Case Law Details
Principal Commissioner of Central Tax And Central Excise Vs South Indian Bank Ltd. (Kerala High Court)
The Hon’ble High Court of Kerala in the Principal Commissioner of Central Tax and Central Excise Vs. South Indian Bank Ltd (C.E. Appeal No. 3 of 2020/dated: 29.07.2022) held that, on the facts and circumstances of the case, there was non-payment of service tax from 1.4.2007 and it can be brought under clause (d) of section 73 of the Act (Finance Act,1994), which is suppression of fact. Hence the invocation of extended period of limitation by the department can be sustained. Further it is held that, mere exoneration U/s. 80 of the Act from payment of penalty for reasonable cause for non-payment does not support the argument that the extended period of limitation as prescribed under proviso to section 73 of the Act is available.
FACTS OF THE CASE
The respondent Bank is engaged in providing banking and other financial services. On Intelligence Report that the bank was not assessing and paying the full amount of service tax on services rendered by them and also not accounting the charges paid for services received from outside India, which is liable for payment of service tax on reversed charges basis, an Investigation was initiated against the bank which followed by adjudication and finally passed an order by The Commissioner of Central Excise, Customs and Service Tax demanding Rs. 5,45,61,022/- for the period from 10.09.2004 to 31.07.2007, U/s. 73(2) of the Finance Act 1994 and also imposed penalty U/s. 76 and 77 of the Act. Penalty sought to be imposed under section 78 of the Act was waived under section 80 of the Act.
Aggrieved by the final order of the Commissioner, the bank filed Service Tax appeal before the appellate Tribunal which found and concluded that, “in the present case the show cause notice was issued on 3/9/2008 for the period 1.9.2004 to 31.7.2007 and the entire period up to 31.3.2007 is barred by limitation in view of the decision of the Tribunal in the case of Rochem Separation System (India) P. Ltd. v. Commissioner of Service Tax, Mumbai : 2015 (39) STR 112 (Tri.- Mumbai), which has been upheld by the Bombay High Court cited Supra.” Thereafter the revenue has preferred the appeal before the Court. The pertinent question involved herein is with regard to the legality of the assessment/penalty proceedings initiated beyond the limitation period. Section 73 of the Finance Act 1994 states that when service tax has not been levied or paid, the Central Excise Officer may within (18 months) from the relevant date (which was the period relevant at that time) served notice on the person chargeable with the service tax required to show cause why he should not pay the amount specified in the notice. The Proviso to said section extends the period of limitation from 18 months to 5 years when the tax has not been levied or paid for the reason for [a] fraud or [b] collusion or [c] willful mis-statement or [d] suppression of facts or [e] contravention of any other provisions in the chapter or the rules made thereunder with intent to evade payment of service tax. So the proviso gives the Assessing Officer an extended period of limitation of 5 years for issuing show cause notice if any of the five conditions is satisfied.
HELD BY THE COURT
- The facts in the present case show that on issuance of the summons on 21/11/2007, the Chief Financial Officer appeared and gave his statement that the nonpayment of service tax on full value received by the branches, was not intentional, but due to system failure, and they immediately upon receipt of difference on the short payment, remitted the entire differential amount of service tax due to the government inclusive of interest. So they indirectly admit that service tax is due to the appellant from the respondent bank. The nonpayment of service tax was noted by the department only through the Intelligence report and when non-payment was informed to the respondent bank only, they paid the service tax due along with the interest.
- The assessee has not disclosed the value of taxable service for the period 10.9.2004 to 31.7.2007 in their ST 3 returns filed to the department. Only when the department issued a show cause notice, the responded bank remitted the amount of tax. Hence, merely because they were exonerated U/s. 80 of the Act from payment of penalty for reasonable cause for non-payment the same yardstick cannot be taken by the bank to contend that the extended period of limitation as prescribed under proviso to section 73 of the Act is available. The bank was regularly paying service tax till 31.3.2007 by individual branches. On 1.4.2007, the assessee took centralised registration and thereafter, the payment was not made until the show cause notice was issued. So the contention of the respondent bank that there was no suppression nor any mis-statement cannot be accepted. Section 73 of the Act gives extended period of limitation if there is suppression or misstatement or fraud or collusion. In this case having taken centralized registration on 1.4.2007, the respondent failed to remit the service tax. Thus, it can be seen that there was nonpayment of service tax from 1.4.2007 and it can be brought under clause (d) of section 73 of the Act, which is suppression of fact. Hence the invocation of extended period of limitation by the department can only be sustained. The Tribunal went wrong in holding that since the penalty U/s. 78 of the Act is waived, there was no intention to evade payment of tax on the part of the appellant and thus, the extended period of limitation available U/s 73 of the Act is not available to the department and the entire period from 10.9.2004 to 31.7.2007 was held to be barred by limitation. For the reasons stated above, we are of the considered opinion that the findings of the Tribunal regarding the extended period of limitation is wrong and the same is set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The Principal Commissioner of Central Tax and Central Excise is the appellant. The appeal is filed impugning the final order No. 20106 of 2020 in Service Tax Appeal No. 486 of 2009 of CESTAT.
2. The respondent Bank is engaged in providing banking and other financial services. On Intelligence Report that the bank was not assessing and paying the full amount of service tax on services rendered by them and also not accounting the charges paid for services received from outside India, which is liable for payment of service tax on reversed charges basis, an Investigation was initiated against the bank. After investigation, Annex.A show cause notice dated 3.9.2008 was issued. The Chief Financial Officer of the Bank appeared on the summons issued and gave a statement under Section 41 of the Central Excise Act, 1944, and the same was recorded on 4/1/2008. The Commissioner of Central Excise, Customs and Service Tax adjudicated the issue and passed Annex.B Order-in-Original No.05 of 2009 ST demanding Rs. 5,45,61,022/-for the period from 10.9.2004 to 31.7.07 under section 73(2) of the Finance Act 1994 (for short ‘the Act’) and also imposed penalty under Sections 76 and 77 of the Act.
Penalty sought to be imposed under section 78 of the Act was waived under section 80 of the Act.
3. Aggrieved by the final order of the Commissioner, Service Tax appeal was filed before the appellate Tribunal. The Tribunal, relying on various judgments of Tribunals and High courts, held us follows:
“9.1 As far as issue number 2 and 3. Namely, service charges paid to foreign banks against the service received by the appellant bank, and service charges paid to Master Card International are concerned, we find that the said services fall in the definition of ‘Import of Service’ and the same was made liable to service tax on reverse charge basis with effect from 18.4.2006 in view of the decision of the Bombay High Court in the case of Indian National Ship Owners Association v. Union Of India [2009 (13) STR 235 (Bomb.)], which was upheld by the Hon’ble Apex court also and accepted by the department. Therefore, we hold that up to 18.4.2006, the appellant is not able to pay service tax on reverse charge basis.
9.2 As far as invoking of extended period of limitation is concerned, we know that the Commissioner himself has admitted that short payment of service tax is not deliberate but owing to the reason of system failure. Further, we note that the Commissioner has dropped the penalty under section 78 by resorting to section 80 of the Finance Act. Once the penalty under section 78 is dropped, it means that the Original Authority did not find that there was an intention to evade payment of service tax on the part of the appellant. The essential condition for invoking the extended period of limitation is that there should be an intention to evade payment of service tax and the same is absent in the present case and therefore in our considered view, the extended period of limitation cannot be invoked. Further, we find that in the present case the show cause notice was issued on 3/9/2008 for the period 1.9.2004 to 31.7.2007 and the entire period up to 31.3.2007 is barred by limitation in view of the decision of the Tribunal in the case of Rochem Separation System (India) P. Ltd. v. Commissioner of Service Tax, Mumbai : 2015 (39) STR 112 (Tri.- Mumbai), which has been upheld by the Bombay High Court cited Supra. In view of our discussion above, we are of the considered view that the impugned order is not sustainable in law and therefore, the same is set aside by allowing the appeal of the appellant with the consequential relief, if any.”
4. It is aggrieved by said final order in Service Tax Appeal No.486 of 2009 of the Customs, Excise Service Tax Appellate Tribunal, Bangalore, this appeal is filed.
5. The following substantial questions of law were raised in this appeal:
“i). Whether on the facts and circumstances of the case Appellate Tribunal was justified by setting aside Annx.B order without limiting it to the claims raised by the respondent?
ii). Whether on the facts and circumstances of the case, Appellate Tribunal was justified in coming to the conclusion that the extended period of limitation cannot be invoked in the respondents’ case?
iii) Ought not the Appellate Tribunal should have found that the short payment was detected by the department and there was clear suppression of information on the part of the respondent in their statutory returns.”
6. Heard the learned standing counsel Smt.Preetha S Nair for the appellant and Shri Kuryan Thomas for the respondent.
7. The main contention raised by the counsel for the appellant is that the Tribunal erred in finding that the extended period of limitation cannot be invoked and the entire period from 10.9.2004 to 31.7.2007 is barred by limitation.
8. For a proper understanding of the substantial questions of law raised in this appeal, the following Section is extracted, which reads as follows.
“SECTION 73. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.
(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, Central Excise Officer may, within thirty months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —
(a) fraud; or
(b) collusion; or
(c) wilful mis- statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax,
by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words [“thirty months”], the words “five years” had been substituted.”
9. Section 73 of the Finance Act 1994 states that when service tax has not been levied or paid, the Central Excise Officer may within (18 months) from the relevant date (which was the period relevant at that time) served notice on the person chargeable with the service tax required to show cause why he should not pay the amount specified in the notice. The Proviso to said section extends the period limitation from 18 months to 5 years when the tax has not been levied or paid for the reason for fraud or collusion or wilful mis-statement or suppression of facts or contravention of any other provisions in the chapter or the rules made thereunder with intent to evade payment of service tax. So the proviso gives the Assessing Officer an extended period of limitation of 5 years for issuing show cause notice if any of the five conditions is satisfied.
10. In the case on hand, the Central Excise Officer has issued show cause notice for the period from 10.9.2004 to 31.7.2007 on 3.9.2008. The contention raised by the Counsel for the appellant is that, in the final order passed by the Commissioner, it has been categorically found that the payment of service tax was not due to fraud, wilful, mis-statement or suppression of facts, and that it occurred due to system failure. The Commissioner, therefore, held that the assessee was entitled to benefit under Section 80 of the Act, which prescribes that the penalty not to be imposed in certain cases.
11. Section 80 of the Act, reads as follows:
“80. Penalty not to be imposed in certain cases
(1) Notwithstanding anything contained in the provisions of section 76, or section 77 , no penalty shall be imposable on the assessee for any failure referred to in the said provisions, if the assessee proves that there was reasonable cause for the said failure.
(2) Notwithstanding anything contained in the provisions of section 76 or section 77 or section 78, no penalty shall be imposable for failure to pay service tax payable, as on the 6th day of March, 2012, on the taxable service referred to in sub-clause (zzzz) of clause (105) of section 65, subject to the condition that the amount of service tax along with interest is paid in full within a period of six months from the date on which the Finance Bill, 2012 receives the assent of the President.”
Invoking the said section, the penalty imposed under Section 78 of the Act was waived.
12. When the matter reached the Tribunal, questions of invocation of extended period of limitation was an issue and the Tribunal found that when the Commissioner has dropped the penalty under section 78 by invoking Section 80 of the Act, there was no intention to evade payment of service tax and hence invocation of the extended period of limitation under 73 of the Act is not available to the department and hence, it was held that the entire period from 10.9.2004 to 31.7.2007 is barred by limitation.
13. The Counsel for the respondent bank submitted after the final order was passed by the Tribunal, the department filed a miscellaneous application as ST/ROM/20113/2020 in the Service Tax Appeal No.486 of 2009 requesting for modification of the final order as the final order states that the entire demand raised in the impugned order is set aside. The Tribunal, after hearing both sides held as follows:
“We find that in Para 9.2 of the final order clearly states that the entire period till 31.7.2007 is barred by limitation. We find that the demand was raised for the period 1.9.2004 to 31.7.2007. Once the limitation of demand has been accepted by the Bench, the demands under whatever head raised up to 31.3.2007 are set aside. However, the demands for the period 1.4.2007 to 31.7.2007 which are not contested by the appellant would survive. Accordingly, we do not find any infirmity in the final order and accordingly, there is no merit in the miscellaneous application for rectification filed by the Revenue. The miscellaneous application is dismissed.”
14. As per the modified order, the Tribunal has held that the extended period of limitation will not cover the period from 10.9.2004 to 31.3.2007.
15. The counsel for the appellant relied on the judgment of a Division Bench of this Court in M/s.Kuttukkaran Trading Ventures v. The Commissioner of Central Excise Customs & Service Tax (2014-TIOL-825-HC-KERALA-ST) to contend that once the assessee has not furnished all material details in their ST – 3 Returns and such details came to be disclosed only as a result of audit conducted by the department, the extended period of limitation can be invoked. She also relied on the decision of the Hon’ble Allahabad High Court reported in M/s.Daurala Organics v. Commissioner of Central Excise (2014-TIOL-2447-HC-ALL-ST). It was a case in which the Tribunal held that once the extended period of limitation under proviso to Section 73(1) of the Act was attracted there can be no waiver of penalty under Section 80 of the Act. The Division Bench further held as follows:-
“15. Section 80 of the Finance Act, 1994 contains a non-obstante provision which begins with the words ‘notwithstanding anything contained in the provisions of section 76, section 77 or section 78’. Under Section 80, the burden is cast upon the assessee of proving that there was reasonable cause for the failure referred to in sections 76, 77 or 78, in which even no penalty would be imposable for the failure. The important point to note is that while enacting section 80, Parliament introduced an overriding non-obstante provision which operates even in relation to the provisions of section 78. Consequently, the provision envisages that notwithstanding what is contained in section 78, it is open to an assessee to prove that there was a reasonable cause for the failure attributed in section 78.
16. The view which has found acceptance by the Tribunal in the present case is that once the extended period of limitation under section 73(1) has been applied, there can be no reasonable cause within the meaning of section 80. Now the circumstances which have been set out in the proviso to section 73(1) are indeed similar to those which are set out in section 78 for the imposition of a penalty. Not withstanding this, the Parliament did allow to the assessee an opportunity to establish that there was a reasonable cause of for the failure and this provision in section 80, as noted above, overrides section 78 as well by virtue of the non-obstante clause. The non-obstante provision of section 80 must obviously be given a meaning. If the view of the revenue, which was accepted by the Tribunal, were to be affirmed, that would render the non-obstante provision of section 80 otiose. For, it would then have to be held that once a penalty has become imposable under Section 78, it would be inconsistent to allow the assessee to establish that there was a reasonable cause for the failure. The words which have been used in the Statute in the present case in section 80 cannot be regarded as being redundant or otiose.”
Thus, it was held that Section 80 as well as Section 73 of the Act have two independent standings. She submitted that in the case on hand, even if Section 80 of the Act is invoked to waive penalty that will not absolve the assessee from payment of service tax and if it is found that the nonpayment was due to any of the reasons mentioned in the proviso, the extended period of limitation can be invoked.
16. The counsel for the respondent Bank, on the other hand, relied on the judgment of the High Court of Judicature for Rajasthan at Jaipur in Commissioner of Central Excise, Jaipur -1 v. Rajasthan Renewable Energy Corporation Limited [2018(15) GSTL 661( Raj.)] to contend that when relief of waiver of penalty is granted under Section 80 of the Act, the extended period of limitation cannot be invoked on the basis of allegation of wilful misstatement, suppression of facts or deliberate contravention of Rules with an intention to evade duty payment. The facts of the said case reveal that the Corporation was under the bonafide belief that they were not liable to service tax and the adjudicating authority found that the assessee being a State Government undertaking and the benefit of evasion of service tax would not go to any private person or company and since they deposited the tax voluntarily, Section 80 of the Act can be invoked and penalty can be waived. Thus, on the said set of facts, it was held that the appellant being a public sector undertaking a State Government entrepreneur, there was no wilful misstatement or suppression of facts and the invocation of extended period of limit also was held to be illegal.
17. In Rochem’s case (supra), the Tribunal held that the issue of charging service tax or revenue charge under Section 66A of the Act was under litigation in various High Courts and held that non payment of duty was due to reasonable cause and once Section 80 of the Act is invoked, the invocation of the extended period of limitation was also held to be bad. The department challenged the said finding before the High Court of Bombay in Rochem’s case (supra). The Bombay High Court held that the finding was held to be legal as there was no misstatement or suppression on the question of payment of service tax was pending in litigation before various courts.
18. Section 80 of the Act starts with a non-obstante clause. According to the learned counsel for the appellant even though penalty under section 78 of the Act is waived invoking section 80 of the Act, if the assessee proves that there was reasonable cause for the failure of payment of service tax, the same yardstick cannot be brought into section 73(1) of the Act. Section 73(1) of the Act gives a right to the Central Excise Officer for the recovery of the service tax due. Exonerating the respondent from the payment of penalty under Section 78 of the Act, by invoking Section 80 of the Act will not absolve the Bank from payment of service tax and recovery of the avoided service tax by the extended period of limitation under section 73 of the Act. An inference drawn under Section 80 of the Act for waiving penalty is automatically applied for holding that extended period of limitation is also not applicable, in our considered view such consequence is unavailable. The provisions of law are having independent application at these two stages. Looking back at the circumstances, it needs to be recorded that suppressions are pointed out by the Revenue leading to action for recovery. It is not a case there was complete disclosure of the all the details by the Bank.
19. The facts in the present case show that on issuance of the summons on 21/11/2007, the Chief Financial Officer appeared and gave his statement that the non payment of service tax on full value received by the branches, was not intentional, but due to system failure, and they immediately upon receipt of difference on the short payment, remitted the entire differential amount of service tax due to the government inclusive of interest. So they indirectly admit that service tax is due to the appellant from the respondent bank. The non payment of service tax was noted by the department only through the Intelligence report and when non-payment was informed to the respondent bank only, they paid the service tax due along with the interest. The assessee has not disclosed the value of taxable service for the period 10.9.2004 to 31.7.2007 in their ST 3 Returns filed to the department. Only when the department issued a show cause notice, the responded bank remitted the amount of tax. Hence, merely because they were exonerated under Section 80 of the Act from payment of penalty for reasonable cause for non payment the same yardstick cannot be taken by the bank to contend that the extended period of limitation as prescribed under proviso to section 73 of the Act is available. The bank was regularly paying service tax till 31.3.2007 by individual branches. On 1.4.2007, the assessee took centralised registration and thereafter, the payment was not made until the show cause notice was issued. So the contention of the respondent bank that there was no suppression nor any mis-statement cannot be accepted. Section 73 of the Act gives extended period of limitation if there is suppression or misstatement or fraud or collusion. In this case having taken centralised registration on 1.4.2007, the respondent failed to remit the service tax. Thus, it can be seen that there was non-payment of service tax from 1.4.2007 and it can be brought under clause (d) of section 73 of the Act, which is suppression of fact. Hence the invocation of extended period of limitation by the department can only be sustained. The Tribunal went wrong in holding that since the penalty under section 78 of the Act is waived, there was no intention to evade payment of tax on the part of the appellant and thus, the extended period of limitation available under section 73 of the Act is not available to the department and the entire period from 10.9.2004 to 31.7.2007 was held to be barred by limitation. For the reasons stated above, we are of the considered opinion that the findings of the Tribunal regarding the extended period of limitation is wrong and the same is set aside.
In the result, the Central Excise Appeal is allowed as above.
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Author/Blogger: Aji V. Dev, Advocate, High Court of Kerala at Aji V. Dev & Associates, Ernakulam, Kochi, available at ajivdev@yahoo.co.in/advajivdev@gmail.com/9447788404.
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