No limitation period extension if no malafide intention to suppress & misrepresent facts

Oriental Insurance Company Limited Vs Commissioner, LTU (CESTAT Delhi)

Conclusion: Even when an assessee had suppressed facts, the extended period of limitation could be evoked only when suppression^‟ was shown to be willful and with an intent to evade payment of service tax. Commissioner had not recorded any finding that even if assessee had suppressed the fact of having received the amount, it was willful and with an intent evade payment of service. In fact, the Commissioner observed that there was no malafide intention on the part of assessee to suppress the facts.

Held:  Assessee-company was a registered insurer under the provisions of the Insurance Act, 1938 and was engaged in providing general insurance services. It was also registered with the Service Tax Department. A recently developed form of insurance was  Terrorism insurance which was an insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities. It was considered to be a difficult product for insurance companies, as the odds of terrorist attacks were very difficult to predict, and the potential liability was enormous. After the withdrawal of insurance and reinsurance capacity for terrorism risk in the international market post 9/11, all the non­life insurers in India along with the General Insurance Corporation of India formed the Indian Market Terrorism Risk Insurance Pool‘ in April, 2002 to cover property damage and consequential loss arising out of any terror strike. The Insurance Pool was administered by the GIC and it enabled non-life insurance companies to provide insurance cover against terrorism risk in India on the combined underwriting capacity of the members and the GIC. Apart from the inward premium in respect of reinsurance provided by each member to other members, the GIC also took excess of loss cover so as to protect the members from any excess of loss arising from risks. This was also apportioned amongst the members in the same manner as inward premium. Over and above the inward premium and excess of loss premium, the GIC also obtained excess of loss insurance cover from foreign insurance companies. The period of dispute in the present appeal was from April 2009 to March 2014 and the issue was the point of time when liability to pay service tax on re-insurance services provided under the pool agreement arises. It was for this reason that the only dispute in this appeal was about the liability to pay interest. A show cause notice was, however, issued to assessee alleging that there was a delay in payment of service tax as it paid service tax after receipt of matrixes from GIC. The extended period of limitation, as contemplated under the first provision to section 73(1) of the Finance Act was also invoked. It was held that even when an assessee had suppressed facts, the extended period of limitation could be evoked only when suppression^‟ was shown to be willful and with an intent to evade payment of service tax. Commissioner had not recorded any finding that even if assessee had suppressed the fact of having received the amount, it was willful and with an intent evade payment of service. In fact, the Commissioner observed that there was no malafide intention on the part of assessee to suppress this fact.  It had also been pointed out that the service tax to be paid by assessee on reinsurance services provided to member companies was available as CENVAT credit to assessee. Likewise, the service tax paid by assessee on reinsurance services received. The issue, therefore, that arose for consideration was when service was rendered and service tax was due but assessee was not able to pay it until the accounts were squared up and thereby delays paying the service tax, than whether in such a situation assessee was liable to pay interest on the delayed payment, considering that the delay was not on account of the fault of assessee.  Although this was a service tax matter, the provisions were pari materia and if service tax was due on a date but was paid much later because data was not available with assessee, interest had to be paid. Thus, the demand of interest from assessee for the period post March 2013 upto March 2014 was justified.

FULL TEXT OF THE CESTAT DELHI ORDER

M/s Oriental Insurance Company Limited¹ has filed this appeal to assail the order dated September 07, 2016 passed by the Commissioner LTU (Audit), Delhi², by which the demand of service tax of Rs. 28,69,74,247/- has been confirmed and appropriated. An order for recovery of interest under section 75 of the Finance Act, 1994³ has also been passed and penalty has been imposed under the first proviso to section 78 of the Finance Act.

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