Custom, Excise & Service Tax Tribunal
M & B Engineering Limited vs Ahmedabad-Ii on 4 July, 2024
Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
REGIONAL BENCH- COURT NO.3
Service Tax Appeal No.10452 of 2018
(Arising out of OIA-AHM-EXCUS-002-APP-134-17-18 dated 16/10/2017 passed by
Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
AHMEDABAD-II)
M & B Engineering Limited .........Appellant
Mb House, 51, Chandrodaya Society,
Stadium Road, Navjivan,
AHMEDABAD, GUJARAT
VERSUS
C.C.E.-Ahmedabad-ii .........Respondent
Custom House... First Floor, Old High Court Road, Navrangpura, Ahmedabad, Gujarat -380009 APPEARANCE:
Shri. J.C. Patel, Advocate for the Appellant Shri. Girish Nair, Assistant Commissioner (AR) for the Respondent CORAM: HON'BLE MEMBER (JUDICIAL), MR. SOMESH ARORA HON'BLE MEMBER (TECHNICAL), MR. C. L. MAHAR Final Order No. 11487 / 2024 DATE OF HEARING: 24.06.2024 DATE OF DECISION:04.07.2024 SOMESH ARORA The Appellant undertakes exports of goods manufactured by it. For sale of such goods abroad, the Appellant received services of foreign commission agents, which are classifiable as Business Auxiliary service. Service tax is payable on such services received by the Appellant under reverse charge and such Service tax is available as Cenvat Credit to the Appellant. For the year 2010-11, the Appellant had not paid the service tax on such Business Auxiliary Service received by the Appellant from foreign commission agent under the belief that the same was exempted under Notification 18/2009-ST dated 7-7-2009. However, upon being pointed out by Audit that the said service tax was payable, the Appellant paid the same
2|Page ST/10452/2018-DB with interest on 8-4-2015. The amount of service tax was Rs.7,81,872/- and interest was Rs.6,51,275/- which admittedly stand paid on 8-4-2015 prior to issuance of Show Cause Notice dated 30-12-2015. For the years 2011-12 to 2014-15, the Appellant has duly declared, in the ST-3 Returns the value of the said Business auxiliary service received by the Appellant, as being taxable and pursuant to such Returns, in regular course, the service tax also stands paid with interest, well before the issuance of the Show Cause Notice dated 30-12-2015. The details of payment of the Service tax are summarized at Page 38 of the Appeal. Despite the Appellant having paid up the Service Tax with interest for 2010-11 based on audit objection and despite the Appellant having duly declared the value of service in ST-3 Returns for the years 2011-12 to 2014-15 and paid the service tax thereon, on their own in regular course, Show Cause notice dated 30- 12-2015 was issued to the Appellant under the Proviso to Section 73(1) of the Finance Act 1994 demanding the said Service tax and proposing imposition of penalty on the Appellant under Section 78 of the said Act. The Appellant replied to the said Notice by its letter dated 8-1-2016, submitting that in view of the fact that the Service tax amount with interest already stood paid before the issuance of the Show cause notice, the notice was not maintainable in law and that no penalty was imposable on the Appellant. By Order-in-Original dated 31-1-2017, the Joint Commissioner of Service tax appropriated the Service tax of Rs. 1,18,50,631/- which was already paid before the Show Cause Notice as also the interest of Rs.18,25,801/- which was also paid before the Show Cause Notice. Further, he imposed penalty of Rs. 1,18,50,631/- on the Appellant under Section 78 of the Finance Act 1994. The said Order-in-Original has been upheld by the Commissioner (Appeals) by Order-in-Appeal date 16-10-2017. The following issues thus broadly arise for consideration:-
2. Whether for the year 2010-11, issuance of Show Cause Notice dated 30-12-2015 under Section 73 of the Finance Act 1994, demanding service
3|Page ST/10452/2018-DB tax on reverse charge on commission paid to foreign agents, was barred under Section 73 (3), in view of such service tax with interest having been paid up, on being pointed out by audit, before issuance of the Show Cause Notice,
2.1 Whether for the years 2011-12 to 2014-15, issuance of Show Cause Notice dated 30-12-2015 under Section 73 of the Finance Act 1994, demanding service tax on reverse charge on commission paid to foreign agents, was at all justified, when receipt of the said service of Business Auxiliary from foreign agents was duly disclosed in the ST-3 Returns and pursuant to such Returns, the Service tax had also been paid along with interest prior to issuance of Show Cause Notice.
2.2 Whether imposition of penalty under Section 78 of the Finance Act 1994 is liable to be set aside, in view of the fact that for 2010-11 the service tax was paid with interest prior to issuance of Show Cause Notice and for 2011-12 to 2014-15, the receipt of service was duly disclosed in the ST-3 returns and pursuant thereto service tax was paid with interest prior to Show Cause notice and when there can be no intention to evade service tax on reverse charge since the same is available to the Appellant as Cenvat Credit.
3. Since on being pointed out by audit, the Service tax with interest was paid up before issuance of Show Cause Notice, no Show cause notice could have been issued in view of Section 73 (3) of the Finance Act 1994:
3.1 For the year 2010-11, the Appellant had not paid the service tax on Business Auxiliary Service received by the Appellant from foreign commission agent under the belief that the same was exempted under Notification 18/2009-ST dated 7-7-2009. However, upon being pointed out by Audit that the said service tax was payable, the Appellant paid the same with interest on 8-4-2015. The amount of service tax was Rs.7,81,872/- and interest was Rs.6,51,275/- (See page 73 of Appeal), which admittedly stand paid on 8-4-2015 prior to issuance of Show Cause Notice dated 30-12-2015.
4|Page ST/10452/2018-DB Since the service tax with interest stood paid, upon being pointed out by audit, before issuance of Show Cause Notice, no Show Cause Notice could have been issued in view of the provisions of Section 73 (3) of the Finance Act 1994, which provides that where the person chargeable with service tax, either or own his own ascertainment or on basis of tax ascertained by a Central Excise Officer, pays the same before issuance of Show Cause Notice, Show Cause Notice shall not be issued. Consequently, the issuance of the Show Cause Notice is bad in law and imposition of penalty under Section 78 pursuant to such show Cause notice is liable to be set aside.
4. The Joint Commissioner and the Commissioner (Appeals) have relied upon Section 73 (4) of the Finance Act 1994 to hold that since there was suppression of facts/ intent to evade tax, Section 73 (3) will not apply. It is submitted that in the present case the Proviso to Section 73 (1) and provisions of Section 73 (4) can have no application since there was no concealment of facts or intention to evade tax. The very fact that complete records were maintained and the objection was raised by audit on the basis of such records, itself shows there was no concealment of facts. Further, there can be no intention to evade tax, since whatever tax is paid on reverse charge, is available to the Appellant as Cenvat Credit.
5. The Appellant places reliance on the following decisions which hold that where complete records have been maintained and audit objection is raised on scrutiny of records, it is not a case of suppression of facts/ intention to evade tax and if on audit objection, the tax is paid up before Show Cause Notice with interest, Show Cause notice is not maintainable in view of Section 73 (3):
Excel Controlinkage P. Ltd v CCE-2022 (66) GSTL 444 The Lalit Ashok v CCE-2018 (12) TMI 1295 YCH Logistics (India) P. Ltd v CCE-2020 (43) GSTL 518 CCI Logistics Ltd v CCE-2021 (54) GSTL 27
5|Page ST/10452/2018-DB Rashmi Marketing v CCE-2019 (26) GSTL 244 CCE v Apollo Power Systems P. Ltd- 2017 (347) ELT 71 Commissioner v Tejas Agency-2014 (34) STR 803 (Guj) CCE v Adecco Flexione Workforce Solutions Ltd-2012 (26) ELT 3 (Kar). 5.1 The Appellant places reliance on the following decisions in support of the submission that since the service tax on import of services payable on reverse charge is available as Cenvat Credit, there is no question of intention of evading the tax and therefore when such tax is paid before issuance of Show Cause Notice, benefit of Section 73 (3) is available and Section 73(4) does not apply and therefore penalty is liable to be set aside:
Gujarat Borosil Ltd v CCE-2014 (36) STR 808 Nayara Energy Ltd v CCE-2023 (12) TMI 252-CESTAT- AHMEDABAD Enercon India Ltd v CCE-2012 (7) TMI 196-CESTAT- AHMEDABAD Essar Steel Ltd v CCE-2009 (13) STR 579.
For 2011-12 to 2014-15:
6. For the years 2011-12 to 2014-15, the Appellant has duly declared, in the ST-3 Returns the value of the said Business auxiliary service received by the Appellant, as being taxable and pursuant to such Returns, the service tax also stands paid with interest, well before the issuance of the Show Cause Notice dated 30-12-2015. The details of payment of the Service tax are summarized at Page 38 of the Appeal. It would be evident from the following Table that the value of Services for the period 2011-12 to 2014-15 for which service tax is demanded in the Show Cause Notice was duly reflected in the ST-3 Returns and the service tax with interest pursuant to such Returns stands paid:
6|Page ST/10452/2018-DB It is thus evident that for the period 2011-12 to 2014-15, the value of taxable service was duly reflected in the ST-3 Returns and the service tax pursuant thereto was paid by the Appellant on its own and in the regular course. The question therefore of issuing Show Cause Notice under Section 73 for this period and imposition of penalty under Section 78 does not arise at all.
7. Without prejudice to the aforesaid submission, in any event, since the 3.8 service tax with interest was admittedly paid well before the issuance of Show Cause Notice dated 30-12-2015 and since the value of service was duly shown in the ST-3 Returns, no Show Cause notice could have been issued in view of Section 13 (3) and Section 73 (4) or Proviso to Section 73 (1) have clearly no application.
7|Page ST/10452/2018-DB
8. The Learned AR on the other hand reiterates the finding of the lower authorities specially as contained in para 5 of the impugned order reproduced below:
"5. I have carefully gone through the appeal. Penalty of an amount equal to the service tax not paid, in terms of section 78 ibid, is at the core of dispute. The amount of service tax and interest thereon was paid before issuance of the show cause notice as noted in the impugned order and in his grounds of appeal also, the appellant has not contested the tax and interest liability.
5.1 With regard to penalty of section 78, appellant's contention is that the case was covered under the provisions of section 73(3) of the Finance Act, 1994 and there was no need to even issue the show cause notice. Appellant argues that there was no intention to evade payment of service tax and it was wrong to allege suppression of facts. Thus, according to appellant, provisions of section 73(3) were applicable and therefore no penalty could have been imposed.
5.1.1 It is true that in terms of section 73(3), when service tax not paid has been paid, along with interest, there is no requirement of Issuing a show cause notice and there shall not be imposed any penalty. So, where section 73(3) is applicable, payment of service tax and interest, before issuance of show cause notice, helps avoid imposition of penalty. Section 73(4), however, says that where non-payment of service tax is by reason of fraud or collusion or willful misstatement or suppression of facts or contravention of provisions with intent to evade payment of service tax, nothing contained in section 73(3) shall apply. Therefore, if the charge of suppression of facts has been correctly applied in the impugned order, defence put forth by the appellant will not stand. In other words, the presence of suppression of facts in the present matter is the key determinant.
5.2 The relevant fact is that non-payment of service tax was detected during auditing by the departmental officers when it was noticed that the appellant had booked the expenditure relating to commission paid to foreign sales agents but there was no payment of service tax under reverse charge or no declaration of expenditure figures in the ST-3 returns. I find that vital Information with regard to payment to foreign agents was not mentioned in the ST-3 returns. The statement of authorized representative of the appellant reproduced in para 6 of the show cause notice shows that appellant was fully aware of the service tax liabilities and the appellant took shelter behind Notification No.18/2009-ST dated 07.07.2009, which was wrong. The appellant's reliance on the decision of C.C.E. & S.T., LTU, Bangalore v. Adecco Flexione Workforce Solution [2012(26) ELT 3 (Kar.)] is misplaced because this decision is with regard to section 73(3) ibid and hence not applicable in the impugned case where section 73(4) has been invoked. 5.2.1 I find that in the case of Hindustan Petroleum Corporation Ltd (HPCL) v. Commr. of C.Ex., Mumhal [2015 (38) ST.IL. 131 (Tr.
Mumbai)), it was held, inter- alia, that section 78 leaves no discrétion to impose penalty when duty evasion is intentional by suppression of facts. I quote the relavant paras 15.1 and 15.2-
8|Page ST/10452/2018-DB 15.1 We have gone through these judgments. It is held that when the penalties have been waived after exercise of discretion and in the absence of showing that the power has been exercised arbitrarily, it will not be open for Courts to interfere with the exercise of discretion. Here again it may be stated that these cases are distinguishable from the present case. As discussed above, the appellants actually suppressed the fact that they had entered into agreements with the manufacturers and more so that the agreements provided for inclusion of Service Tax. The appellants being a registered assessee for a long time well versed in Service Tax matters chose not to declare the existence of the agreements. They did not take the advice of the department. In fact they did not even make any query to the department as to whether the Service Tax would be leviable on the service of promotion of business for manufacturers. Their activity very transparently reflects the Business Auxiliary Service provided by them. Therefore, the appellant cannot now take shelter of bona fide belief or that the issue was not free from doubt.
15.2 On the other hand, the matter stands settled by the decision of the Supreme Court in Rajasthan Spinning & Weaving Mills 2009 (238) E.LT. 3 (S.C.). The question before the Hon'ble Apex Court was whether there was warrant for levy of penalty under Section 11AC since the assessee had deposited the Excise duty even before the show cause notice was issued. It was held that the "application of 11AC (of Central Excise Act) would depend upon the existence or otherwise of the condition expressly stated in the section. Once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub- section (2) of Section 11A. This is what Dharmendra Textile Processors - 2008 (231) E.L.T. 3 (S.C.) decides."
The provisions of Service Tax Act, 1994 on penalty are para materia to the provisions of Central Excise Act. In the present case under consideration it has been shown above that there was wilful suppression of facts. The act of non-disclosure of agreements and the glaring non- disclosure of fact that an agreement stipulated that commission includes Service Tax cannot find shelter under the plea of bona fide belief. The appellant could only have evaded duty intentionally by suppressing these facts. Hence the Section 78 leaves no discretion but to impose penalty equal to the duty confirmed...
5.2.2 The decision in the case of Rajasthan Spinning & Weaving Mills [2009 (238) E.LT. 3 (S.C.)) is also very relevant and I quote the following head notes.
Penalty Mandatory penalty - Nature of - Penalty under Section 11AC of Central Excise Act, 1944 is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section Section 11AC ibid. (para 19] Demand and penalty Provisions therefor Interpretation of Both proviso to sub-section (1) of Section 11A of Central Excise Act, 1944 and Section 11AC ibid use same expressions like fraud,
9|Page ST/10452/2018-DB collusion, wilful mis-statement, suppression of facts, or contravention of provisions with intent to evade payment of duty - Conditions that extend normal period of limitation for demand to five year also attract imposition of penalty - Section 11A and 11AC ibid-if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act: [para 18]
6. In view of above, I find that order of imposition of penalty requires no interference and deserves to be upheld. Accordingly, the impugned order is upheld and appeal is rejected.
9. Considered. We find that issue is no more res-Integra and once the duty and interest is paid by the party during the course of audit, it cannot be further faulted with for its conduct to penalise them. Decisions cited by the party are applicable as legal preposition in the matter. Payments of duty with interest remove the stains of delay from the conduct of the party and bring back sparkles of bonafide conduct. This Court taking note of the same having been done before issuance of show cause notice and as part of audit and before any enforcement/penal action, allows the appeal of the party.
10. Appeal is allowed.
(Pronounced in the open court on 04.07.2024) (SOMESH AROA) MEMBER (JUDICIAL) (C. L. MAHAR) MEMBER (TECHNICAL) Prachi