Custom, Excise & Service Tax Tribunal
Nayara Energy Limited vs Rajkot on 4 December, 2023
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
REGIONAL BENCH-COURT NO. 3
Service Tax Appeal No. 10894 of 2022 - DB
(Arising out of OIO-RAJ-EXCUS-000-COM-012-2022-23 dated 29/07/2022 passed by
Commissioner of Central Excise, Customs and Service Tax-RAJKOT)
NAYARA ENERGY LIMITED ........Appellant
Post Box No 24 Head Po Khambhalia
Jamnagar, Jamnagar- Gujarat
VERSUS
C.C.E. & S.T.-RAJKOT ......Respondent
Central Excise Bhavan, Race Course Ring Road...Income Tax Office, Rajkot, Gujarat- 360001 APPEARANCE:
Ms. Dimple Gohil, Advocate for the Appellant Shri Rajesh Nathan, Assistant Commissioner(AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. RAMESH NAIR HON'BLE MEMBER (TECHNICAL), MR. C.L.MAHAR Final Order No. 12701/2023 DATE OF HEARING: 23.08.2023 DATE OF DECISION: 04.12.2023 RAMESH NAIR This appeal has been filed by M/s. Nayara Energy Ltd. against the Order-In-Original No. RAJ-EXCUS-000-COM-012-2022-23 dated 29.07.2022. This is a second round of litigation before this Tribunal. In the first round of litigation, the matter was remanded by the Tribunal for reconsideration of the aspect of limitation and imposition of penalty on the point of revenue neutrality and on the basis other facts also.
1.1 The brief facts of the case are that the appellant raised finance through 'External Commercial Borrowings (ECB) & 'Foreign Currency Convertible Bonds' (FCCB) for which they have received services of various service providers viz., Merchant Bankers, Lead Managers, Advisors, Financial Advisors, Principle Agents, Legal Advisors, Management Consultants, under writers, etc. who are based outside India and have charged fees for their services in Foreign Currency for raising funds through ECB & FCCB. Since these service provider were located outside India, as per Rule 2 (1)(d)(iv) of the Service tax Rules 1994 the appellant being recipient of the services were liable to pay Service tax on such services under the category of 2 ST/10894/2022-DB Banking and Financial Services. During the investigation the appellant were issued a letter dated 31.10.2007 to inform as whether they have obtained Service tax registration as contemplated under Section 69 of the Finance Act, 1994 and whether they have paid service tax at the rate specified under Section 66A of the Finance Act, 1994 and filed the prescribed returns. In reply to the said letter, appellant vide their letter dated 26.12.2007 informed that they had raised the finance through FCCB & ECB and has discharged their Service tax liability alongwith interest on 24.11.07 for the transaction made with ICICI Bank Ltd., Bahrain. After detail investigation show cause notice dated 28.01.2010 was issued to the appellant for recovery of Service tax alongwith interest and penalties. In adjudication, Ld. Commissioner vide Order dated 23.03.2010 dropped the demand of Service tax of Rs.
1,48,83,228/- and confirmed the demand of Service tax of Rs. 1,37,51,388/- and ordered for its appropriation. He also imposed penalties on the appellant. Being aggrieved by the said Order appellant filed appeal before the Tribunal and vide final order dated 24.05.2021 tribunal remanded the case to the adjudicating authority for reconsideration of the aspect of limitation and imposition of penalty on the point of revenue neutrality. The Appellant moved an application before the Tribunal for rectification of mistakes in respect of Final Order dated 24.05.2021. The ROM application of the appellant was decided by the Tribunal vide Misc. Order dated 12.04.2022 wherein tribunal passed the order as under:
"4.------ However, considering the other facts of the case, it would be proper that issue of limitation as well as imposition of penalty should be considered not only limited to revenue neutrality but on the basis of other facts also. Therefore the issue of limitation as well as imposition of penalty need to be reconsidered as open remand."
In pursuance of the aforesaid order of the Tribunal the Ld. Commissioner passed the impugned order dated 29.07.2022 and confirmed the service tax demand alongwith interest and penalties. Hence the present appeal.
2. Ms. Dimple Gohil, Learned Advocate appeared on behalf of appellant submits that issue is no longer res-integra as covered by the judgment of this Hon'ble Tribunal in the case of M/s Essar Steel Ltd. Vs. CCE - 2008- TIOL-2048 -CESTAT-AHM. In the said judgment Tribunal set aside the penalties imposed under Section 78 of the Finance Act on the ground that there cannot be any malafide atrributable to the assessee since the entire 3 ST/10894/2022-DB situation was revenue neutral inasmuch as the service tax paid under reverse charge was available to the assessee as cenvat credit and therefore, there was no requirement of issuing show cause notice itself it terms of Section 73(3) of the Finance Act.
2.1. She further submits that the issue in dispute in the present case is revenue neutral, as the service tax paid under reverse charge basis was available as CENVAT credit to the appellant, which instead of discharging duty in cash on the manufactured final products could have been utilized for payment of excise duty. As noted by this Hon'ble Tribunal in its earlier final order dated 29.05.2021, the appellant during the relevant period has discharged substantial amount of Service tax from its PLA. The allegation of suppression of facts on the part of the assessee cannot sustain when the entire situation is revenue neutral. This issue is no longer res-integra. She placed reliance on the following judgments:
PGP Glass Pvt .Ltd. Vs. CCE & ST, Surat-II, Appeal Nos. 10873 of 2013 decided on 14.07.202023 BASF India Ltd. Vs. CCE&ST -Surat -II, Service tax appeal No. 11873 of 2013-DB decided on 21.06.2023.
Sarovar Hotels Pvt. Ltd. Vs. Comm. Of ST, Mumbai -2018(10)GSTL 72 (Tri.-Mumbai) Chiripal Polyfilms Ltd. Vs. CCE&ST, Vadodara-I- 2022(67)GSTL 454(Tri. Ahmd) Commissioner of Service tax Vs. Reliance Communications Ltd. 2019(22) GSTL 203 (Tri. Mumbai) EMI Transmission Ltd. Vs. CCE 2019(20)GSTL 259 (Tri. Mumbai) Bharat Aluminium Co. Ltd. Vs. CCE, Raipur ,2021(375)ELT 379 (Tri. Del.) Reliance Securities Ltd. Vs. Comm. Of ST, Mumbai -II, 2019(20)GSTL 265(Tri.-Mumbai) Hyundai Motor India Pvt. Ltd. Vs. Commr. Of C.Ex & ST., LTU, Chennai
-2019(29)GSTL 452 (Tri. Chennai) Nirlon Ltd. Vs. CCE, Mumbai 2015(320)ELT 22 (SC) Mahindra & Mahindra Ltd. Vs. CCE. Mumbai 2019(368)ELT 105.
2.2. She also argued that as per Section 73(3) of the Finance Act, where any Service tax is paid by the assessee on his own ascertainement before 4 ST/10894/2022-DB the service of show cause notice, then the central excise officers shall not serve any notice on such person. In the facts of the its case, appellant has discharged the service tax alongwith interest much before the issuance of show cause notice. In the instant case, it was only a routine survey note that was issued by the Department seeking information with respect to commission paid to overseas service providers. Therefore, the benefit of Section 73(3) of the Finance Act was available to the Appellant.
2.3. She also submits that in order to impose penalty under Section 78 of the Act , inter alia there must be non-payment or short payment of tax, by reason of fraud or collusion or wilful mis-statement or suppression of facts with the intent to evade payment of service tax. In the present case, there is no suppression of facts on the parts of the Appellant so as to attract penalty under the said Section. The appellant had paid service tax to the Bank, which was later re-credited to the account of the appellant. The said essential fact escaped the attention of the appellant as the transaction relating to ECB was handled by the headquarters of the company in Bombay, whereas its factory is located at Jamnagar, resulting in delay in payment of service tax. Further, the Ld. Commissioner failed to appreciate that upon receipt of letter dated 31.10.2007, the appellant disclosed all the requisite information to the Department, which, by itself, is sufficient to show that there was no intention on the part of the appellant to evade payment of tax.
2.4 She further submits that merely because the payment was made after issuance of letter seeking information by the department, the same, by itself, is not sufficient to prove that there was a deliberate or conscious wrongdoing on the part of appellant. It is a settled position of law that the ingredient such as fraud, wilful misstatement, suppression of facts, etc. cannot be alleged and consequently penalty cannot be imposed except for case where there is deliberate defiance of law or a positive act on the part of the assessee with the intention to evade payment of duty. In support, she placed reliance on following decisions:
Pahwa Chemicals Pvt .Ltd. Vs. CCE, Delhi -2005(189)ELT 257 (SC) Uniworth Textiles Ltd. Vs. CCE, Raipur -2013(288)ELT 161(SC) Devans Modern Breweries Ltd. Vs. CCE, Chandigarh, 2008(10)STR 511(SC) Anand Nishikawa Co. Ltd. Vs. CCE, Meerut 2005(188)ELT 149(SC) 5 ST/10894/2022-DB Cosmic Dye Chemical Vs. CCE, Bombay 1995(75)ELT 721(SC) Pushpam Pharmaceuticals Company Vs. CCE, 1995(78)ELT 401(SC).
3. On other hand Shri Rajesh Nathan Learned Assistant Commissioner (AR) appearing on behalf of revenue reiterates the finding given in the impugned order.
4. We have considered the submission made by both the side and perused the record. The issue involved in this case is only related to the penalties imposed by the Ld. Adjudicating authority. It is admitted fact on records that the appellant herein had discharged the Service Tax liability along with interest before receipt of the show cause notice. It is also undisputed that the Service Tax liability under RCM has arisen on the ground of appellant being the recipient of services of Banking and Financial Services from an overseas banks. Understandably, Service Tax paid on such services rendered would be available to the appellant themselves as Cenvat credit which can be utilized for discharge of any excise duty on the final goods manufactured and cleared by the appellant. On the factual matrix as noted hereinabove, we find that the issue is to be decided in favour of the appellant, as regards penalty imposed, We find that the plea of Revenue neutrality is strong plea, as in this case also credit is available to the appellant on Service Tax paid under reverse charge mechanism can be utilized for discharge of excise duty and hence there can be no reason to avoid Service Tax liability. It is noted that various decisions are in favour of the assessee. The judgments of Tribunal in the case of.Dineshchan- dra R. Agarwal Infracon Pvt. Ltd. 2010 (18) S.T.R. 39 (Tri. - Ahmd.) (supra) and Sagar Enterprises 2010 (18) S.T.R. 212 (Tri. - Ahmd.) (supra) and also the judgments relied upon by the Ld. advocate are directly on the point and are in favour of the assessee.
4.1. Further on the issue of applicability of the provisions of Section 73(3) of the Finance Act, 1994 to the appellant's case, we find that even if in this case the appellant, on being pointed out by the department, deposited the entire amount of service tax liability along with interest much before the issue of show cause notice. We find that the appellant is a manufacturer of dutiable goods and the Service Tax paid on services provided by foreign service-providers would have been available to them as Cenvat credit under the Cenvat Credit Rules, 2004 leading to a revenue neutral situation. In the 6 ST/10894/2022-DB facts and circumstances of this case, it is improper to allege that the appellant did not pay service tax with an intent to evade payment of Service Tax. In a similar case of ECB - Enercon (India) Ltd. v. Commissioner of Central Excise & Customs, Daman vide final order Final Order No. A/925/WZB/AHD/2012 & S/1157/WZB/AHD/2012, dated 13-6-2012 (supra), Tribunal has held as under :
"5. In this case, since whatever amount was due as Service Tax, was available as credit to the appellant, penalty under Section 78 of the Finance Act, 1994 cannot be sustained since there is no need for suppressing fact, resorting to mis-declaration or undertake fraudulent act with intention to evade duty since the Cenvat credit would be available, the moment the payment is made to the Government. This view was upheld by the Hon'ble High Court of Karnataka in the case of C. Ahead Info Technologies India P. Ltd. In that case, the Revenue was challenging the order passed by the Tribunal which has set aside the penalty under Section 78 of the Finance Act, 1994, observing that the records indicate the absence of intent to evade duty.
6. In the case of Essar Steel Ltd. - 2009 (13) S.T.R. 579 (Tri.-Ahmd.) also, in the case of ECB Facility, this Tribunal took a view that when the situation is revenue neutral and the appellant manufacturer is entitled to Cenvat credit, it cannot be said that there was an intent to evade duty and extended period can be invoked.
7. In view of the precedent decisions discussed above which are applicable to the facts of this case, we find that penalty imposed on the appellant cannot be sustained. Therefore, the penalty imposed upon the appellant is set aside and Stay Petition as well as the appeal are disposed off in above terms."
4.2 We also find that penalty has been imposed by the Ld. adjudicating authority with the finding that the appellant had not deposited service tax on the basis of own ascertainment and that it was only after the department letter they deposited. We find that the very SCN was issued on 28.01.2010 for which the compliance was already made by the appellant on 24.11.2007 by way of payment of tax and interest. The only grievance of revenue is that the appellant-assessee has not deposited service tax on their own ascertainment. We find that when the tax amount stands already deposited with interest, the very SCN was not required to be issued under Section 73(3). Merely because the tax amount has been deposited on the basis of ascertainment by the Department, the assessee cannot be deprived of the benefit of aforesaid provisions, more so in view of the fact that no evidence 7 ST/10894/2022-DB has been adduced in the SCN that there was a deliberate short payment. Any other interpretation will render the said provision redundant inasmuch as the very intention of the said provision is to reduce litigation when compliance is made by the assessee.
4.3 In view of the above observations and settled position of law, we hold that the appellant's case is fully covered by the provisions of Section 73(3) of the Finance Act, 1994 and the Revenue should not have issued show cause notice to the appellant for imposition of penalties. Accordingly, we set aside the penalties imposed upon the appellant under the Finance Act, 1994.
5. The appeal is therefore allowed with consequential benefits, if any.
(Pronounced in the open court on 04.12.2023) (RAMESH NAIR) MEMBER (JUDICIAL) (C. L MAHAR) MEMBER (TECHNICAL) Raksha