Case Law Details
State Bank of India Vs Deputy Commissioner (Madras High Court)
The appeal before the Madras High Court arose from an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, which had dismissed the assessee’s appeal. The appellant, a nationalised bank, had paid service tax amounting to ₹20,23,916 on the basis of instructions issued by the audit team of the Central Excise and Service Tax Department. The audit team had taken the view that the share of profit earned in foreign exchange transactions constituted a taxable service. Acting on this advice, the appellant remitted the amount on 22.12.2006.
Subsequently, upon verification, the appellant concluded that such share of profit was not liable to service tax. Accordingly, it filed a refund claim stating that the payment had been made erroneously. However, the refund claim was rejected on the ground of limitation. Meanwhile, the appellant adjusted the amount suo motu in a subsequent return. This adjustment was objected to by the department, resulting in an order confirming a demand of ₹19,87,688 along with interest under Section 75 of the Finance Act, 1994 and a penalty of ₹1,00,000 under Section 76.
The appellant challenged this order before the Commissioner (Appeals), but the appeal was dismissed. Thereafter, the appellant approached the CESTAT, which also rejected the appeal. The Tribunal reasoned that the issue of taxability had already been decided in the earlier adjudication related to the refund claim, which had not been challenged by the appellant. Therefore, according to the Tribunal, the appellant could not take suo motu credit of the tax paid. It further held that Rule 6(3) of the Service Tax Rules, 1994 did not apply to disputes regarding taxability, but only permitted credit in cases where services were not provided.
Before the High Court, the appellant contended that in a similar case involving the same appellant, another Bench of the CESTAT had held that profit earned in foreign exchange transactions was not subject to service tax. It was argued that the Tribunal’s insistence on challenging the earlier refund rejection was not legally sustainable.
The High Court observed that the service tax payment had been made solely based on the instructions of the audit team. It further noted that it was now accepted that the share of profit from foreign exchange transactions was not taxable under service tax. In such circumstances, the Court held that the department ought to have refunded the amount at the outset.
The Court also considered the appellant’s action of suo motu adjustment. It held that such adjustment could not be treated as improper or impermissible so as to justify the imposition of penalty. The Court emphasized that the situation resulted in unjust enrichment of the department, which could not be sustained merely on grounds of limitation or failure to appeal the rejection of the refund claim. It characterized the appellant’s conduct as a technical mistake made without any mala fide intention.
In view of these findings, the High Court set aside the order-in-original as well as the CESTAT’s final order dated 18.12.2017. The Civil Miscellaneous Appeal was allowed, and no costs were awarded.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
The Civil Miscellaneous Appeal is preferred by the Assessee, being aggrieved by the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, dismissing the appeal.
2. The facts of case is as below:
2.1. The appellant is a Nationalised Bank. During an audit conducted by the Central Excise and Service Tax Department, the audit team has instructed the appellant to pay service tax to the tune of Rs.20,23,916/-, on the premise that the share of profit in transactions related to foreign exchange was tantamount to a taxable service. However, based on their advice and instructions, the appellant paid the said amount on 22.12.2006. Subsequently, on verification, it was found that the said share of profit cannot be levied with service tax and therefore, claim for refund was filed, stating that the remittance of Rs.20,23,916/- had been made in error. The said request was rejected on the ground that the claim was barred by limitation. Meanwhile, the appellant suo mote adjusted the said amount in the subsequent return. This was found fault, leading to passing the order in original, which reads as below:
“I confirm the demand of Service Tax of Rs.19,87,688/-
(Service Tax Rs.19,48,713/- and Edn, cess Rs.38,975/-) (Rupees
Nineteen Lakhs Eighty Severn Thousand Six Hundred and Eighty Eight Only) proposed in the show cause notice dated 27.02.2008, under Section 73(1) of the Finance Act, 1994.
WEB COI’ )1
I demand appropriate interest under Section 75 of the
Finance Act, 1994 and
I impose a penalty of Rs.1,00,000/- (Rupees One Lakh Only) for non-payment of Service Tax under Sections 76 of the Finance Act, 1994.”
3. This was challenged by the appellant before the Commissioner (Appeals), but same was rejected. Being aggrieved, an appeal before the CESTAT was preferred. However, the tribunal rejected the appeal for the following reasons:
“4.2. The dispute in the present appeal relates to the legal issue as to whether the profit earned by the appellant on Foreign Exchange remuneration is a taxable service or not. The taxability of the same stands considered by the adjudicating authority in the adjudication, relatable to the refund claim filed by the appellant and the same stands upheld by the adjudicating authority and having not been appealed against holds the field. In as much as the taxability has already been held against the assessee and the refund claim filed on the said ground of non-taxability stands rejected, the action of the assessee taking suo mote credit of the tax paid cannot be appreciated and held in accordance with law. It may not be out of place once again to mention that the provision of Rule 6(3) of STR, 1994, do not relate to dispute on the taxability and simplicitor allow the credit of the service tax already paid in respect of the services which are subsequently not provided by an assessee.
4.3. In a nutshell, the assessee’s refund claim filed under Section 11 B of Central Excise Act, 1944, having been rejected and not challenged the appellant’s claim of suo motu credit involved in the present appeal cannot be accepted. The impugned orders are upheld. Appeal is rejected.”
4. The learned counsel appearing on behalf of the appellant would submit that, in a case involving the very same appellant, another Bench of the CESTAT held that the share of profit earned by a branch in foreign exchange transactions does not fall within the purview of the service tax. While so, the finding of the CESTAT holding that the appellant ought to have challenged the rejection of the refund claim is not legally sustainable.
5. We find that the payment of service tax been made by the appellant solely on the instructions of the audit team of the Central Excise Department. While so, having now found that the share of profit is not liable to be taxed under Service Tax, the respondent ought to have refunded the amount at the first instance.
6. Having failed, when the assessee himself has suo motu adjusted the amount, it cannot be termed as an improper or impermissible process for imposing penalty. Therefore, the unjust enrichment of the department cannot be given a seal of approval on the ground of limitation or the failure to prefer an appeal against the order rejecting the refund request. This was a technical error or mistake made without any nolo fide intention.
7. In our view the order in original has to be set aside. Consequently, the Final Order No.43138 of 2017 dated 18.12.2017 passed by the CESTAT, is hereby set aside and Civil Miscellaneous Appeal stands allowed. No costs.
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