Tuesday, January 12, 2016

Penalty levied on co. as its directors tried to evade service tax with help of internal auditors

Where internal auditor of company perpetrated fraud by booking 'service tax due' as 'income'/'commission' in books of account and it was found that directors of company were aware thereof, company was liable to evasion penalty for consequent non-payment of service tax
1) Assessee was engaged in the activity of issuing Air Tickets for Domestic as well as International routes to its customers. It discharged Service Tax liability based on the basic fare charged by the Airlines.

2) Department noticed that assessee had failed to discharge the Service Tax at appropriate rate and has also failed to file ST-3 returns correctly. It issued show-cause notice to assessee after invoking extended period and imposing interest and penalties.
3) Assessee argued that its Consultant and internal auditor Shri P.K. Agarwal mis-guided and cheated it while discharging the Service Tax liability. Therefore, waiver of penalty was sought before CESTAT.
a) It is undisputed that the assessee has discharged the Service Tax liability and interest thereof on being pointed out. But their consultant submitted that it was duly informed to the management or the Managing Partner about the liability towards Service Tax and said amount was transferred to Commission Account because otherwise company's profit would be in minus.
b) He also submitted before department that it was done with the consent of the management and I had not personally effected any changes. Therefore, as per given circumstances and facts of the case, penalty has to be levied on company - ITL Tours & Travels (P.) Ltd. v. Commissioner of Service Tax, Mumbai [2016] 65 taxmann.com 25 (Mumbai - CESTAT)

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