 78A requires demonstrable evidence that a director was consciously involved in the contravention of tax laws. The ruling pointed out that neither the show cause notice nor the adjudicating order provided such evidence, nor did they indicate Mr. Ratansi's active role in business operations post his directorship tenure, which ended in October 2017.
Furthermore, the judgment underscored procedural discrepancies, particularly the notice's non-compliance with the authentication norms set by the Central Board of Indirect Taxes & Customs (CBIC). These procedural lapses, combined with the lack of substantive allegations, led the tribunal to conclude that the pre-requisites for imposing the penalty were unmet.
In light of these findings, the tribunal annulled the penalty against Mr. Ratansi, marking a pivotal moment in the enforcement of service tax compliance and the responsibilities of company directors. This decision serves as a reminder of the critical importance of due process and evidence in regulatory enforcement actions.
Bottom Line:
Penalty under Section 78A of Finance Act, 1994 cannot be imposed without proper evidence and determination of whether a director was knowingly concerned with contraventions or responsible for the conduct of business in relation to evasion of service tax.
Statutory provision(s): Finance Act, 1994, Section 78A, Section 73, Section 75, Section 68.
