Custom, Excise & Service Tax Tribunal
Bank Of Maharashtra vs Commr Service Tax -I Pune on 15 March, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
APPEAL NO. ST/85914 /2016
(Arising out of Order-in-Original No. PUN-SVTAX-000-COM-048-15-16
dated 20.01.2016 passed by the Principal Commissioner of Service Tax,
Pune)
M/s Bank of Maharashtra : Appellant
VS
Commissioner of Customs & Central Excise : Respondent
Appearance Shri S. Ananthan, C.A. with for Appellant Ms R. Lalitha, C.A. Shri M.K. Sarangi, Joint Commissioner (A.R) for respondent APPEAL NO. ST/86028/16 Commissioner of Service Tax, Pune : Appellant VS M/s Bank of Maharashtra : Respondent Appearance Shri M.K. Sarangi, Joint Commissioner (A.R) for Appellant Shri S. Ananthan, C.A. with for respondent Ms. R. Lalitha, C.A. CORAM:
HON'BLE SHRI S.K. MOHANTY, MEMBER (JUDICIAL) HON'BLE SHRI P. ANJANI KUMAR, MEMBER (TECHNICAL) Date of Hearing: 19.11.2018 Date of Decision: 15.03.2019 2 Appeal No. ST/85914 /2016 & ST/86028/16 ORDER NO. A/85504-85505/2019/2019 Per: P. Anjani Kumar Bank of Maharashtra, the Appellants, are a government undertaking banking company. The department has issued a Show Cause Notice dated 29.04.2015 to the Appellants alleging the following:
A. The Appellants failed to reverse the proportionate credit on the exemption service i.e. interest and other exempted service for the period April 2009 to March 2011 as per Rule 6(3A) (c) of the CENVAT credit Rules 2004.
B. For the period April 2009 to March 2011, have paid Service Tax of Rs.100/- per transaction as commission only, whereas they had to include profit and commission together, earned in foreign exchange, to discharge their Service Tax as well as liability on the Service such as commission and profit earned together is a consideration.
C. The Appellants failed to pay Service Tax
(i). on the input services availed by them from various vendors who are providing services like Housekeeping, repairs and maintenance, carried out and works contract etc. under reverse charge mechanism.
(ii). on the manpower subject to METCO during the period 2008-
2012.
(iii). on Telephone Bills, which are on the personal names of the Assessee employees which is not an input services for the period 2008-09 of 2012-13.
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(iv). on the directors' sitting fees under business auxiliary service during the period 2009-13.
D. The appellants took credit of Cenvat as well as State VAT during the period April 2012 to August 2013 and on input services provided to J &K branches which falls under the exempted territory during the period 2008-09 to 2013-14.
2. The Show Cause Notice was adjudicated by Commissioner of Service Tax, Pune vide order in original PUN-SUTAX-000-COM-048-15- 16 dated 20.01.2016 and confirmed most of the demand raised therein and dropped a few. Moreover, the commissioner, vide a corrigendum on 02.02.2016, restricted the demand confirmed to a period of 5 years only and dropped demands beyond a period of 5 years. The Appellants are in appeal (ST/85914/2016) against such confirmation and Revenue is in appeal (No.ST/86028/16) against corrigendum issued by commissioner.
3. The Learned Counsel for the Appellants has submitted as follows :
3.1. Reversal of CENVAT Credit under Rule 6 on exempted services. The Learned Counsel submitted that the commissioner has erroneously held that the interest on loan has to be considered to arrive at the proportionate reversal to Cenvat credit by holding that interest on loan has to be treated as an exempted service. He submitted that, upto 17.04.2006, interest on loan was not includable in the value of taxable service u/s. 67 of the finance Act 1994. For the period 18.04.2006 to 30.06.2012, in terms of Sub-section 4 of section 67, the value of taxable service has to be determined in terms of Service Tax (determination value) Rules 2006 as per Rule 6 (2)(IV) of the rules the interest of loans 4 Appeal No. ST/85914 /2016 & ST/86028/16 has to be excluded from the tax of the value. Therefore by virtue of section 67 itself or by virtue of valuation Rules interest on loans is excluded. The lending service which includes OD,CC and bill discounting is a taxable service. However, while calculating the taxable value of the interest of such loans emanating out of the lending services, has to be excluded from the taxable value. The Appellants has not availed any exemption notification with reference to the interest therefore interest cannot be considered for the purpose of proportionate reversal of the credit their laid upon the following cases :
(i). Gautam Sahakari Bank Ltd. 2018 (5) TMI 218 Mumbai
(ii). Ahmednagar District Co-op. Central Bank Ltd. 2018(6) TMI 253 Mumbai.
The learned counsel submitted that the Reliance placed by the Revenue in the case of HDFC Bank is distinguishable as in that case tribunal did not consider the exclusion of interest u/s. 67 (up to 17.04.2006) and by valuation rule after 18.04.2006 the tribunal entirely placed Reliance on exemption notification and on the master circular issued by RBI. The Appellants submit that the circular was issued to Urban Co-op. Bank and is not applicable to a schedule bank like the Appellants. 3.2. Nonpayment of Service Tax under reverse charge mechanism (Rs.62, 01,999): Learned Counsel for the Appellants submits that they have accepted objection during the audit itself and paid alongwith interest. Therefore no penalty be imposed.
3.3. Service Tax payable in respect of manpower subject to METCO (Rs.5, 16,041): Learned Counsel submits that the Appellants have only deputed their employees to their subsidiary and got reimbursed the 5 Appeal No. ST/85914 /2016 & ST/86028/16 actual salary paid to them. In view of the following case law the demand is not maintainable.
(i). Commissioner Vs Krohne Marshall Pvt. Ltd. 2016 (11) TMI 831 (SC)
(ii). Arvind Mills Ltd. 2014 (4) TMI 132 (Guj)
(iii). The Axis Bank Ltd. 2017 (1) TMI 607 (Mum)
3.4. Cenvat Credit availed on services rendered to J & K branches:
The Appellants submits that they have two branches in the state of J & K; they reversed the proportionate by considering the income from these two branches. Reversal was made on 31.03.2011 from 01.04.2011, 50% on Cenvat credit has been reversed by the Appellants bank under Rule 6 (3B) of Cenvat Credit Rule 2004, which over writes the other rules relating to proportionate reversal. The Appellants submitted a CA certificate for the year 2009-2010 - 2010-2011. However the learned commissioner has confirmed the demand by holding that a CA certificate has not certified the amount reversed and the reversal was made only in the month of March post 01.04.2011 a confirmation of demand is not tenable.
3.5. Service Tax of directors sitting fees: The Appellants submits that sitting fees paid to directors was brought under Service Tax vide RCF by virtue notification 45/2012 dated 07.08.2012.The learned commissioner confirmed the demand not only on the sitting fees of the directors but also on the reimbursed expenses observing that the CA certificate did not certify the actual sitting fees and reimbursement. Reimbursement expenses are not to be included in view of Supreme Court decision in the case of UOI Vs Intercontinental consultant and Technocrats Pvt. Ltd (2018-19) Taxman.com 67 SC. No demand on 6 Appeal No. ST/85914 /2016 & ST/86028/16 sitting fees can be confirmed prior to 01.08.2012 as the notification was issued in 07.08.2012. The Appellants have discharge the liability from 01.07.2012.
4. The learned counsel submitted that the issue is squarely barred by limitation, the finding that in spite of several request the Appellants did not submit the required information is contrary to the facts various details was submitted on 02.08.2012 and details of reversal was submitted on 02.08.2012 even though the audit was directed to issue Show Cause Notice by MCMon 27.12.2013 and the Show Cause Notice was issued in 2015. Under circumstances extended period cannot be invoked in view of the decision of the Supreme Court in the case of Pals Mirco Systems Ltd. 2011(7) TMI 673 SC. Moreover all the issues involved in the Show Cause Notice are of debatable information involving interpretation of laws. Therefore the extended period cannot be invoked. The Appellants being public sector bank intent to evade payment of duty cannot be alleged in view of the decision of Supreme Court in the case of Chennai Petroleum Corporation Ltd. (2007-2008) STT 168 (SC) and Tribunal decision in the case of corporation bank 2018(9) TMI 1725 CESTAT Bangalore. They further submitted that in the absence of mala fide no penalty can be imposable.
5. The Authorized Representative, for the department, reiterated the finding of OIO and submitted that except for the review of the other by the corrigendum the adjudicating authority has currently arrived at a finding, in most of the cases the Appellants have accepted and paid the demand alongwith interest. With reference to manpower recruitment and supply, he submitted that tribunal in the case INA Bearing India Ltd. Vs 7 Appeal No. ST/85914 /2016 & ST/86028/16 CCE 2018-10-GSTL-376-Tri-Mum, on same set of facts, has distinguished the decision in the cases of Arvind Mills Ltd and Paramount Communication.
5.1 Coming to review proceedings, he submitted that as per board circular dated 19.12.1999 the adjudicating authority has become functus officio when the order is issued. Therefore, addition of finding of time barred for 2007-08 to 2009-10 in corrigendum is not proper. Corrigendum can be issued only for clerical/arithmetical/typographical error. However, ST3 returns for October 9 to March 10 was issued on 25.04.2010. Therefore the demand for the said period i.e. October 9 to March 10 should have been included as the Show Cause Notice was issued on 24.04.2015.
5.2 Coming to the interest earned by the bank on its loans and advances, the Appellants submitted that it is a consideration received for its taxable services "lending" and it is not towards any exempted services. However the amount is not part of the value u/s 67 it cannot be called exempted services. The learned AR submits that the contention that as interest is not part of taxable value, interest arriving out of lending cannot be exempted services is erroneous. Similarly analogy was found incase of "trading" which was not specifically mentioned as exempted services. However various High Courts and tribunals have held that proportionate Cenvat credit needs to be reversed up to 2001 even though it was not a service order a taxable service relied on the following cases.
i) FI Smith Pvt. Ltd. 2014-TAYL-2186-HC-MAD-CX.
ii) Ruchika Global Interlink 2017-TAYL-1235-HC-MAD-ST.
iii) AakshOptifibre Ltd. 2018-10-GSTL-551-TRI-Del. 8
Appeal No. ST/85914 /2016 & ST/86028/16 5.3 The learned Authorized Representative has submitted that similar issued was decided in the case of UCO Bank Vs CST 2014 and 36-STR - 1169 (Tri.- Kol) in which it was held that interest for sale is not exempted from the scope of levy of Service Tax and inclusion of value of overdraft facility and cash credit facility in computing Cenvat credit attributable to input services used in providing exempted services was found correct for the purpose of calculation under Rule 6 (3A) (c) of CCR 2004. The decision in Gautam Sahakari Bank Ltd. (Supra) was passed overlooking the decision in the case of UCO Bank, hence the sale is to be treated as per incuriam. He further submits that in case of HDFC Bank CESTAT Mumbai, vide order No. A/8714/2008 dated 16.07.2018 in appeal No.ST 85743-2014, while deciding the similar issue, observed that as entire consideration received from customer is exempt from payment of service tax is aught to be considered as exempted service.
6. Heard both sides and perused the records of the case. Brief issues to be discussed in this case are
i) Whether the commissioner was in his right to issue a corrigendum modifying his own order and limiting the demands to a period of 5 years only.
ii) Whether the income earned from cash credit, overdraft and bill discounting would be regarded as exempted service under Rule 2(e) of Cenvat Credit Rules, 2004 and whether the Appellants are required to reverse the Cenvat Credit availed in respect of such services.
iii) Whether the appellants are liable to pay service tax on the manpower deputed by them to their subsidiary i.e. METCO.
iv) Whether the Appellants have availed inadmissible credit in respect of inputs services availed for their J&K branches.
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v) Whether the Appellants are required to pay service tax on the directors' sitting fees.
vi) Whether the commissioner was correct in levying penalty in respect of demands where payments have been made along with interest prior to the issue of show cause notice.
6.1 Coming to the first issue of whether the Appellants are required to reverse proportionate Cenvat credit and as to whether interest etc. earned by them from cash credit, overdraft, etc. would be treated as exempted service. The Appellants submitted that in terms of section 67 of the Finance Act, 1994 the interest on loans was not includable in the value of taxable service upto 17.04.2006. As per sub- section 4 of section 67 of Finance Act 1994, the value of taxable services has to be determined in terms of Service Tax (Determination of Value) Rules, 2006. As per Rule 6 (2) (iv) the interest on loans has to be excluded from the taxable value. The Appellants submitted that irrespective of notification exempting the interest the service cannot be treated as an exempted service. The lending service which includes ODCC and bill discounting is a taxable service. However for calculating taxable value interest is to be deducted. The Learned Authorised Representative on the other hand submits that the issue is squarely decided by the Tribunal in the cases of UCO Bank 2014 (36) STR 1169 (Tri-Kolkata) and in the case of HDFC Bank Ltd by order No. A/87114/2018 dated 16.07.2018. 6.2 In order to appreciate the rival submission it is relevant to have a look at the definition of exempted service.
The 'exempted service' is defined under Rule 2(e) of the Cenvat Rules, 2004 reads as:
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Appeal No. ST/85914 /2016 & ST/86028/16 "RULE 2. Definitions. --In these rules, unless the context otherwise requires, -
(e) "exempted goods" means taxable services which are exempt from the whole of the Service Tax leviable thereon, and includes services on which no Service Tax is leviable under Section 66 of the Finance Act;"
Kolkata Tribunal in the case of UCO Bank has gone through the above definition and has given finding as below:-
"30. A simple reading of the definition of 'exempted service' reveals that it also includes services that are exempt under Section 66 of the Finance Act, 1994. In the present case, interest on overdraft facility and cash credit facility are exempted from Service Tax under Section 66 of the Finance Act, 1994 by virtue of Notification No. 29/2004-S.T. dated 22- 9-2004. Therefore, these services would definitely come under the scope of the definition of 'exempted service', hence, the argument of the ld. CA that to attract Rule 6(3) of the Cenvat Credit Rules, 2004, the entire taxable service i.e. banking and financial services should be exempted and not few services mentioned under the categories of clause (ix) of the said Banking and Financial Services, is untenable. Thus, the ld. Commissioner is right in its approach to include the value of exempted services namely, overdraft facility and cash credit facility in computing the Cenvat credit attributable to input services used in providing exempted services, as laid down under Rule 6(3A)(c) of the Cenvat Credit Rules, 2004."
We find that the appreciation of the provisions as above is correct. In case of HDFC the Tribunal Mumbai has gone further ahead and have put to rest the argument that only interest part is exempted and not the other administrative charges and fees etc. are not exempted and thereby the service would not come under the purview of exempted services.
Quoting from a Master Circulars UBD.BPD (PCB) MC.No.5/13.05.000/2009-10 dated July 01, 2009. The Tribunal has given a clear finding as follows:
"7.4 From the above mentioned Master Circular issued by RBI, it is quite evident that banks are free to determine their own interest rate after taking into account all the 11 Appeal No. ST/85914 /2016 & ST/86028/16 administrative expenses and the cost of advancing the loans, cash credit or overdraft facility. However all the purpose of the customer, or the bank financial institution all the recoveries made against such facilities would be classified under the category of interest. It is not the case after deregulation of the Banking and Financial services that the interest rates are externally dictated, but are to be determined by the banks themselves taking into account their cost of funds, transaction costs etc (Para 4.1 of the Master Circular). Thus the claim of the Appellant in respect of administrative fees etc., charged by them separately in respect of the CC/ OD services appear to be contrary to the said Master Circular." In view of the above it is seen that the Banks are free to decide the interest after taking into consideration administrative expenses if any. In view of the above we don't find merit in the Appellants argument that interest is to be deducted only for the purpose of calculating the taxable value. As we conclude that the lending of loans on interest as an exempted service.
6.3 We find that Rule 6 of the Cenvat Credit Rules 2004 reads as under "6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.--
"(1) and (2) . . .
(3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:--
(i) the manufacturer of goods shall pay an amount equal to 10 per cent. of value of the exempted goods and the provider of output service shall pay an amount equal to eight per cent.
of value of the exempted services; or
(ii) the manufacturer of goods or the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the manufacture of exempted goods or for provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).
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Appeal No. ST/85914 /2016 & ST/86028/16 Explanation I.--If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year. Explanation II.--For removal of doubt, it is hereby clarified that the credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods or provision of exempted service.
(3A) For determination and payment of amount payable under clause (ii) of sub-rule (3), the manufacturer of goods or the provider of output service shall follow the following procedure and conditions, namely:--
(a) and (b) . . .
(c) the manufacturer of goods or the provider of output service, shall determine finally the amount of CENVAT credit attributable to exempted goods and exempted services for the whole financial year in the following manner, namely:--
(i) and (ii) . . .
(iii) the amount attributable to input services used in or in relation to manufacture of exempted goods [and their clearance up to the place of removal] or provision of exempted services = (M/N) multiplied by P, where (M) denotes total value of exempted services provided plus the total value of exempted goods manufactured and removed during the financial year, (N) denotes total value of (output) and exempted services provided, and total value of dutiable and exempted goods manufactured and removed, during the financial year, and 1(P) denotes total CENVAT credit taken on input services during the financial year;"
In view of the above, we come to the conclusion that the services rendered by the Appellants in advancing loans etc. are exempt. Therefore, the amount of interest earned in advancing of loans needs to be taken into consideration while determining the amount to be reversed in term of Rule 6(3A)(c) of the CENVAT Credit Rules, 2004. Hence, we do not find any infirmity in the impugned order passed by the commissioner. We find that such a view is in conformity with decision of the Kolkata Bench of Tribunal in case of UCO Bank Vs Commissioner of Service Tax Kolkata (Supra) and these bench in the case of HDFC (Supra).
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Appeal No. ST/85914 /2016 & ST/86028/16 6.4 Coming to the leviability of Service Tax on the Appellants on the alleged supply of manpower to their subsidiary we find that this bench has already decided the issue in the case of Axis Bank 2017 (1) TMI 607 CESTAT Mumbai. It was held that the Appellants have deputed their employees to their sister concern who have availed the service of such employees. The sister concern was reimbursing the wages / salary paid to such employees. As long as it is not proved that the Appellants have received anything other than the reimbursement of wages, no Service Tax can be levied. Following the ratio of the above we allow the appeal to the extent of levy of Service Tax on manpower deputed by the Appellants to their subsidiary i.e. METCO.
6.5 Coming to the issue of the allegation of non-reversal of Cenvat Credit on the credit availed on input services availed by them in respect of their branches in J & K and that in view of Rule 6 (3) of Cenvat Credit Rules, 2004 the Appellants are not eligible to avail the credit. The Learned Commissioner has not accepted the claim of reversal made by the Appellants only on the ground that the reversal is not made on annual basis and that the Chartered Accountant has not certified the amounts reversed. We find that this argument is not acceptable. In case the reversal was not within time it was free for the Learned Commissioner to charge interest applicable thereof. Therefore we find it fit to remand this matter to the Commissioner for examining the issue once again.
6.6 Coming to the levy of Service Tax on the Directors' sitting fees we find that the Appellants has submitted that the demand was confirmed not only on the sitting fees but also on the expenses reimbursed. The 14 Appeal No. ST/85914 /2016 & ST/86028/16 Learned Commissioner has not considered this request only on the issue that the CA Certificate did not certify actual sitting fees and expenses reimbursed. We find force in the Appellants argument that reimbursed expenses are not to be included in the value of the taxable services in view of Hon'ble Supreme Court decision in the case of Intercontinental Consultants& Technocrat Pvt. Ltd. (Supra). Therefore, we find that this issue also needs to go back to the adjudicating authority for a proper appreciation of the facts of the case and to give allowance in respect of reimbursed expenses to the Appellants.
6.7 Coming to the issue of limitation Appellants submitted that an audit was conducted and various details was submitted on 17.07.2012 and details of reversals of Cenvat Credit was submitted on 02.08.2012 itself. MCM was conducted as late as 27.12.2013 Show Cause Notice was issued on 24th April, 2015 much later than the date on which facts were known to the department. They further submitted that as held by Supreme Court in the case of Chennai Petroleum Corporation Ltd (Supra), they being a public sector undertaking allegation of suppression fraud etc cannot be alleged. The commissioner has only given a cursory findings that the necessary information was not given in the ST-3 returns. We are not able to come to a conclusions on this aspect on the basis of the submission of the Appellants also. We find that at this juncture this bench is not in a position to decide whether all the material information was disclosed to the department and as to whether the necessary information was contained in the ST-3 returns submitted periodically or otherwise. We are not inclined to give a carpet ruling that since the Appellants are public sector undertaking suppression of facts cannot be alleged. The issue depends on case to case basis. Therefore 15 Appeal No. ST/85914 /2016 & ST/86028/16 we find that this issue also needs to be looked into again by the adjudicating authority.
6.8 Coming to the submission of the Appellants that in respect of reversals they have made before the issue of Show Cause Notice, no confirmation of duty should have been made in the OIO or in the corrigendum and no penalty should have been imposed, we see that the Appellants have reversed, along with interest, various amounts confirmed by the Adjudicating Authority. We find that the Learned Commissioner has not given an option to pay 25% of the penalty imposed under section 78 of the Finance Act, 1994. Looking into the fact that the Appellants are public sector undertaking and that most of the issues involved were interpretative in nature we find that imposition of 100% penalty is certainly not warranted. The amounts being paid before the issue of Show Cause Notice itself, penalties can be restricted to 25%. 6.9 Coming to the department appeals (ST/86208/2016), it has been submitted by the Learned Departmental Representative that the Commissioner having passed the order in original has become a functus officio and therefore corrigendum issued is without authority of law. We find that the Learned Commissioner by way of corrigendum has restricted the duty demanded to a period of 5 years in terms of proviso to Section 73. It goes without saying that the Show Cause Notice sought to recover duty beyond a period of 5 years. This was certainly without any authority of law. The Show Cause Notice could have been issued covering a period of 5 years only and the adjudicating authority could have by no means confirmed a demand beyond 5 years. Though, it may appear that the commissioner has reviewed his own order, effectively he 16 Appeal No. ST/85914 /2016 & ST/86028/16 has made only arithmetical corrections in the order issued. Learned Commissioner has only reworked the duty liability within the period of 5 years only. Therefore the action of the commissioner has not resulted in any serious violations of the provisions of law. However, we find merit in the Authorised Representative's submission that ST-3 returns for October 9 to March 10 was submitted on 25.04.2010. Therefore the demand for the said period i.e. October 9 to March 10 should have been included as the Show Cause Notice was issued on 24.04.2015. For this reason also, the matter needs to travel back to the adjudicating authority to rework the demand. The adjudicating authority shall however, independently analyse the facts of the case to arrive whether or not there is sufficient reason to invoke extended period. Hence, the appeal needs to be allowed by way of Remand to the adjudicating authority in order to arrive at the quantity of demand under each of the category up to a period of five years only.
7. In view of the discussions above, we uphold the impugned order in respect reversal of credit, attributable to exempted services like lending, under Rule 6(3A) (c) of the CENVAT Credit Rules, 2004; we hold that the appellants are not required to pay service Tax on the man power deputed to their subsidiary i.e. METCO; we hold that while arriving at the service Tax payable on directors' sitting fee the amounts received towards reimbursement of expenses shall not be included and we hold that wherever the appellants have paid/reversed Tax/credit along with interest before issuance of SCN, the penalty shall be restricted to 25%. 17
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8. Subject to the observations in Para 7 above, the impugned order is set aside and remanded back to the adjudicating authority. Thus appeals are disposed of.
(Order pronounced in Court on 15.03.2019)
(S.K. Mohanty) (P. Anjani Kumar)
Member (Judicial) Member (Technical)
Prasad