Bangalore District Court
The Commissioner Of Service Tax vs M/S. Vasoo Builders Pvt on 12 February, 2020
1 CC.No.02/17
BEFORE THE SPECIAL COURT FOR ECONOMIC
OFFENCES: AT BANGALORE.
Dated this the 12th day of February 2020.
: Present:
Sri. SHANTHANNA ALVA M.,
Presiding Officer, Special Court
for Economic Offences, Bangalore.
CC. No. 02-2017.
Complainant: The Commissioner of Service Tax,
Service Tax - 1 Commissionerate,
TTMC, BMTC Building, Banashankari,
Bangalore - 560 070.
(By Spl.P.P. Sri. K.M.M.,)
Vs.
Accused: 1. M/s. Vasoo Builders Pvt., Ltd.,
No.5, 1st Floor, Silver Glade,
Wellington Street, Richmond Town,
Bangalore - 560 025.
(A company registered under the Companies
Act, Rep. by its Prl. Officer and Mg. Director
A.2 - Sagar B. Muthappa.)
2. Sagar B. Muthappa, Managing Director,
S/o. Bottolanda Ganapathy Muthappa.
44 Years, R/A. Apartment S-02, No.25
Alfred Place, Alfred Street, Richmond
Town, Bangalore - 560 025.
(By Sri. K.J., Advocate)
JUDGMENT
1. The complaint is filed under section 200 of Cr.P.C.
alleging that Accused No.1 and 2 have committed the offence punishable under section 89(1)(ii) of the Finance Act, 1994, 2 CC.No.02/17 (Herein after as referred as 'the Act'). According to the Complainant, the Principal Additional Director General has made a request to the Director General of DGCEI, New Delhi, to accord the sanction to prosecute Accused No.1 and 2 vide letter dated:15.12.2015. The Director General DGCEI, New Delhi, has accorded the sanction to file the complaint and prosecute the Accused No.1 and 2 vide his sanction order dated: 26.04.2016 under section 89 of the Act R/w Section 9AA of the Central Excise Act, 1944.
2. The Complainant's case in brief is that Accused No.1 -
M/s. Vasoo Builders Pvt., Ltd., Bangalore is a Private Limited Company and it is engaged in carrying out the business of construction of commercial and residential buildings to its customers. The Accused No.2 and his wife are the Directors of Accused No.1. The Accused No.2 is the Managing Director, Principal Officer and is responsible and in charge of day today affairs and business of Accused No.1. Accused No.1 is providing services to various customers and charging service tax on the services provided under the category of works contract. During the period between 01.04.2010 to 30.09.2015, the Accused collected the service tax amounting to Rs. 3,31,73,889/-. The Accused have not paid the service 3 CC.No.02/17 tax, so collected. On getting the specific intelligence, the officers of DGCEI initiated the investigation and even after that the Accused No.1 and 2 continued the non-remittance of collected service tax. The Accused No.1 through Accused No.2 admitted the collection of service tax and the non- remittance. The Senior Intelligence Officer arrested the Accused No.2 on 09.10.2015 and was released on 14.10.2015. The criminal misconduct on the part of the Accused No.2 is that they not only committed an offence of non-payment of service tax collected by them, but also facilitated their customers to avail credit of service tax mentioned by them in their invoices. It is averred that the Accused No.2 ignored the advice given by their Chartered Accountants. Accused No.2 is the person solely responsible for all the activities of Accused No.1. It appears that Accused No.2 has master minded the evasion of the service tax and also taken the decision not to pay the service tax collected and payable by the Accused No.1. It appears that Accused No.2 has knowingly and willfully suppressed the facts of providing the taxable services and collection of service tax with an intention to evade the payment of service tax. The evidence collected by the Investigating Agency disclosed that 4 CC.No.02/17 the Accused No.1 and 2 have willfully indulged in fraudulent act of evading the service tax in large scale by circumventing the provisions of the Act, and Rules there under. The modus operandi adopted by the Accused No.1 and 2 clearly demonstrates that their intention is to evade the remittance of collected service tax. Thus, Accused No.1 and 2 are liable to be prosecuted for the offence punishable under section 89(1)
(ii) of the Act.
3. On filing of the complaint, cognizance was taken and the case was registered against Accused No.1 and 2 for the offence punishable under section 89(1)(ii) of the Act and summons was issued.
4. In response to the summons, the Accused No.2 on his behalf and as representative of Accused No.1 appeared through his counsel and enlarged on bail. Copies of the complaint and other documents were furnished to him. Thereafter, the evidence before charge was recorded as required under section 244 of the Cr.P.C. Then after hearing the Ld Spl. P. P. and Accused, charge was framed against Accused No.1 and 2 for the offence punishable under section 89(1) (d)(ii) of the Act and read over to them. The Accused 5 CC.No.02/17 No.2 for himself and also on behalf of Accused No.1 pleaded not guilty and claimed for trial.
5. To prove the charge leveled against the Accused, the Complainant got examined 10 witnesses as P.w.1 to 10 and got exhibited the documents marked as Ex.p.1 to 19.
6. After closure of Complainant's side evidence, the statement as provided under section 313 of Cr.P.C was recorded. The Accused No.2 denied incriminatory evidence found against him and Accused No.1. The Accused not chosen to lead the evidence.
7. Heard the arguments of Sp.P.P and the Ld counsels of the Accused No. 1 and 2. Perused the complaint and the evidence on record and written arguments submitted by the Ld counsel of the Accused. The points that arise for consideration are:
Point No.1: Whether the complaint is not backed with valid sanction?
Point No.2: Whether the Complainant has proved that Accused No.1 had collected the service tax of Rs.3,31,73,889/- during the period between 01.04.2010 to 30.09.2015 under the works contract and that amount was not remitted within the stipulated time and thereby it has committed the offence punishable under section 89 (1)(ii) of the Act? 6 CC.No.02/17 Point No.3: Whether the Complainant has proved that Accused No.2 was responsible and in charge of day today affairs of Accused No.1, hence liable for the offence committed by the Accused No.1?
Point No.4: What order?
8. The findings on the above said points are as under:
Point No.1: In the Negative, Point No.2: In the Affirmative, Point No.3: In the Affirmative, Point No.4: As per the Final orders for the following:
REASONS
9. Point No.1: The prosecution is initiated alleging that the Accused No.1 by not remitting the collected service tax committed the offence punishable under section 89(1) (ii) of the Act. Accused No.2 being responsible and in charge of Accused No.1, liable for the offence committed by the Accused No.2 by virtue of Section 9AA of Central Excise Act, 1944. Section 89 of the Act as contemplates the sanction for initiation of the prosecution. In this case, the Director General, DGCEI has accorded the sanction to prosecute the Accused No.1 and 2. Ld counsel of the Accused No.1 and 2 argued that as per Section 89 of the Act, the sanction has to be 7 CC.No.02/17 accorded by the Principal Chief Commissioner of Central Excise, but in the case on hand, the sanction was accorded by the Director General, hence the sanction is invalid. Ld counsel referred the related provisions and also the oral evidence of P.w.1 and argued that in the letter addressed to the Commissioner of Service Tax, Service Tax Commissionerate- 1, Bangalore marked as Ex.p.1; it is only informed about the according of the sanction. The sanction marked as Ex.p.5 is not referred in that letter. Ld counsel argued that Central Excise Act, 1944 and Act are two different legislations. P.w.1 and 2 belonged to different organization under which P.w.2 is working. Mere marking of sanction is not proof of its contents. The sanction is to be proved in two ways; one is by examining the sanctioning authority and secured is by producing the sanction file. In this case, none of these ways is followed.
10. In support of the argument, the Ld counsel relied upon the ruling rendered by the Hon'ble Supreme Court in the case of Mohd Iqbal Ahmed Vs. State of Andhra Pradesh, reported in AIR 1979 SC 677, it is held that "it is incumbent on the prosecution to prove that a valid sanction has been granted by the sanctioning authority after it was satisfied that a case for sanction has been made out constituting the 8 CC.No.02/17 offence. This should be done in two ways, either (1) by producing the original sanction which itself contains the facts continuing the offence and the grounds of satisfaction and (2) by adducing evidence aliunde to show the facts placed before the sanctioning authority and the satisfaction arrived at by it." In the case of State of Karnataka Vs. Ameer Jan, reported in 2008 CRI.L.J. 347, it is held that "the sanction to prosecute given solely on the basis of report made by I.G. Police - Materials collected during the investigation, if not available before the sanctioning authority - Sanction granted is illegal."
11. Ld Spl.P.P. argued that the Director General is empowered to accord the sanction. The Director General is equivalent to Chief Commissioner. In support of this argument, Ld Spl.P.P. referred the circulars issued by the CBEC. It is argued that the sanction order clearly discloses that all the materials were placed before the sanctioning authority and the reasons are given for according to the sanction to prosecute. The examination of sanctioning authority is not required when in the sanction itself contains the reasons. Ld Spl.P.P. argued that even if, there is some procedural lapse that alone will not invalidate the sanction. 9 CC.No.02/17
12. Hon'ble Supreme Court recently in the case of Vinod Kumar Gargh Vs. State (Government of National Capital Territory of Delhi) in Crl. Appeal No.1781/2009, rendered on 17.11.2018, held that "A mere error, omission or irregularity in sanction is not considered to be fatal unless it has resulted in a failure of justice or has been occasioned thereby." In the case of State of Maharastra Vs. Mohan G. Jain, reported in (2013) 8 SCC 119, by relying upon various decisions, expounded the principles governing the validity of sanction:
The laid down principles are:
a) 14.1: - It is incumbent on the prosecution to prove that the valid sanction has been granted by the sanctioning authority after being satisfied that a case for sanction has been made out.
b) 14.2: - The sanction order may expressly show that the sanctioning authority has perused the material placed before it and, after consideration of the circumstances, has granted sanction for prosecution.
c) 14.3: - The prosecution may prove by adducing the evidence that the material was placed before the sanctioning authority and its 10 CC.No.02/17 satisfaction was arrived at upon perusal of the material placed before it.
d) 14.4: - Grant of sanction is only an administrative function and the sanctioning authority is required to prima face reach the satisfaction that relevant facts would constitute the offence.
e) 14.5: - The adequacy of material placed before the sanctioning authority cannot be gone into by the court as it does not sit in appeal over the sanction order.
f) 14.6: - If the sanctioning authority has produced all the materials before it and some of them have not been proved that would not vitiate the order of sanction.
g) 14.7: - The order of sanction in a pre-requisite as it is intended to provide a safeguard to a public servant against frivolous and vexatious litigants, but simultaneously an order of sanction should not be construed in a pendantic manner and there should not a hyper technical approach to test its validity."
13. The principles lied down in the rulings relied by the Ld counsel of the Accused and in the rulings referred above, 11 CC.No.02/17 manifests that valid sanction is sacrosanct for initiation of criminal proceedings. The procedural defect occurred while according the sanction will ipso facto will not invalidate the sanction. The according of sanction is an administrative act and what needed is the perusal of the materials and application of mind while according the sanction. The examination of the sanctioning authority is not required, if the sanction is produced and it shows the perusal of the materials. If not, the sanctioning authority is to be examined. With these back ground, it has to be appreciated as to whether the sanction is valid or not.
14. The first argument is that Section 89 of the Act empowers either the Principal Chief Commissioner of Central Excise or Chief Commissioner of Central Excise, to accord the sanction, but not the Director General. The argument is also addressed that the officials of Directorate of Central and DGCEI and Central Excise Act, 1944 and Act are different, thus, the DGCEI has no authority to deal with matter. The DGCEI is an organization authorized to investigate the matter relating to the evasion of indirect tax, thus the argument the officials are different and it cannot investigate and prosecute 12 CC.No.02/17 the evasion of tax imposed under the Act is not legally acceptable.
15. Admittedly, the investigation is carried out by the DGCEI. The Ministry of Finance (Department of Revenue) issued the Revised Guidelines Circular No.1009/16/2015-CX, dated: 23.10.2015, F.No.96/54/2014-CX.1, dated: 23.10.2015. In the said Circular, at 6.1:- it has been stated that "prosecution proposal should be forwarded to the Chief Commissioner/Principal Chief Commissioner or Director General/Principal Director General of DGCEI (in respect of cases booked by DGCEI) after the case has been carefully examined by the Commissioner /Principal Commissioner or Additional Director General/Principal Additional Director General of DGCEI who has adjudicated the case. In all cases of arrest, examination of the case to ascertain fitness for prosecution shall be necessarily carried out." The CBEC issued the Notification No.28/2014-CX (N.T) dated: 16.09.2014 by making amendment, where under Director General is equated to Chief Commissioner. This being the case, the contention of the Accused that the Director General has no authority to accord the sanction is not sustainable. 13 CC.No.02/17
16. The second leg of the argument is that the sanctioning officer is not examined; hence the sanction is not proved. Only for the reason that sanctioning authority is not examined, the sanction cannot be held invalid. Ex.p.1 is the letter dated:
10.05.2016 addressed to the Commissioner of Service Tax, wherein, the according of sanction and the details of the documents placed before the sanctioning authority is detailed.
Perusal of the sanction order marked as Ex.p.5 discloses that the sanctioning authority considered all the materials available on record. At Para No.6 of the order, it is stated that materials on record were examined carefully and after coming to the conclusion that the offence involved is grave and adequate evidence available to establish the case, the sanction is accorded. This being the case, it cannot be held that the sanctioning authority has not applied the mind. The case file relating to the according of sanction is not required to be produced. In the ruling reported in (2013) 8 SCC 119 referred above, at Para 14:4, it has been held that the court cannot go in to the adequacy of materials placed before the sanctioning authority as it doesn't sit in appeal. Thus the contention of the Accused that there is no valid sanction to prosecute the 14 CC.No.02/17 Accused No.1 and 2 is not sustainable either on facts or on law. Accordingly, this point is answered in negative.
17. Point No.2: The Complainant's case is that Accused No.1 is engaged in the business of providing services to various customers and has been charging service tax on the services provided. The Accused No.1 collected the service tax amounting to Rs. 3,31,73,889/- during the period between 01.04.2010 to 30.09.2015, but not remitted the collected service tax. To substantiate the allegation, the Complainant and other cited witnesses are examined as P.w.1 to 10 and produced the documents marked as Ex.p.1 to 19. P.w.1 was the Commissioner and he deposed that he forwarded the collected materials through the letter dated: 10.05.2016 marked as Ex.p.1. P.w.2 was the Principal Additional Director General and he deposed that under his supervision, C.w.2 investigated the matter and he submitted the report to accord the permission to arrest Accused No.2. After going through the investigating report, he issued the authorization dated:
08.10.2015 marked as Ex.p.2 to arrest the Accused No.2.
Then, he issued the show cause notice dated: 21.10.2015 marked as Ex.p.3 to the Accused No.1 and 2 demanding the 15 CC.No.02/17 evaded tax and penalty. Then submitted the report for according the sanction as per the letter marked as Ex.p.4. The Director General accorded the sanction marked as Ex.p.5.
18. P.w.3, the then Senior Intelligence Officer who investigated the matter, deposed that he obtained the approval to carryout the investigation in respect to the issue of not depositing the collected service tax. He summoned Accused No.2 and recorded his statement on 17.03.2015 marked as Ex.p.6. It revealed that amount of Rs. 3,31,73,889/- collected as service tax was not deposited, hence after obtaining the permission; he arrested Accused No.2 on 09.10.2015 after issuing the memorandum of arrest marked as Ex.p.9. In continuation of the investigation, he summoned the Accused No.2 on 21.10.2015 and recorded his statement as per Ex.p.7. P.w.3 deposed that on the same day, he recorded the statement of the Accountant of the Accused No.1, marked as Ex.p.8. He collected the balance sheet of the Financial Year 2010 - 11 to 2013 - 14, invoices and customer wise extracts maintained by the Accused No.1. He also collected the service tax, collected the account and the statutory returns submitted by the Accused No.1 up to April - 2013. The certified copy of the balance sheet of the Financial 16 CC.No.02/17 Year 2010 - 11 to 2013 - 14 is marked as Ex.p.10. The invoice statement is marked as Ex.p.11. The ledger account extract of the customers is marked as Ex.p.12. The service tax collected ledger is marked as Ex.p.13. The running accounts bills with payment certificate are marked as Ex.p.14. The statutory return is marked as Ex.p.15. P.w.3 deposed that the collected materials disclosed the non-remittance of collected service tax of Rs. 3,31,73,889/-.
19. P.w.4, the statutory Auditor of the Accused No.1 deposed that he confirmed copies of the financials marked as Ex.p.16. P.w.4 stated that part of Ex.p.10 (at Page No.137 to
183), are the financial statements of the Accused No.1 and the Audit report is at Page No.170. P.w.4 deposed that he has given the statement marked as Ex.p.16. P.w.5, the statutory Auditor of the Accused No.1 for the Financial Year 2013 - 14, deposed that he confirmed the copies of the financial of Accused No.1 and in this regard, gave statement marked as Ex.p.17. P.w.5 deposed that part of Ex.p.10 (Page No.118 to
136), are the financial statements.
20. P.w.6, the Manager working in M/s. Salarpuria Properties Pvt., Ltd., Bangalore, deposed that M/s. Salarpuria Properties Pvt., Ltd., had given work order for Rs. 17 CC.No.02/17 17,74,99,395/- to Accused No.1. It had not adhered the terms and conditions of the work order, hence the contract was terminated. On termination, Accused No.1 raised the bill amount for more than Rs. 6 crore 50 lakhs including the service tax. P.w.6 deposed that in this regard, he has given the statement marked as Ex.p.18. P.w.7, the Senior Manager of M/s. Brigade Enterprises Ltd., deposed that Senior Intelligence Officer summoned him and enquired about the transaction with Accused No.1. He had stated about three work orders worth of more than Rs. 22 crores given to Accused No.1. The company had paid all the amounts including the service tax to the Accused No.1. P.w.7 deposed that in this regard he has given the statement marked as Ex.p.19.
21. P.w.8, the Senior Intelligence Officer deposed that he recorded the statement of P.w.4 and 5 as per Ex.p.16 and 17 and they confirmed the auditing and also that Accused No.1 had not deposited the collected service tax. P.w.9, the Senior Intelligence Officer deposed that P.w.7 appeared before him and gave the statement marked as Ex.p.19. P.w.10, the Senior Intelligence Officer deposed that P.w.6 appeared before him and gave statement marked as Ex.p.18. 18 CC.No.02/17
22. Ld Spl. P.P. by referring to the oral and documentary evidence argued that the evidence on record clearly discloses that Accused No.1 collected the service taxes from its customers and not remitted to the department. The Accused No.1 not taken up the contention that it had not collected the service tax. The Accused No.2, the Accountant of Accused No.1, in their statements clearly admitted the collection of the service taxes. The statutory Auditors in the Auditors reports stated about the collection of service tax, The Managers of M/s. Salarpuria Properties Pvt., Ltd., and M/s. Brigade Enterprises Ltd., stated about the work orders given to Accused No.1 and collection of service taxes from them. It is argued that statement recorded under section 14 of the Central Excise Act, 1944 is admissible in evidence. The officials have deposed about the recording of the statements. The Accused No.2 retracted the statements. The minor discrepancies brought out during the cross examination is not fatal.
23. Ld counsel of the Accused No.1 and 2 by referring to the answers given by P.w.2, P.w.3, P.w.8 to P.w.10 argued that business being carried out by Accused No.1 was taxable service and that was paid. It is argued that the fact that the 19 CC.No.02/17 Accused No.1 collected a sum of Rs. 3,31,73,889/- during the period of 01.04.2010 to 30.09.2015 is not established through evidence. The Registration Certificate of the Accused No.1 is not produced, the ST-3 returns submitted by the Accused No.1 has not been collected. The ledger extract required to be maintained with the accounting procedure has not been collected. The extract of service tax register is not collected. The investigation officer has not directed the accused No.1 to produce the relevant records nor conducted the search and seized them from the office of the Accused No.1. Thus, the fact of payment or receipt of Rs. 3,31,73,889/- has not been established.
24. Ld counsel argued that Finance Act, 1994 and Central Excise Act, 1944 are different enactments, hence statement cannot be recorded under the provision of Central Excise Act. The statements have been recorded prior to the complaint, hence hit by Section 162 of the Cr.P.C. The statements of the Accused No.2 marked as Ex.p.6 and 7 have to be corroborated. There is reference about the service tax collected account and various issues have been confronted to the Accused No.2 while recording the statements marked as Ex.p.7. The materials gathered therein have not been 20 CC.No.02/17 produced and explanation is not offered. The statements have not been corroborated, thus, it cannot be used to establish the allegation in the complaint.
25. It is argued that the documents confronted to P.w.4 and 5 are not produced and invoices were not shown to him and he had not been asked to re-verify the books of account. P.w.5 stated that balance sheet was prepared on the basis of trial balance sheet and random checking. He has not been asked to produce the CENVAT credit ledger extract. P.w.5 stated that without reconciling the CENVAT credit account and VAT account, the liability of service tax cannot be determined. P.w.5 stated that if VAT is paid, then there is no need to pay the service tax and the amounts due as stated in Ex.p.17 may be correct and it has to be re-worked.
26. It is argued that evidence of P.w.6 is of no use, because he was not looking after the internal accounting and his evidence is hearsay. The persons involved in the internal accounting were not examined. P.w.7 was not in charge of accounting section. The evidence of P.w.7 is also hearsay. The documents confronted by them are not produced. The hearsay evidence is not admissible in evidence. It is further argued that that certificate under section 65-B of the Evidence 21 CC.No.02/17 Act and Section 36B of the Central Excise Act are not produced. In the absence of these certificates, the documents marked as Ex.p.10, 11 to 15 are not admissible in law and cannot be looked into for consideration. The answers elicited during the cross examination establishes that liability being questionable.
27. To substantiate of the above arguments, on legal and factual grounds, the Ld counsel relied upon the following rulings:
a) In the case of Vasanth Madhava Vs. E. Seshadri Kutti Dorai, reported in 2012 (5) KCCR 4360, wherein, it is held that "Section 65 - Marking of document - Not proof of contents thereof - Secondary evidence of original document to be led only in circumstances mentioned under - In absence of such circumstances, question of proving document or admitting it in evidence does not arise - photocopy - cannot be even be a secondary evidence."
b) In the case of Ambica Organics vs. COMMR of C.EX & CUS. Surat-1, reported in 2016 (334) ELT 97 (Tri - Ahmd.), wherein, it is held that "as regards computer printout and its admissibility as evidence, investigating officer 22 CC.No.02/17 failed to comply with mandatory provisions and conditions of section 36B of Central Excise Act, 1944 - No certificate as required under impugned provisions, taken from person occupying responsible official position - coupled with assessee immediately disowning contents of these printouts, no evidentiary value attributable to these printouts also - No other corroborative evidence having been brought out, clandestine manufacture or removal not established - Assessee's clearances being with SSI limit, demand, confiscation and penalty not sustainable - Section 11A of Central Excise Act, 1944, (Paras.7, 8, 9, 10, 11)."
c) In the case of Shivam Steel Corporation vs. Commissioner of C.EX. & CUS. BBSR-II, reported in 2016 (339) ELT 330 (Tri. -
Kolkata), wherein, it is held that "computerized documents relied upon by department not admissible evidence - Case of clandestine removal cannot be upheld on basis of certain statements alone - No confessional statements by assessees except for admissions of certain duty liability."
d) In the case of Sait Tarajee Khimchand and others Vs. Yelamarti Satyam and 23 CC.No.02/17 others, reported in AIR 1971 SC 1865, wherein, it is held that "Order 13, R.4 - Mere marking of a document as an exhibit does not dispense with its proof - (X-Ref.: - Evidence Act (1872), Section 61). (Para - 15)."
e) In the case of Suruvu Parshaiah Vs. State of A.P., reported in 2006 Cri.L.J., 824, wherein, it is held that "mere marking of panchanama - Is not sufficient - contents thereof should be proved before court - Order taking contents of panchanama as corroboration to oral testimony or to draw inference to rash and negligence driving -
improper."
f) In the case of Muddoru Rajappa Tipanna Vs. State of Karnataka, reported in 2015 (3) AKR 31, wherein, it is held that "mere marking of document is not proof of its contents - Any document placed on record by parties if marked while evidence is recorded, that itself is not sufficient to accept such document as having evidentiary value - order marking voluntary statements of accused and admitting them in evidence, not proper (Para 16)."
g) In the case of State of Maharashtra Vs. Wasudeo Ramachandra Kaidalwar, reported in (1981) 3 SCC 199, wherein, it is held that 24 CC.No.02/17 "the expression 'burden of proof' has two distinct meanings, (1) the legal burden, i.e., the burden of establishing the guilt, and (2) the evidential burden, i.e., the burden of leading evidence. In a criminal trial, the burden of proving everything essential to establish the charge against the accused lies upon the prosecution, and that burden never shifts."
h) In the case of Dr.S.L.Goswami Vs. State of Madhya Pradesh, reported in 1972 SCC (Cri.) 258, wherein, it is held that "burden of proof - It is always for the prosecution to prove all the ingredients of an offence. Criminal trial - defence - standard of proof required to prove the defence plea is not the same which is required to prove the prosecution case "
i) In the case of Kalyan Kumar Gogoi Vs. Ashutosh Agnihotri and another, reported in AIR 2011 SC 760, wherein, it is held that "hearsay evidence is excluded on the ground that it is always desirable, in the interest of justice, to get the person, whose statement is relied upon, into court for his examination in the regular way, in order that many possible sources of inaccuracy and untrustworthiness can be brought to light and exposed, if they exist, by the test of cross examination."
25 CC.No.02/17
j) In the case of S.R.Ramaraj Vs. Special Court, Bombay, reported in AIR 2003 SC 3039, wherein, it is held that "hearsay evidence - officer of Bank who had no personal knowledge of transactions in question -
deposing on basis of material on record - his evidence cannot be from his knowledge and necessarily has to be hearsay - shutting out that part of evidence - not proper."
28. In reply, Ld Spl.P.P. argued that the documents produced were maintained by the Accused No.1 and there it has been stated that the service taxes were collected. Admitted fact, need not be proved. The Accused No.1 either during the course of investigation or at the time of trial could have produced the documents to show either that it had not collected the service tax or that it remitted the collected service tax. The Accused No.1 not contended that it paid the VAT, hence not liable to pay the service tax. It is argued that adjudication was completed during the course of trial and demand was confirmed vide order dated: 27.09.2017.
29. The duty of the court is analyze the evidence brought on record and come to conclusion has to whether the charged offence is proved or not. The court should not venture upon to 26 CC.No.02/17 find the minor mistakes committed during the course of investigation of the case and in collection of evidence and extend that benefit to the Accused by applying the principle of proof beyond reasonable doubt. The evidence brought on record has to be evaluated in realistic way. Hon'ble Supreme Court in the case of Sardul Singh Vs. State of Haryana, reported in (2002) 8 SCC 372, wherein at para No.8, it is held that "there cannot be a prosecution case with a cast-iron perfection in all respects and it is obligatory for the courts to analyze, sift and assess the evidence on record, with particular reference to its trustworthiness and truthfulness, by a process of dispassionate judicial scrutiny adopting an objective and reasonable appreciation of the same, without being obsessed by an air of total suspicion of the case of the prosecution. What is to be insisted upon is not implicit proof." By keeping these principles in mind the court has to proceed to appreciate the documentary and oral evidence on record.
30. The documents on record disclose that Accused No.1 has been engaged in carrying out the business of construction of commercial and residential buildings and charging the taxes on the services provided to its customers. Accused No.1 obtained the service tax registration certificate bearing No. 27 CC.No.02/17 AAACV5939QST002 for rendering 'works Contract Service'. Accused No.2 is the Managing Director of the Accused No.1 and he has given the statement on 17.03.2015 to the Senior Intelligence officer admitting that the books of account maintained by Accused No.1 indicates the amount of service tax was collected from various customers and they have not been remitted to the Government Account. Accused No.2 stated that there have been cash flow problems at various stages of executing different projects and as and when the payments were received, the same are directed towards the payments towards labour and the material to prevent the work stand still. Accused No.2 in the statements given on 21.10.2015 stated that there was huge delay in receipt of payments especially from developers leading to bad cash flow and ill- allotment of funds. Accused No.2 stated that certain contracts were terminated due to land dispute between the land owners and the developers. The contracts were terminated without honoring their claims. The nature of these settlements and the due process behind it were not captured in the balance sheet. The company thought of paying the tax component. Accused No.1 admitted that in the balance 28 CC.No.02/17 sheets, it is stated that payments received included the service taxes.
31. Accused No.2 not denied the giving of the statements and not contended that what he stated before the I.O is not correct. The balance sheets on record disclose that Accused No.1 colleted the service tax along with payments due from the companies to which Accused No.1 rendered the services. The statutory Auditors of Accused No.1 in the statements as well as evidence stated that Accused No.1 collected the service taxes along with payments and they advised the Accused No.1 to remit the service taxes at the earliest. The Senior Accounts of the Accused No.1 stated that RA bills were raised by the Accused No.1 and company received the payments. The Accused No.1 and 2 either before the adjudicating authority or in the case on hand not taken up the contention that service taxes were not collected from the companies to which the service were rendered. Once the service tax is collected, then no other excuse is available. The company cannot divert the collected service tax for other requirements. The balance sheet discloses that Accused No.1 had given the loans to its sister concern. The Accused No.2 not offered the explanation.
29 CC.No.02/17
32. The argument that the burden is upon the prosecution to prove the charge is well established. But, how it is to be established depends upon the facts of each case. The prosecution need not prove the admitted facts and what required to be proved in the disputed facts. Admitted facts need not be proved and this principle applicable in criminal cases also. As far as copies of the balance sheet are concerned, the Accused nowhere contended that the produced balance sheet not pertaining to the Accused No.1. In a case of tax regime, there exists two types of documents. One is mentioned by the tax payer i.e., private documents and the other one mentioned by the authority i.e., public documents. The burden of proving the documents maintained by the tax payer cannot be shifted to the authority. The authority is having the burden to prove the documents maintained by it.
33. As stated above, in the balance sheet mentioned by the Accused No.1, there is reference about the collection of service taxes and issuance of R.A bills to the entities to which Accused No.1 rendered the services. In the balance sheet, it is shown that for the Financial Year 2010-11, the Accused No.1 collected the service tax of Rs.34,23,241/-, for 2011-12 30 CC.No.02/17 collected the service tax of Rs.89,63,397/-, collected Rs.1,52,56,187/- for the Financial Year 2012-13, Rs.53,21,727/- for the Financial Year 2013-14, in total amounting to Rs. 3,29,64,552/-. If Accused No.1 disputes the correctness of the balance sheet, it is for him to prove. Accused during the course of cross examining the witnesses not taken up the specific defence that the balance sheets produced are not of the Accused No.1 or that they did not contain true accounts. Accused No.2 not offered the explanation while recording the statement under section 313 of Cr.P.C.
34. P.w.5 in the cross examination admitted the suggestion that there was confusion regarding the liability of service tax in case of VAT payments at the time of recording his statement and in view of the settled legal proposition regarding the payment of service tax, the amount of service tax mentioned in his statement may not be correct and it has to be reworked. By referring to this, Ld counsel of the Accused argued that the claimed service tax, is not the correct amount. Only based on this evidence, it cannot be held so. Accused No.1 has to show that he paid the VAT and in view of that payment of service tax is not required. Even otherwise, the work contract 31 CC.No.02/17 service was brought under the purview of service tax from 01.06.2007 vide Notification No.23/2007, dated: 22.05.2007. It is not forthcoming as to which provision says that collected service tax not required to be paid in case of VAT payment. Accused No.2 not produced the evidence to the effect that it paid the VAT. The Adjudicating authority after adducing the missed component of tax calculated the tax at Rs. 3,55,61,850/-. After deducting payments of Rs. 23,87,961/- made under the invoices raised the demand of Rs 3,55,61,850/-. Having collected the service taxes from the customer, the Accused No.1 is duty bound to remit the same to the Government.
35. Accused not raised the objection at the time of marking the documents or taken up the contention that the produced balance sheets were not pertaining to Accused No.1. The balance sheets produced by the Complainant are the one maintained by the Accused No.1. The principles laid down in the rulings relied by the Accused No.1 and 2 regarding admissibility of documents cannot be made applicable to the case on hand. The produced documents are not the e- documents, so the question of compliance of Section 65-B (4) of the Evidence Act not arises. Invoices and ST-3 returns are 32 CC.No.02/17 concerned, had the Accused No.1 denied the issuance of invoices and receipt of payments along with service tax from the companies, then the arguments would have been accepted. The balance sheets were prepared based on the invoices raised by the Accused No.1. The non-production of the ST-3 returns is not fatal to the case of the Complainant, unless, it is contended that in ST-3 returns, the tax liabilities were not shown and they were not in accordance with the accounts maintained by Accused No.1. The adverse inference for non-production of the documents cannot be drawn unless, it is contended that the particular documents were intentionally withheld. The Accused not taken up such contention.
36. The arguments of the Ld counsel of the Accused No.1 and 2 that evidence of P.w.6 and 7 is hearsay cannot be accepted. They have given the statements based on records. It is true that they had no personal knowledge of the work contract entered into between Accused No.1 and their companies. But, this aspect is not fatal, because, Accused No.1 not denied obtaining of work contract and the receipt of payments. There are entries about the receipt of payments from the companies in the balance sheet. While cross examining the witnesses, the questions were asked about 33 CC.No.02/17 their knowledge about the transaction and what documents, they perused etc., However, there is no clear cut denials and it is not suggested that whatever stated by them is false. Accused No.1 not taken up the specific defence that it had not collected the service tax and on accrual basis, the entries were made in the accounts. It is to be noted that on the basis of the R.A bills raised by Accused No.1, the companies which taken the services can avail the CENVAT credit of service tax.
37. The Accused No.1 during the course of enquiry and in the adjudication proceedings taken up the contention that because of the financial problem, the service tax could not be remitted. The Accused No.1 not produced the evidence to substantiate that contention. The balance sheet discloses that Accused No.1 had advanced the loan to its sister concern. During the course of investigation, the Accused No.2 sought the time to offer the explanation, but so far, it is not forthcoming. Even otherwise, once the service tax is collected, it has to be remitted to the Government. No one is allowed to divert the collected service tax to meet the financial requirement of the company.
38. The concept of mens-rea is not required to be proved in this type of cases. Hon'ble High Court while interpreting 34 CC.No.02/17 Section 276B of the Income Tax Act, which is almost similar to Section 89(1) of the Act held so. They are; Punjab and Harayana High Court, in the case of Deputy Commissioner of Income Tax Vs. Modern Motor Works, reported in 1996 ITR (220) 415 (P & H), wherein it is held that "mens-rea is not a requisite ingredient of the offence under Section.194(a)/200/276B of the Act. If the accused fails to make deduction of tax at source, the prosecution and punishment under Section.276B is valid." The Delhi High Court in the case of Rishikesh Balkishan Das Vs. I.D. Manchanda reported in 1987 ITR (167) 49, wherein, it is held that "Section.276B of 'the Act', also does not contain the word 'knowingly'. It provides punishment for contravention of the provisions contained in Section 194A(1) etc., Section.194A requires the person making any payment of interest to deduct the tax at the rate in force. This liability is an absolute liability. Deficient deduction or non-deduction was a conscious Act." This being the case, the argument that there was no intention, motive, hence the charge under section 89(1)(ii)of the Act is not sustainable, hence cannot be accepted.
39. Thus, on appreciation of evidence on record, the court holds that the Complainant succeeded in proving that the 35 CC.No.02/17 Accused No.1 collected the service tax of Rs. Rs.3,31,73,889/- for the period from 01.04.2010 to 30.09.2015, but did not remit them to the Government and thereby committed the offence punishable under section 89(1)(ii) of the Act. Accordingly, this point is answered in affirmative.
40. Point No.3: The Complainant succeeded in proving that the Accused No.1 committed the offence punishable under section 89(1)(ii) of the Act. Accused No.2 is the Managing Director of Accused No.1 and it is the case of the Complainant that he is the principal officer and in charge of day today affairs and the business of Accused No.1, thus, liable for the offence committed by the Accused No.1. General Rule is that the person who committed the offence can only be punished. The exception is when the offence is committed by juridical person. Section 9(1)(AA) of the Central Excise Act, 1944 which is applicable to the offence committed under the provisions of the Act says that where an offence has been committed by a company, ever person who at the time the offence was committed was in charge of and was responsible to, the company for the conduct of the business of the 36 CC.No.02/17 company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly; the defence available to persons are stated in the annexed proviso. Sub-clause.2 of the Section 9AA of the Central Excise Act, 1944 deals with the situation where the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director manager, secretary or other officer shall also be deemed to be guilty of that offence.
41. Admittedly, the Accused No.2 is the Managing Director of Accused No.1. During the course of investigation, he admitted that he is in charge of day today affairs of Accused No.1 and also stated that the other Directors are not in charge of day today affairs of Accused No.1. The evidence on record discloses that Accused No.1 fully aware of the non-remittance of service tax and the consequence is also made known to him by the statutory Auditors of Accused No.1. The Accountant of Accused No.1 also stated that Accused No.2 is looking after the affairs of Accused No.1. Accused No.2 nowhere contended that not he, but somebody else has been in charge of day today affairs of Accused No.1. The Accused No.2 not taken up the contention that the proved offence was 37 CC.No.02/17 committed without his knowledge or that he had exercised due diligence to prevent the commission of proved offence. There is no evidence to that effect also. Thus, without much discussion, the court holds that Accused No.2 is vicariously liable for the offence committed by Accused No.1, hence to be convicted for the offence punishable under section 89(1)(ii) of the Act. Accordingly, this point is answered in affirmative.
42. Point No.4: In view of my findings on Points No.1 to 3, I proceed to pass the following:
ORDER By exercising the power conferred under section 248 (2) of Cr.P.C. the Accused No.1 and 2 are convicted from the charge of offence punishable under section 89(1) (ii) of the Finance Act, 1994.
To hear regarding sentence on Accused No.1 and 2. (Dictated to Stenographer directly on computer, typed by her corrected and then pronounced by me, in open court on this the 12th day of February - 2020.) PRESIDING OFFICER.38 CC.No.02/17
14.02.2020 ORDERS ON REGARDING SENTENCE
43. Heard submission of the Accused, their counsel and the Spl. P. P. on the quantum of sentence.
44. The Accused No.2 submitted that due to the continuous loss, the service tax could not be remitted. He is having the responsibility of maintaining the family. The Accused No.1 has stopped all its activities and the properties were seized by the bankers. Accused No.2 submitted that he remitted the part of due service tax and will make the efforts to clear the due service tax, in case, the appeal before the CESTAT is dismissed. It is submitted that there is willful default. Ld. Spl.P.P. argued that the proved offence is serious and there is no material to the effect that the Accused No.2 had the genuine reasons for not remitting the service taxes.
45. The proved offence falls under section 89(1)(d) of the Act. The amount involved is more than Rs.50,000/-, hence punishable with imprisonment for a term which may extend to seven years. The proviso says that in the absence of special and adequate reasons to the contrary to be recorded in the Judgment of the court; such imprisonment shall not be 39 CC.No.02/17 less than six months. In the case on hand, it appears that the Accused No.1 has been under loss and for that reason; the payments were not remitted in time. But that alone cannot be considered as special and adequate reasons for awarding the lesser sentence. Except oral submissions, there is no material before the court either that the Accused No.1 and 2 paid the part payment of due service tax or made any efforts in this regard. The Central Government has introduced the scheme to get the relieved from the tax dispute by paying the taxes by waiving the interest and penalty, the Accused could have taken that option. Had the Accused paid the taxes, then considering the submission of the Accused No.2, the sentence could have been restricted to the period already undergone by the Accused No.2.
46. The evasion of collected taxes and prolonging the remittance by taking the time in the judicial process should not be taken so lightly. At the same time, it is also to be kept in mind that Accused No.1 company has been in financial difficulties. By balancing both, the court holds that the Accused No.2 has to be sentenced to undergo simple imprisonment for a period of One Year and fine of Rs. 40 CC.No.02/17 25,000/- shall be imposed on Accused No.1. Accordingly, I proceed to pass the following:
ORDER The Accused No.1 company is sentenced to pay fine of Rs. 25,000/- (Rupees Twenty Five Thousand only) for having committed the offence punishable under section 89(1)(ii) of the Finance Act, 1994.
The Accused No.2 is sentenced to undergo simple imprisonment for a period of One Year for having committed the offence punishable under section 89(1) (ii) of the Finance Act, 1994.
The Accused No.2 was in judicial custody from 09.10.2015 to 14.10.2015 and that period is given as set off, as provided under section 428 of Cr.P.C.
(Dictated to Stenographer directly on computer, typed by her corrected and then pronounced by me, in open court on this the 14th day of February - 2020.) PRESIDING OFFICER.
41 CC.No.02/17ANNEXURE:-
ON BEHALF OF THE COMPLAINANT:-
Witnesses:-
P.w.01 - Narayana Swamy G., P.w.02 - D.P.Nagendra Kumar, P.w.03 - Puran R. Kashyap, P.w.04 - K.N.Prabhashankar, P.w.05 - K.Mallappa, P.w.06 - Jagannath S., P.w.07 - Hanumanth Reddy L., P.w.08 - V.R.Chowhan, P.w.09 - B.S.Ashok Babu, P.w.10 - Santhosh Joseph.
Documents:-
Ex.p.01 - Letter dated: 10.05.2016, Ex.p.02 - Authorization Letter dated: 08.10.2015, Ex.p.02 - (a) Sig. of P.w.2, Ex.p.03 - O/c of Show Cause Notice dated: 21.10.2015 Ex.p.03 - (a) Sig. of P.w.2, Ex.p.04 - Request Letter dated: 15.12.2015, Ex.p.04 - (a) Sig. of P.w.2, Ex.p.05 - Sanction Ex.p.06 - C/c of Statement dated: 17.03.2015, Ex.p.07 - C/c of Statement dated: 21.10.2015, Ex.p.08 - C/c of St. of Shridharan K. dated:21.10.2015, Ex.p.09 - Memorandum of Arrest, Ex.p.10 - C/c of Balance Sheet for the Year 2010-11 to 2013-14 (Page Nos. 118 to 183), Ex.p.11 - C/c of Invoice wise statement (Page Nos.184 to 190), Ex.p.12 - C/c of Ledger Account Extracts of Customers (Page Nos.191 to 293), Ex.p.13 - C/c of Service Tax collected Ledger Account Extracts (Page Nos.294 to 303), Ex.p.14 - C/c of Running Account Bills with Payment Certificate (Page Nos.304 to 322), Ex.p.15 - C/c of Statutory Returns (Page Nos.323 to 358), Ex.p.16 - Statement of P.w.4, Ex.p.16 - (a) Sig. of P.w.4, 42 CC.No.02/17 Ex.p.16 - (b) Sig. of P.w.8, Ex.p.16 - (c) Sig. of Intelligence Officer, Ex.p.17 - Statement of P.w.5, Ex.p.17 - (a) Sig. of P.w.5, Ex.p.17 - (b) Sig. of P.w.8, Ex.p.17 - (c) Sig. of Intelligence Officer, Ex.p.18 - Statement, Ex.p.18 - (a) Sig. of P.w.6, Ex.p.18 - (b) Sig. of P.w.10, Ex.p.19 - Statement, Ex.p.19 - (a) Sig. of P.w.7, Ex.p.19 - (b) Sig. of P.w.9.
MATERIAL OBJECTS:- Nil.
ON BEHALF OF THE ACCUSED:-
Witnesses & Documents: - Nil.
(SHANTHANNA ALVA M.,) PRESIDING OFFICER, SPL. COURT FOR ECONOMIC OFFENCES, BANGALORE.43 CC.No.02/17