Section 78A of Finance Act 2013 prescribes for personal penalty on employees, Directors, managers or secretary of company. The penalty provided under section 78A is in addition topenalties prescribed for the company. As per section 78A :
"Where a company has committed any of the following contraventions, namely:—
(a) evasion of service tax, or
(b) issuance of invoice, bill or, as the case may be, a challan without provision of taxable service in violation of the rules made under the provisions of this Chapter, or
Section 78A : Personal penalty in service tax law
(c) availment and utilisation of credit of taxes or duty without actual receipts of taxable service or excisable goods either fully or partially in violation of the rules made under the provisions of this Chapter, or
(d) failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of six months from the date on which such payment becomes due, then any director, manager, secretary or other officer of such company, who at the time of such contravention was in-charge of and was responsible to the company for the conduct of business of such company and was knowingly concerned with such contravention shall be liable to penalty which may extend to one lakh rupees."
It must be noted that a similar section 81 which was omitted by finance Act 2004 explained company to include partnership firm and association of persons. The said section 81 also explained Director to include partners of the firm. A similar kind of explanation is missing in the presently active section 78A. Which means that the words used in the section78A viz. "company" & "Director" should strictly be understood in its literal sense.
From the reading of the section it is clear that in order to attract penalty the person in charge who may be director, employee, manager or secretary should have knowledge of the contraventions mentioned in sub-sections (a) to (d) done by the company. Hence the duty is cast of Directors, employees, managers or secretary to prove that either he was not in charge of or was not responsible for the conduct of the company or the contravention was performed without his knowledge.
It was held that No personal penalty can be imposed on the employee, if the employee acted as per the directions of the director or employer. [Commissioner of Customs, LCD, TDK v. Cyber Express (P.) Ltd. 2004 (172) ELT 388 (Delhi)
A very dangerous part of this section is that the provisions are applicable even if the specified persons disconnects himself from the company. This is the worst part that if such a situation arises then he has to fight his legal battle himself and with his own cost. This demands that the specified persons must discharge their functions with attest care in order to avoid contraventions specified in section 78A.
CA A. R. Mutha