Case Law Details
National Insurance Co. Ltd. Vs Commissioner of Central Excise And Service Tax (CESTAT Bangalore)
The appellant, a public sector undertaking, was engaged in providing Insurance Auxiliary Services and employed various agents for soliciting business, on whose commissions Service Tax was paid. During an audit covering the period 2002-03 to 30.09.2006, it was noticed that the commission amounts reflected in the trial balance were higher than the commission values disclosed in the ST-3 returns. Based on this difference, the department alleged short payment of Service Tax amounting to ₹8,29,025 and Education Cess of ₹12,074. Additional show-cause notices were issued for the periods 01.10.2006 to 31.07.2009, 2006-07 to 2008-09, and for another registration covering 2001-02 to 2004-05 on the same grounds.
In response, the appellant did not dispute the taxability of the commission payments. Instead, it contended that the Service Tax corresponding to the disputed amounts had already been discharged by its offices at Kolkata and Delhi. According to the appellant, the show-cause notices were based solely on journal entries reflected in the trial balance, without considering that those entries were subsequently reversed when the relevant payments were attributable to other divisions or branches. The appellant argued that if a proper reconciliation of the journal vouchers and related accounting entries was undertaken, it would become evident that there was no overall short payment of Service Tax by the company.
After adjudication, the demands were confirmed. The Commissioner (Appeals) subsequently dismissed the appeals, leading the appellant to approach the Tribunal.
Before the Tribunal, the appellant submitted that the demands had been confirmed merely by comparing journal vouchers recorded in the trial balance with the figures reported in ST-3 returns. It was argued that commissions paid by certain branches were centrally accounted for by the Kolkata and Delhi offices, which also discharged the corresponding Service Tax liability. Counter journal entries were passed to reconcile the accounts and balance sheet. The appellant maintained that these accounting and tax payment details had not been properly examined by the lower authorities, resulting in the confirmation of the demands.
The Revenue, on the other hand, argued that both lower authorities had specifically found that the appellant failed to produce adequate documentary evidence to substantiate its claim that Service Tax had been paid by the Kolkata and Delhi offices. It was further submitted that even before the Tribunal, the appellant had not produced sufficient documentary records to support its assertions. Therefore, the Revenue sought dismissal of the appeals and confirmation of the demands.
After considering the submissions and examining the records, the Tribunal observed that the appellant was not disputing the levy of Service Tax itself. The principal contention was that the tax liability had already been discharged through the Kolkata and Delhi offices and that proper reconciliation would demonstrate that there was no non-payment of Service Tax. The Tribunal found merit in the Revenue’s submission that the appellant had not supported these claims with adequate documentary evidence. At the same time, the Tribunal considered the appellant’s explanation regarding centralized payment of Service Tax and concluded that the matter required further factual verification.
Accordingly, the Tribunal held that the appeals were fit cases for remand. The appellant was directed to submit a complete year-wise reconciliation between the trial balance and the ST-3 returns, together with details showing which entries had been accounted for by the Delhi or Kolkata offices and how the corresponding Service Tax liabilities had been discharged. The Tribunal also directed that if the appellant could furnish details of the ST-3 returns filed by the Delhi or Kolkata offices reflecting the disputed journal entries, those details should be considered by the adjudicating authority.
FULL TEXT OF THE CESTAT BANGALORE ORDER
The appellant a reputed public sector undertaking, is engaged in providing Insurance Auxiliary Service. In the course of providing the services, they also engage various agents for soliciting their business, on which Service Tax is being paid by the appellant. An audit was taken up for the Appellant’s registration No.AAACN9967EST226 for the period 2002-03 to 30.09.2006. It was found that the commission amount shown in the Trial Balance for this period was higher than the commission value shown by the appellant in the ST-3 Returns. Because of the difference between these two figures, the Service Tax paid was short by Rs.8,29,025/- (Service Tax) and Rs.12,074/-(Education Cess). Two more periodical notices were issued for the period 01.10.2006 to 31.07.2009 and for the period 2006-07 to 2008-09. In respect of Appellant’s Service Tax Registration No.AAACN9967FST229, a show-cause notice on the same ground was issued for the period 2001-02 to 2004-05. The appellants filed their reply basically stating that they are not disputing the demand on the ground that Service Tax was not payable, but on the ground that the Service Tax was paid by the concerned offices at Delhi and Kolkata. They submitted that the journal entries shown in the trial balance alone have been taken into account for issue of show-cause notice, whereas the journal entries have also been reversed when such payments were attributable to other Divisions/Branches where the Service Tax was paid by the Kolkata or Delhi offices. If proper reconciliation is taken up towards the journal vouchers, it would be clarified that there is no short payment of Service Tax on the whole by the National Insurance Company. After due process, the Adjudicating Authority has confirmed the demands. On appeal, the Commissioner (Appeals) has dismissed the appeals filed by the appellant. Being aggrieved, the appellant are before the Tribunal.
2. The learned Counsel appearing on behalf the appellant submits that merely by comparing the journal vouchers entered in the Trial Balance for the commission paid, vis-à-vis the amount shown in the ST3, the demands have been confirmed. He submits that it is a normal practice that the commission paid by some of the individual branches are considered by the Centralized offices at Kolkata and Delhi and Service Tax is being paid by them. He submits that the counter journal entries are also passed to get the same tallied with the balance sheet. These facts have not been properly taken into consideration by the lower authorities, which has resulted in confirmation of demands. He prays that considering these factual details, the appeals may be allowed.
3. Learned Authorized Representative (AR) for the Revenue submits that both the lower authorities have given a clear finding that proper documentary evidence was not placed by the appellant in all these cases to fortify their argument that the required Service Tax was discharged by the Kolkata or Delhi Offices. It is also submitted that even at this juncture, no detailed documentary evidence has been placed by the appellants to canvas their case before the Tribunal. Therefore, he justifies the confirmed demand and prays that the appeals may be dismissed.
4. Heard both sides. Perused the appeal papers and the orders passed by the lower authorities.
5. Admittedly, the appellants is a reputed Public Sector Undertaking and is not disputing that levy of Service Tax on the commission paid on them per se. However, it is brought to the notice that the appellant has a practice of discharging the Service Tax liabilities at the end of their Kolkata and Delhi offices also. They have submitted that if such payments are considered, it would get clarified that there is no case of any non-payment of Service Tax on the part of the appellant. I also find force in the arguments of learned Authorized Representative (AR) that the appellant has not backed his submissions about the payment of Service Tax by Delhi and Kolkata offices with any proper documentary evidence. Therefore, I find these appeals to be a fit case to be remanded to the adjudicating authority.
6. The appellant is directed to submit the full year-wise reconciliation of the Trial Balance, vis-à-vis, the ST3 returns along with the details of such entries being considered by the Delhi or Kolkata office and the payments of Service Tax being discharged by them. If they provide even the details of ST3 Returns of Delhi or Kolkata, where the differential journal entries of the appellant is figuring in, the same should be duly considered by the adjudicating authority. Since, the issue pertains to many years and it is also difficult to compile the reconciliation, a proper Certificate from their Chartered accountant giving full details of the reconciliation to arrive at the demand at vis-à-vis tax payable may be submitted to the adjudicating authority. If as a result, the Service Tax has to be paid, the same is payable along with interest. Since I do not find any reason of mens rea in this case, even if some Service Tax is required to be paid by the appellant, no penalty is to be imposed.
7. The appellant is directed to make all these documentary evidence available to adjudicating authority within three months from the date of this order. The adjudicating authority is directed to complete the adjudication proceedings within three months from the date of submission of the documentary evidence filed by the appellant. It is also made clear that the appellant would not claim any refund of the pre-deposit made by them. If the adjudicating authority drops the proceedings or partially drops the proceedings, the pre-deposit can be adjusted accordingly.
(Order dictated and pronounced in an Open Court)
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