CESTAT Quashes Service Tax Order Due to Failure to Prove Suppression of Facts

Indian Bank Vs Commissioner of GST & Central Excise (CESTAT Chennai)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, decided a batch of appeals arising from a common Order-in-Original dated 22.12.2017 passed by the Commissioner of GST & Central Excise, Chennai. The appeals concerned various show cause notices alleging short payment or non-payment of service tax, short reversal of CENVAT credit, wrongful availment of CENVAT credit, and related issues. While several appeals had already been settled under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, the present appeals related to demands involving service tax on turnover commission, arrangement charges, CENVAT credit, and limitation.

The Tribunal identified the principal issues for consideration as: (i) whether the extended period of limitation had been validly invoked; (ii) alleged short payment of service tax on turnover commission; (iii) service tax liability on arrangement charges or fees; (iv) availment of CENVAT credit on handling charges; and (v) denial of proportionate input tax credit on BSNL invoices.

On limitation, the appellant contended that the demands were time-barred because it had not suppressed any material facts with an intention to evade tax. It submitted that all transactions had been properly recorded in its statutory books, which were regularly examined during departmental audit, and that the disputes primarily involved interpretation of law. According to the appellant, a mere difference of opinion or omission could not justify invocation of the extended period under Section 73(1) of the Finance Act, 1994.

Regarding turnover commission, the appellant submitted that the commission represented amounts actually received from the Reserve Bank of India for carrying out Government business as its agent and was shared among participating banks wherever multiple banks were involved. It argued that the relevant notification exempted such services from service tax because the exemption available to the principal was equally applicable to its agent. Reliance was also placed on a Supreme Court decision supporting this position.

On arrangement charges, the appellant contended that the amount collected was in the nature of interest intended to cover the negative spread on export credit. It pointed out that the adjudicating authority itself had acknowledged the amount as interest and argued that interest on loans was specifically excluded from the value of taxable services under the Service Tax Valuation Rules.

With respect to handling charges, the appellant explained that it participated in lending consortiums where the State Bank of India acted as the lead lender. It paid handling charges to the lead lender, who had discharged service tax on those charges, and accordingly availed CENVAT credit. The appellant argued that the credit was admissible because the handling charges were used in providing taxable output services and not for exempt services.

On the issue of BSNL invoices, the appellant submitted that it had initially paid the entire invoice amount including service tax and availed CENVAT credit. Since BSNL subsequently refunded a portion of the amount, the Revenue sought proportionate reversal of credit. The appellant relied on a CBEC Circular to support its stand.

In the departmental appeals concerning proportionate reversal of CENVAT credit under Rule 6(3A), the appellant argued that interest income was either exempt only partially or excluded altogether from the value of taxable services. Consequently, according to the appellant, the value of the alleged exempt service was nil, leaving no basis for proportionate reversal of CENVAT credit. The appellant relied on several Tribunal decisions in support of this contention.

FULL TEXT OF THE CESTAT CHENNAI ORDER

These Appeals arise out of the common impugned Order-in-Original Nos.001 to 010/2017 (R) dated 22.12.2017 passed by Commissioner of GST & Central Excise, Chennai. Entertaining a doubt that there was short payment of service tax, non-payment of service tax, short reversal of cenvat credit etc. for various periods, the Revenue issued various Show Cause Notices, which came to be adjudicated by the common impugned order, however since Appeals against each demand were filed separately, most of the Appeals have been disposed of as settled under SVLDRS, leaving only these Appeals. Relevant SCNs and the issue involved in each of these Appeals as tabulated in the impugned order are reproduced below for convenience :

2. Heard Shri G. Sivakumar, Id. Advocate for the Appellant-Bank and Shri M. Selvakumar, Id. Departmental Representative for the Revenue; we have carefully perused the documents and submissions made both in writing as well as verbal during the course of arguments and we have also gone through the decisions relied upon during the course of arguments.

3. After hearing both sides, the following issues arise for our consideration :

i. Invocation of extended period of limitation.

ii. Short-payment of service tax on turnover commission.

iii. Service tax liability on Arrangement charges/fees.

iv. Availment of cenvat credit on Handling charges

v. Denial of proportionate Input Tax Credit on B.S.N.L invoices

4. The first issue is on invocation of extended period of limitation and it was submitted in this regard that the demands raised in the common impugned order are time-barred since the Appellant-Bank which is a P.S.U, has not suppressed any facts, that too with intent to evade tax and therefore, invoking the larger period under Section 73 (1) of the Finance Act, 1994 is not justified. Moreover, it is the Appellant-Assessee’s case that all its transactions were duly reflected/recorded in their statutory books which were examined during the audit by the Revenue and the issue involves pure interpretation of law. It was submitted that mere omission or entertaining a different opinion by the Revenue cannot to be treated as suppression to justify invoking the extended period.

5. The next issue is regarding alleged short-payment of service tax on turnover commission, it was submitted in this regard that the turnover commission is what was actually received from R.B.I for doing Government business as an agent of R.B.I; the same is shared between multiple banks wherever many banks are involved. It was submitted that Notification No.22/2006-ST dated 31.03.2006 issued by R.B.I itself specifically exempts such service from service tax liability since exemption available to Principal i.e. R.B.I is available to its agent. Ld. Advocate would also rely upon the decision of Supreme Court in the case of CST Bangalore Vs Canara Bank [2023 (5) TMI 137 (SC) = 2023 (71) G.S.T.L 225 (SC)].

6. Next issue relates to service tax on arrangement charges. It is the case of the Appellant-Assessee that an amount is collected in the nature of interest, to cover the negative spread of Export Credit and such interest is clearly exempt from service tax. Our attention was drawn to the finding of the Adjudicating Authority at para-4.5.4 wherein the Commissioner himself has admitted as to the nature of interest. It was thus submitted that in terms of Rule 6 of Valuation Rules, the interest on loans is specifically excluded from the value of service.

7. Next issue relates to cenvat credit on Handling charges by S.B.I. It was submitted in this regard that the S.B.I is the Lead Lender in a Consortium, the Appellant-Bank would receive both interest and charges; due service tax was paid on the charges received. The Lead Lender i.e. S.B.I had charged Handling charges on the Appellant-Bank and the Appellant-Bank had thus availed cenvat credit on the above payment. It was further submitted that the Commissioner did not appreciate these facts in the proper perspective, but proceeded on a wrong notion that the service was towards an exempt service. It was submitted that the Appellant-Bank is only paying tax on output service i.e. charges collected and therefore, the Appellant-Bank is entitled for availing Input Tax Credit on such charges paid to S.B.I.

8. Next issue relates to the denial of proportionate Input Tax Credit on B.S.N.L invoices and it was submitted in this regard that the Revenue has not disputed the eligibility of the Appellant-Bank to avail credit on the Telecommunication service invoice, the invoice would be first settled fully including the service tax by the Appellant on which Input Tax Credit was sought to be availed. BSNL having later on refunded a partial amount, it was thus held by the Revenue that the cenvat credit was required to be proportionately reversed. Our attention was drawn in this regard to the CBEC Circular No.122/03/2010-ST dated 30.04.2010.

9. Insofar as the Department Appeals are concerned, wherein the Department has questioned the non-reversal of cenvat credit under Rule 6 (3A) by treating interest income as exempt, it was submitted that interest was partially exempt by value under Notification No.29/2004, which came be amended in 2011 by granting full exemption. In any case, it is the Assessee’s case that interest on loan is excluded from ‘value of service’ under Section 67 read with Rule 6 and hence, value of alleged ‘exempt service’ is only ‘Nil’, thereby there could arise nothing for proportionate reversal under Rule 6(3A). In this regard, reliance was placed on the following decisions :

i. Tirupati Urban Co-operative bank Ltd. Vs CCE & ST Nagpur-II [2022 (9) TMI 130-CESTAT Mumbai]

ii. Bhinagar Urban Co-operative Bank Ltd. Vs CCE & ST Aurangabad [2015 (11) TMI 50-CESTAT Mumbai = 2016 (41) S.T.R 673].

iii. Gautam Sahakari Bank Ltd. Vs CCE Aurangabad [2018 (5) TMI 218-CESTAT Mumbai = 2019 (20) G.S.T.L 584]

10. Per contra, Shri M. Selvakumar, Id. Departmental Representative relied on the findings in the impugned order; he would take us through the relevant observations and findings of the Commissioner in the impugned order.

11. We have heard the rival contentions and perused the documents placed on record.

12. With regard to the primary issue of limitation the admitted facts are that the Appellant-Bank is a PSU/Scheduled Bank on which there is always continuous supervision by Govt/RBI and there is also no dispute that all the transactions are duly recorded in the statutory books. It is not the case of the Revenue that there was any mischief as against the claims of the Appellant-Bank that it had declared everything in its books in strict conformity with the guidelines / circulars issued by R.B.I. Perhaps some of the issues also involve interpretation and hence, there cannot be any scope to allege suppression of facts with an intent to evade tax and hence, invocation of extended period of limitation cannot stand. In this regard, we find that the reliance placed by the Appellant-Bank on the following decisions support their case :-

i. Chamundi Die Cast (P) Ltd. Vs CCE Bangalore [2007 (215) ELT 169 (SC)]

ii. Cosmic Dye Chemical Vs CCE [1995 (75) ELT 721 (SC)]

iii. CCE Vs Vineet Electrical Industries Pvt. Ltd. [2002 (144) ELT A292 (SC)]

Further, it is not also the case of the Revenue that there was deliberate omission but even if it is so still, as held in the following cases, suppression cannot be alleged :

i. Padmini Products Vs CCE [1989 (43) ELT 195 (SC)]

ii. CCE Vs Chemphar Drugs & Liniments [1989 (40) ELT 276 (SC)]

iii. Gopal Zarda Udyog Vs CCE [2005 (188) ELT 251 (SC)]

iv. Lubri-Chem Industries Ltd. Vs CCE [1994 (73) ELT 257 (SC)]

13. In view of the above discussion, we hold that Revenue is not justified in invoking the extended period of limitation. In view of this alone, it is clearly to our mind that the demands raised invoking the larger period cannot sustain and, therefore, same are set aside. The Impugned Order is therefore set aside and the Appeals filed by the Assessee are allowed on limitation itself.

14. When the entire demand is raised by invoking the larger period, which is held to be unsustainable, we do not propose to consider the other issues. The Impugned Order is set aside and Appeals filed by Appellant-Assessee are allowed as indicated above with consequential relief, if any, as per law.

15. For the very same reasons, the Department Appeals stand dismissed. Cross-objections filed by Assessee also stand disposed of.

(Order pronounced in open court on 18.06.2026)