Custom, Excise & Service Tax Tribunal
State Bank Of India vs Hyderabad I on 25 September, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
SERVICE TAX APPEAL NO. 50862 OF 2019
(Arising out of Order-in-Original No. 90/2018-ST dated 27.06.2018 passed by Additional
Director General (Adjudication), New Delhi)
State Bank of India ....Appellant
(earlier State Bank of Hyderabad)
5th Floor, Hybank Tower,
Gunfoundry, Hyderabad Urban,
Andhra Pradesh 500 001
VERSUS
Commissioner of CGST & Central ....Respondent
Excise, Commissionerate - Hyderabad 11-5-423/1/A Sitaram Prasad Tower, Red Hills, Hyderabad 500 004 with ST/50860/2019 ST/50859/2019 ST/50861/2019 ST/52326/2018 and ST/CROSS/50518/2019 APPEARANCE:
Shri Sanjay Khemani, Chartered Accountant and Ms. Nisha Agarwal, Assistant General Manager for the Appellant Shri Ajay Jain, Special Counsel for the Respondent AND SERVICE TAX APPEAL NO. 54179 OF 2018 (Arising out of Order-in-Original No. 91/2018-ST dated 27.06.2018 passed by Additional Director General (Adjudication), New Delhi) Commissioner of CGST, ....Appellant Mumbai South Office of the Commissioner of CGST & Cx., Mumbai South, 13th Floor, Air India Building, Nariman Point, Mumbai 400 021 VERSUS State Bank of India ....Respondent (for State Bank of Bikaner & Jaipur) Financial Reporting & Taxation Department, 2 ST/50862/2019 & 9 others Corporate Centre, 3rd Floor, State Bank Bhavan, Madame Cama Road, Nariman Point, Mumbai 400 021 with ST/54175/2018 ST/54176/2018 ST/54178/2018 ST/54177/2018 and ST/CROSS/50317/2019 ST/CROSS/51340/2019 ST/CROSS/50490/2019 ST/CROSS/50318/2019 APPEARANCE:
Shri Ajay Jain, Special Counsel for the Appellant Shri Sanjay Khemani, Chartered Accountant and Ms. Nisha Agarwal, Assistant General Manager for the Respondent CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) Date of Hearing: 03.07.2024 Date of Decision: 25.09.2024 FINAL ORDER NO's. 58652-58661/2024 JUSTICE DILIP GUPTA:
The first set of five appeals have been filed by State Bank of India 1, representing the five erstwhile State Bank of Patiala, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore and State Bank of Travancore, to assail the orders passed by the adjudicating authority confirming the demand of service tax on the two services alleged to have been provided for the normal period of limitation from October 2013 to March 2015 under section 73(1) of the Finance Act 1994 2. The demand proposed for the extended period of limitation under the proviso to section 73 (1) of the Finance Act has been dropped. The order also
1. SBI
2. the Finance Act 3 ST/50862/2019 & 9 others imposes penalty under sections 75 and 76 of the Finance Act. Cross Objection No. 50518 of 2019 has been filed by the department in Service Tax Appeal No. 50862 of 2019 filed by SBI.
2. The second set of five appeals have been filed by the department to assail that part of the order passed by the adjudicating authority that drops the demand of service tax for the extended period of limitation from October 2010 to September 2013 under the first proviso to section 73(1) of the Finance Act. The order also drops the penalty imposed under section 78 of the Finance Act. Four Cross objections have been filed by SBI in the four appeals filed by the department.
3. The five banks which merged with SBI on 01.04.2020 shall collectively be called as "Associate Banks". The Associated Banks including SBI shall collectively be referred to as "SBG Banks".
4. A summary of the demand raised in the five show cause notices, the demand dropped, the demand confirmed, and the demand raised in the five appeals are contained in the following four charts:
A Demand as per show cause notices (October 2010 to March 2015) S. Name of Date of ST on ST on free Total ST Interest Penalties Date of No. Bank show services services demand as under under order cause provided to provided to per show section sections notice SBI other SBG cause notice (in Rs.) Banks (in Rs.) (in Rs.)
1. State Bank 06.01.2016 22,54,81,734 30,45,52,132 53,00,33,866 75 76, 77 27.06.2018 of and 78 Hyderabad
2. State Bank 17.10.2015 14,79,41,349 15,03,25,265 29,82,66,614 75 76, 77 28.02.2018 of Patiala and 78
3. State Bank 17.10.2015 17,59,05,815 14,56,88,183 32,15,93,998 75 76, 77 28.02.2018 of Mysore and 78
4. State Bank 17.10.2015 17,91,36,551 15,83,09,175 33,74,45,726 75 76, 77 27.06.2018 of Bikaner and 78 and Jaipur
5. State Bank 20.10.2015 15,22,46,397 15,84,48,239 31,06,94,636 75 76, 77 27.04.2018 of and 78 Travancore 88,07,11,846 91,73,22,994 1,79,80,34,840 4 ST/50862/2019 & 9 others B Demand and Penalties set aside in order on the ground of limitation (October 2010 to September 2013) S. Name of Services On free Total demand Penalties set No. Bank provided to services set aside aside under SBI provided to (in Rs.) sections (in Rs.) other SBG Banks (in Rs.)
1. State Bank 18,97,43,513 24,67,93,866 43,65,37,379 77 and 78 of Hyderabad
2. State Bank 10,49,47,807 10,10,31,139 20,59,78,946 77 and 78 of Patiala
3. State Bank 12,09,00,778 9,38,45,122 21,47,45,900 77 and 78 of Mysore
4. State Bank 13,06,80,689 10,78,01,739 23,84,82,428 77 and 78 of Bikaner and Jaipur
5. State Bank 10,15,97,506 10,81,35,460 20,97,32,966 77 and 78 of Travancore 64,78,70,293 65,76,07,326 1,30,54,77,619 C Demand Confirmed on merits (October 2013 to March 2015) S. Name of ST on services ST on free Total Interest and No. Bank provided to SBI services demand penalties (in Rs.) provided to confirmed confirmed under other SBG (in Rs.) sections 75 and Banks 76 (in Rs.)
1. State Bank 3,57,38,221 5,77,58,266 9,34,96,487 Rs. 35,00,000 of Hyderabad
2. State Bank 4,29,93,542 4,92,94,126 9,22,87,668 Rs. 35,00,000 of Patiala
3. State Bank 5,50,05,037 5,18,43,061 10,68,48,098 Rs. 40,00,000 of Mysore
4. State Bank 4,84,55,862 5,05,07,436 9,89,63,298 Rs. 37,00,000 of Bikaner and Jaipur
5. State Bank 5,06,48,891 5,03,12,779 10,09,61,670 Rs. 5,000 of Travancore 23,28,41,553 25,97,15,668 49,25,57,221 5 ST/50862/2019 & 9 others D S. Name of Appeals filed Appeals filed Cross Objection filed Total Demand Penalty in No. Bank by the Banks by the by SBI in appeals Confirmed in department department filed by the Rs. appeal department under sections
1. State Bank ST/50862/2019 ST/54179/2018 43,65,37,379 77 and 78 of Hyderabad
2. State Bank ST/50860/2019 ST/54175/2018 ST/CROSS/50317/2019 20,59,78,946 77 and 78 of Patiala
3. State Bank ST/50859/2019 ST/54176/2018 ST/CROSS/51340/2019 21,47,45,900 77 and 78 of Mysore
4. State Bank ST/50861/2019 ST/54178/2018 ST/CROSS/50490/2019 23,84,82,428 77 and 78 of Bikaner and Jaipur
5. State Bank ST/52326/2018 ST/54177/2018 ST/CROSS/50318/2019 20,97,32,966 77 and 78 of Travancore 1,30,54,77,61 9
5. As noticed above, five show cause notices had been issued to the five Associate Banks. The details of show cause notices along with the tax demanded, demand confirmed and the demand dropped are again tabulated below:
S. Bank Show cause Tax Demand Demand
No. notice date demanded confirmed dropped
(in Cr.) (in Cr.) (in Cr.)
1. State Bank of 17.10.2015 29.82 9.22 20.60
Patiala
2. State Bank of 06.01.2016 53.00 9.35 43.65
Hyderabad
3. State Bank of 17.10.2015 33.74 9.89 23.84
Bikaner & Jaipur
4. State Bank of 17.10.2015 32.15 10.68 21.47
Mysore
5. State Bank of 20.10.2015 31.06 10.09 20.97
Travancore
6. The five appeals filed by SBI representing the erstwhile five Associate Banks are similar on facts. Both the learned chartered accountant appearing for SBI and the learned special counsel appearing for the department have referred to facts pertaining to the appeal filed by the State Bank of Hyderabad. As such, facts relating to this appeal have been considered.
6
ST/50862/2019 & 9 others
7. The show cause notice dated 06.01.2016 issued to the State Bank of Hyderabad covers the period from 01.04.2010 to 24.11.2014. The two demands proposed in the show cause notice relate to: 3
(i) Service tax on Automated Teller Machine interchange fee (termed as commission) received by the State Bank of Hyderabad from SBI for deployment of ATMs owned by it in the shared network; and
(ii) Service tax on notional consideration of the free ATM services provided by the State Bank of Hyderabad on its ATM to the other Associate Banks and SBI.
8. The show cause notice was adjudicated upon by order dated 27.06.2018. The adjudicating authority confirmed the demand for the normal period of limitation from October 2013 to March 2015 with penalty under section 76 of the Finance Act, 1994 4 and dropped the service tax demand for the extended period of limitation from October 2010 to September 2013. The penalties imposed under sections 77 and 78 of the Finance Act were also dropped.
9. The adjudicating authority has confirmed the demand for the following reasons:
(i) The Associate Banks did not discharge service tax on the amount received from SBI for the services provided to other SBG Banks. There is no written agreement between SBI and the Associate Banks that provides that SBI is required to discharge
3. ATM
4. the Finance Act 7 ST/50862/2019 & 9 others service tax liability on behalf of the Associate Banks;
and
(ii) The free ATM services provided by the constituents of the SBG Banks to each other are chargeable to service tax on notional consideration.
10. The findings recorded by the adjudicating authority on the two issues are as follows:
First issue "A 10.1. In this context, I find from the facts that the Interchange fee transferred by SBI to SBH is only as a result of providing of services by SBH on its ATMs and not as a result of pooling of their assets in the common network run and managed by SBI. SBI as per the facts of the case are only acting as a settlement agency for settlement of amounts due from or earned by the SBG banks (including their own transactions). The question regarding payment of Service Tax by SBI on behalf of other SBG banks in this regard is a question being dealt by me in the later part of the order. The Common Switch deployed for settlement of amounts with other Non-SBG banks is a common asset of SBI and other Associate Banks with 50% share of SBI and 10% share being held by each of the other five Associate Banks.
xxxxxxxxx A 12. The next objection as mentioned under paragraph H of the Notcee's reply is regarding the fact as to who the Noticee has made its ATM available for use- whether the use is by the SBI or the Non-SBG 8 ST/50862/2019 & 9 others banks/customers of Non-SBG banks who have actually transacted on the ATMs of the Noticee.
A 12.1. In this context, I agree with the contention of the Noticee that the ATM services have been provided by them to Non-SBG banks or to their customers. SBI has only been authorized on behalf of all other SBG banks to act as a settlement bank. The said services are completed using ATMs owned by SBH, the SBI Switch [jointly owned by SBI and other SBG banks], NPCI Switch, Switch of the issuing bank. Thus, the services are being provided by SBH (as acquiring bank) to Non-SBG bank (as issuing bank)."
Second issue "B 1. I find that Noticee is justifying the non-
payment of service tax on Off-Us transactions transacted by the customers of other constituents of the SBG Banks on the ATMs owned by the Noticee mainly relying on the fact that common infrastructure was installed by them along with other SBG members.
It is contended by them that ATM Switch Centre was a common infrastructure for settlement of ATM transactions. That since the major investments in the SBI Group Switch as well as other IT infrastructure was made by all SBG banks. Accordingly, it was decided that for the purpose of customers, all the ATMs would be known as "State Bank ATM" rather than branding the ATM pertaining to each SBG Bank separately.
B 1.1. In this context I am of the view that having common ATM Switch Centre is not the only criterion for 9 ST/50862/2019 & 9 others offering the ATM services. Installing and maintaining ATMs, hiring proper spaces, arranging security, arranging proper funds in the ATMs at all times etc. etc. are also major expenses for providing the ATM services.
Investing in ATM Switch centre by the Noticee [10% of the total cost] may onetime investment made by the Noticee or some running expenses may be contributed by the Noticee for maintenance purposes, but that in my opinion would not be the only major expense looking into the total expenses being incurred by the Noticee for providing the ATM services. Further, I find that in the present case the association between Noticee [and other Associate Banks] with SBI is not on revenue sharing basis [total common revenue minus common cost] but is limited to some common costs related to SBI Switch centre [which may be one time investment made @ 10% of the total cost plus some running expenses]. Therefore, the venture cannot be termed as a joint venture between SBI and the associates.
xxxxxxxxx B 1.6. Now considering the above provisions relating to ATM services, there is no doubt that debit cards are being issued by each of the five Associate Banks and by SBI separately and ATMs machines are also deployed by each of the Associate Bank and by the SBI separately. Thus in case the SBI customer goes to the SBH's ATM and avails the ATM services, then in that case the SBI is the issuing bank and SBH is the 10 ST/50862/2019 & 9 others acquirer bank for ATM or Debit card services provided by the SBH. The position is similar in the vice-versa situation, i.e. in case the customer of SBH goes to the ATM of SBI and avails services, then in that case SBH is the issuing bank and SBI is the acquirer bank. Thus, considering the above provisions of service Tax and facts of the case there remains no doubt that ATM services are provided by the SBH, is any customer of SBI or any of the rest of Associate Bank avails the ATM services of SBH. Similar is the situation if any customer of SBH avails the ATM services of SBI or any of the Associate Banks. I find that settlement of amounts also takes place between them but neither of them charges any transaction fee for the ATM services provided by them, I find that the Noticee has not offered any reasons [except for contending that some infrastructure cost were common] for charging and collecting any service charges or paying any service tax on the said transaction charges.
11. SBI has filed five appeals for quashing the demand confirmed for the normal period with penalty and interest, whereas the department has filed five appeals against the dropping of the demand proposed for the extended period as also dropping of the penalties proposed under sections 77 and 78 of the Finance Act.
12. The facts relevant for the purpose of the controversy involved are:
(i) Each of the Associate Banks, which were set up by an Act of Parliament by converting the erstwhile banks of Princely States, had major presence in their 11 ST/50862/2019 & 9 others respective regions where their Head Office was situated but very scanty presence in the rest of India, though SBI had an all India presence but a much lesser presence in the regions where the Associate Banks had strong presence;
(ii) SBG Banks had installed ATMs predominantly in their respective regions for the benefit of their customers, who were issued ATM cum Debit Card by them;
(iii) SBG Banks had a common logo and ATMs of all SBG Banks were known as "State Bank ATM". It was, therefore, difficult for the customers to know to which constituent of the SBG Banks the ATM belongs.
To address this issue, it was decided that SBG Banks shall not charge any fees from the customers for use of the ATMs of other SBG Banks. SBG Banks had also 5 set up a common Information Technology infrastructure for seamless customer service across SBG Banks;
(iv) For handling transactions, an ATM Switch and supporting IT and Telecommunication Infrastructure are necessary. Each ATM, ATM Card and ATM Switch has a unique identity, which is essential for identification and settlement of ATM transactions;
(v) SBG Banks had set up an ATM Switch (SBG Switch) on co-ownership basis. Share of SBI in the co-owned SBG Switch was 50% and share of the five Associate Banks was 10% each.
5. IT 12 ST/50862/2019 & 9 others
(vi) SBG Switch was jointly owned. Each of the constituent SBG Banks had capitalised the cost of the SBG Switch in their respective books of accounts. All the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of their ownership interest in the SBG Switch;
(vii) SBG Switch processes all ATM transactions of SBG Banks. Before centralisation of service tax registration with effect from 01.10.2010, SBI had registered the SBG Switch as a separate assessee in its own name, as the SBI had the largest share in the SBG Switch; and
(viii) SBI had also been authorised by the Reserve Bank of India to act as a settlement agency under the Payments and Settlement Systems Act, 2007 for settlement of ATM transactions of SBG Banks;
13. It is also important to understand the ATM transactions on SBG Switch. It has been described in the following manner:
(i) In case of ATM transactions involving two Banks where the ATM Card issuing bank is different from the bank on whose ATM the card has been used, ATM Switches of both the banks interact through National Payments Corporation of India 6 Switch for completion of ATM transaction. For such services, the bank owning the ATM charges a fee, known as "interchange fees" or "acquiring fee", from the ATM card issuing bank. While transactions take place at the ATM, the back-end operations in respect of ATM
6. NPCI 13 ST/50862/2019 & 9 others transactions take place at the ATM Switch. Associate Banks are responsible for maintaining and operating their own ATM, even though the ATM Switch is common. ATM Switch performs back-end operations like transaction processing, transaction reconciliation, fund settlement and settlement of interchange fees;
(ii) Like any other ATM Switch, SBG Switch also has a unique ID, which is mapped to SBI by NPCI. Accordingly, the NPCI, as a settlement agency for all non SBG Banks ATM transactions, recognizes the SBG Switch as pertaining to SBI. Thus, in respect of ATM transactions settled by SBI through SBG Switch as the settlement agency, the NPCI considers such transactions as that of SBI. Since SBG Switch had a single acquirer ID till 24.11.2014, the NPCI could not segregate the transactions settled through SBG Switch amongst the constituents of SBG Banks;
(iii) Thus, in cases where customers of other Banks used ATM of SBG Banks, (On-us transactions), NPCI would settle interchange fees with SBI. In turn, SBI would settle the same with the Associate Banks without any mark-up;
(iv) Conversely, if a customer of Associate Banks transacted on an ATM of a Bank other than that of SBG Banks ATM (Off-us transactions), the Associate Banks were required to pay interchange fees, which was settled by the Associate Banks through SBI and SBI in turn settled it with NPCI;
(v) Since SBI had the largest share in the SBG Switch, the SBG Banks agreed amongst themselves that SBI would discharge their service tax liability on the interchange fees 14 ST/50862/2019 & 9 others settled by SBI as their agent, after adjusting the service tax paid on the interchange fees paid by SBI as their agent. There was, however, no formal written agreement to this effect. This was not felt necessary when the SBG Switch was initially set up and thereafter considering that none of the party ever disputed the arrangement and Associate Banks were subsidiaries of SBI, the same was not formalized;
(vi) For service tax purposes, SBG Switch used to aggregate entire service tax liability on "On-us transactions" and service tax paid on "Off-us transactions" and, thereafter, the balance available used to be paid in cash to the Government;
(vii) Since the SBG Switch was separately registered with service tax authorities and service tax was claimed to have been paid by SBI as their agent, the Associate Banks claim that they were under a bona-fide belief that the same was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax did not arise;
(viii) This arrangement was followed since the inception of the SBG Switch i.e. for more than 10 years prior to show cause notice period. It is stated that the audit wing of the service tax department conducted multiple audits of the SBG Switch and did not find anything objectionable in the manner of discharging service tax liability by SBI as agent 15 ST/50862/2019 & 9 others of the Associate Banks or claiming CENVAT credit by SBI as agent of the Associate Banks;
(ix) Post the enquiry initiated by the Directorate General of Goods and Services Tax Intelligence 7 in 2013 and taking cognisance of alternate views, the NPCI agreed to recognise each of the Associate Banks transactions separately by allotting them separate BIN ID by treating SBI as BIN sponsor and accordingly with effect from 25.11.2014, the interchange fees receivable/payable to the Associate Banks was separately identified by NPCI, though it continues to be settled by the Associate Banks through SBI. Since the interchange fees is separately identified by NPCI, the Associate Banks discharged service tax liability on such interchange fees received after taking credit for the service tax paid on interchange fees paid by the Associate Banks. Even with the changed methodology, the aggregate service tax liability of the SBG Banks remained the same. According to the appellant this proves that the earlier arrangement was merely for smooth settlement and did not have any service tax impact.
14. Shri Sanjay Khemani, learned chartered accountant assisted by Ms. Nisha Agarwal, Assistant General Manager of SBI made the following submissions with respect to the two issues:
First issue
(i) Though there is no written agreement between Associate Banks and SBI for appointing SBI as an agent, but the actions of SBI and Associate Banks
7. DGGI 16 ST/50862/2019 & 9 others cleary depict that SBI was authorized to discharge service tax liability of Associate Banks as an agent of the Associate Banks;
(ii) Neither SBI nor Associate Banks, which are parties to the contract, have raised any dispute on the fact that Associate Banks had appointed SBI as their agent and SBI had accepted to act as agent of Associate Banks. The department cannot discard the terms of the contract between SBI and Associate Banks and presume its own terms and conditions, which are neither expressly stated nor implied by acts of the parties;
(iii) As per rule 6 of the Service Tax Rules, 1994 8 , an assessee is liable to pay service tax. Thus, discharge of tax by the agent of the person liable to pay tax has the effect of discharge of tax by the person liable to pay tax, and hence when tax has been discharged by the agent, it cannot again be demanded from the principal;
(iv) The adjudicating authority has held that the idea of referring SBI as an agent occurred to the Associate Banks w.e.f. 25.11.2019 after the inquiry was initiated and is, therefore, an afterthought. There is no allegation in the show cause notice that referring to SBI as an agent of Associate Banks was an afterthought. There was no material before the adjudicating authority to support the finding that referring to SBI as an agent was an afterthought;
8. 1994 Rules 17 ST/50862/2019 & 9 others
(v) The Associate Banks had submitted various documents including a chartered accountant certificate certifying that SBI had paid service tax on the entire revenue of SBG Switch, including on the services provided by Associate Banks to non SBG Banks, but the adjudicating authority has held that none of the documents submitted by the Associate Banks justify the payment of service tax by SBI acting as their agent;
(vi) The show cause notice proposed demand of service tax on interchange fee received on the ground that interchange fee is commission from SBI for deployment of ATMs owned by Associate Banks in the shared network. However, the adjudicating authority has held that interchange fees is not a consideration for deployment of ATM but is a consideration for the services provided to non-SBG Banks. Thus, the adjudication authority has travelled beyond the allegations made in the show cause notice to confirm the demand;
Second issue
(i) SBG Switch is a common switch co-owned by all SBG Banks. For the purpose of customers, all the ATMs are known as "State Bank ATM". Associate Banks do not charge any fee from each other if a customer of one Associate Bank transacted at the ATM of another SBG Bank customer. The demand of service tax has been confirmed on transactions transacted by the customers of SBG Banks on each other's ATMs on the 18 ST/50862/2019 & 9 others ground that service tax is payable, where non- monetary consideration including the understanding to provide certain services free of cost on reciprocal basis is involved. Allegation of non-payment of tax is based on assumption of barter/reciprocal arrangement;
(ii) SBI owned 84% of the total number of ATMs and other constituents of SBG Banks owned between 3% to 4% each. It proves that it was not a barter/reciprocal arrangement, as in a barter/reciprocal arrangement, each party to the arrangement derives same or almost similar amount of benefit from the contract, which is presently not the case;
(iii) Associate Banks and SBI are co-owners of the SBG ATM Switch. SBG ATM Switch was set up much prior to levy of service tax on ATM services in 2006. While setting up the SBG ATM Switch, it was a mutual understanding that none of the constituents would charge any fee for transactions amongst them. There has been no change in the manner of operation of SBG ATM Switch and ATM transaction, nor in understanding of not charging any fee amongst SBG Banks since then;
(iv) Even assuming without admitting that the service tax is chargeable on notional consideration, such notional consideration cannot be the same as is being charged by non SBG Banks. As the SBG Banks were using common switch, which was jointly owned 19 ST/50862/2019 & 9 others by them, the transactions amongst themselves cannot be equated with the transactions with non SBG Banks. Hence the value of such transactions cannot be determined by applying the rate charged to non SBG Banks;
(v) Since the demand itself is not sustainable, interest and penalty cannot be demanded;
(vi) The adjudicating authority committed no illegality in dropping the demand for the extended period of limitation; and
(vii) In the absence of suppression, willful misstatement, or fraud with intent to evade payment of service tax, penalty under section 78 of the Finance Act could not have been imposed.
15. Shri Ajay Jain, learned special counsel appearing for the department, however, supported the impugned orders and made the following submissions:
(i) The contention of the appellant that the adjudicating authority has travelled beyond the scope of the show cause notices is not correct as the order has been passed by the adjudicating authority with reference to submissions made by the Associate Banks at the time of investigation regarding the practice being followed for payment of tax by SBI;
(ii) The contention of SBI that show cause notice is based on presumptions is not correct;
(iii) The Associate Banks have claimed that SBI acted as their agents as there was an implied agreement.
There is no written agreement and even the essential 20 ST/50862/2019 & 9 others characteristics of a principal-agent relationship have not been demonstrated by the Associate Banks;
(iv) Associate Banks have also not pointed out any provision in the service tax law whereby a tax payer can authorize his agent to pay service tax on his behalf;
(v) SBI had taken a separate service tax registration for SBI Switch centre prior to October 2010.
Subsequently, SBI took centralized service tax registration and continued the practice of payment of service tax on interchange fee charged from other banks, which was earlier being paid by the SBI Switch Centre. The co-ownership of SBI Switch by SBI and other SBG banks will not make any difference as the SBI had taken a separate service tax registration for the Switch. The Associate Banks had their own separate service tax registrations. SBI and the Associate Banks are filing their respective ST-3 returns. Therefore, their service tax liabilities will also be different and independent of each other;
(vi) The adjudicating authority was not justified in dropping the demand for the extended period of limitation as the facts on record clearly establish the invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act;
(vii) The adjudicating authority was not justified in dropping the penalty proposed under section 78 of the Finance Act; and 21 ST/50862/2019 & 9 others
(viii) The adjudicating authority was justified in imposing penalties under sections 75 and 76 of the Finance Act.
16. The submissions advanced by the learned chartered accountant for the appellant and the learned special counsel appearing for the department have been considered.
First Issue
17. As noticed above, two main issues were decided. The first is as to whether the adjudicating authority was justified in confirming the demand of service tax on the ATM interchange fee (termed as commission) received by the Associate Banks from the SBI for deployment of ATMs owned by the Associate Banks in the shared network.
18. To examine this issue, it would be appropriate to revert to the factual position. The SBG Banks had installed ATMs predominantly in their respective regions for the benefit of their customers, who were issued the ATM cum Debit Cards by them. These SBG Banks had a common logo and the ATMs of all the SBG Banks were known as "State Bank ATMs". The consumers would not know the particular bank to which the ATM belongs and, therefore, it was decided that SBG Banks will not charge any fees from the customers for the use of the ATMs of the other Banks. It was, therefore, necessary for the SBG Banks to set up ATM Switch on co- ownership basis. SBI had a 50% share, while each of the five Associate Banks had a share of 10% each. The banks had contended that though the SBG Switch was jointly owned, but all the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of the ownership interest in the SBG Switch. As the SBI had the largest share, it registered the SBG Switch in its own 22 ST/50862/2019 & 9 others name prior to centralized registration w.e.f. 01.10.2010. SBI was also a settlement agency authorized by the Reserve Bank of India.
19. In case of ATM transactions involving two Banks where the ATM Card issuing bank is different from the bank on whose ATM the card has been used, NPCI would settle interchange fees with SBI. In turn, SBI would settle the same with the Associate Banks without any mark-up. Conversely, if a customer of an Associate Bank transacted on the ATM of a Bank other than that of SBG Banks ATM, the Associate Banks would have to pay the required to pay interchange fees, which was settled by the Associate Banks through SBI and SBI in turn settled it with NPCI. Since SBI had the largest share in the SBG Switch, the SBG Banks agreed amongst themselves that SBI would discharge their service tax liability on the interchange fees settled by SBI as their agent, after adjusting the service tax paid on the interchange fees paid by SBI as their agent. There was, however, no formal written agreement to this effect. It has been stated that this was not felt necessary when the SBG Switch was initially set up and thereafter considering that none of the party ever disputed the arrangement and the Associate Banks were subsidiaries of SBI, the same was not formalized. Since the SBG Switch was separately registered with service tax authorities and service tax was claimed to have been paid by SBI as their agent, the Associate Banks claim that they were under a bona-fide belief that the same was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax on an amount net of service tax received from SBI did not arise. This arrangement was followed since the 23 ST/50862/2019 & 9 others inception of the SBG Switch i.e. for more than 10 years prior to show cause notice period. Post the enquiry, NPCI agreed to recognise each of the Associate Banks transactions separately by allotting them separate BIN ID by treating SBI as BIN sponsor and accordingly with effect from 25.11.2014, the interchange fees receivable/payable to the Associate Banks was separately identified by NPCI, though it continues to be settled by the Associate Banks through SBI. The Associate Banks, therefore, discharged service tax liability on such interchange fees received after taking credit for the service tax paid on interchange fees paid by the Associate Banks.
20. The department has not accepted the contention of the appellant that SBI was an agent of the Associate Banks for the reason that there is no written agreement between the Associate Banks and the SBI for appointing SBI as an agent. Section 186 of the India Contract Act, 1872 9 provides that the authority of an agent may be express or implied and an authority is said to be implied when it is to be inferred from the circumstances of the case, and things spoken or written. What has been submitted by the appellant is that even though there is no written contract, but still an implied authority existed with the SBI to discharge the service tax liability on behalf of the Associate Banks.
21. It needs to be noted that neither the SBI nor the Associate Banks have raised any dispute and indeed the conduct of the parties does establish that there was an implied authority with SBI to discharge service tax liability of the Associate Banks. It is only when an enquiry was conducted by the department that the Associate Banks started discharging service tax on such interchange fees. Prior to that, SBI was discharging
9. the Contract Act 24 ST/50862/2019 & 9 others the service tax liability of the Associate Banks on the interchange fees. It also needs to be noted that even after the Associate Banks started separately paying service tax, the service tax liability of the SBG Banks remained the same. This demonstrates that the earlier arrangement that existed between the Associate Banks and SBI was merely for smooth settlement and did not have any service tax impact.
22. Thus, discharge of service tax liability of the Associate Banks by SBI as their agent shall be considered as sufficient discharge of their service tax liability, and even under section 65 (7) or section 65B(12) of the Finance Act, an "assessee" has been defined to be a person liable to pay the service tax and includes his agent.
23. The adjudicating authority has also recorded a finding in paragraph A.17.3 that the contention that SBI was acting as an agent of the Associate Banks is partially correct. The relevant finding is reproduced below:
"A 17.3. Further as regards the contention that SBI was acting as an agent of the Associate Banks is also partially correct, as explained above, in so far as settlement of amounts for such transactions is concerned. The Noticee have nowhere shown anything to prove that SBI was authorized to act on their behalf as far as payment of service tax by the Associate Banks [as service provider] is concerned. I had made discussions in this regard in later part of this order."
(emphasis supplied)
24. The Associate Banks had submitted various documents including a certificate of a chartered accountant that SBI had paid service tax on the services provided by the Associate Banks. The adjudicating authority has merely observed that none of the documents justified the payment of service tax by SBI as an agent of the Associate Banks. In this connection 25 ST/50862/2019 & 9 others it would be appropriate to reproduce paragraph A.23.8 of the order and it is reproduced below:
"A.23.8 I have carefully considered the above stated documents as mentioned under (a) to (f) above and find that none of the documents justify the payment of service tax by SBI acting as an agent of the Noticee. Further, no documents submitted by either the Noticee or by SBI informs the department that service tax liability of the Noticee pertaining to the ATM services provided by them to non-SBG banks has been paid by the SBI acting as an agent."
(emphasis supplied)
25. Payment of service tax by SBI is not disputed. What is disputed is the payment of service tax by SBI as an agent of the Associated Banks. It has been found that there was an implied authority with SBI to discharge service tax liability of Associated Banks. Once service tax was paid by SBI as an agent of the Associate Banks, service tax cannot be demanded on the same transaction again from the Associate Banks.
26. In this connection, reference can be made to the judgment of the Supreme Court in Commissioner of GST and Central Excise vs. M/s. City Bank N. A. 10. The Supreme Court held that when service tax has been paid by the acquiring bank on interchange fee, the issuing bank is not required to pay service tax again on the share of interchange fee received from the acquiring bank. It needs to be noted that though both the Hon'ble Judges of the Supreme Court had divergent views on the applicability of service tax on share of interchange fee received by the City Bank, but both the Hon'ble Judges concurred that if the acquirer bank had discharged service tax on the entire amount, including share of City Bank, the demand should not be raised again. The issue involved in the present
10. Civil Appeal No(s). 8228 of 2019 with Civil Appeal No. 89 of 2021 decided on 09.12.2021 26 ST/50862/2019 & 9 others case relates to ATM transaction, while the issue involved before the Supreme Court in City Bank relates to Credit Card transactions, though the mode of settlement of ATM as well as Credit Card transaction is similar.
27. It further needs to be noted that while the show cause notice proposed demand of service tax on interchange fees received on the ground that interchange fee is commission from SBI for deployment of ATMs owned by Associate Banks in shared network, but the adjudicating authority has held that interchange fees is not a consideration for deployment of ATM, but is a consideration for the services provided to non-SBG Banks.
28. Thus, the demand of service tax on the ATM interchange fee (termed as commission) received by the Associate Banks from the SBI for deployment of ATMs owned by the Associate Banks in the shared network could not have been confirmed.
Second Issue
29. This issue relates to demand of service tax on a notional basis on the free ATM services provided by the constituents banks of the SBG Banks to each other.
30. The SBG Switch is a common Switch co-owned by all the SBG Banks, though the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of their ownership interest in SBG Switch. So far as the customers are concerned all ATMs were known as "State Bank ATM". The Associate Banks did not charge fee from another constituent of the SBG Bank if the customer of one Associate Bank transacted on an ATM of another SBG Bank. The demand of service tax has been confirmed on transactions by 27 ST/50862/2019 & 9 others the customers of SBG Banks on the ATMs of other SBG banks on the ground that service tax is payable, where non monetary consideration, including the understanding to provide certain services free of cost on reciprocal basis.
31. Thus, non-payment of service tax is based on the assumption of Barter/Reciprocal arrangement. The finding recorded by the adjudicating authority on this aspect is reproduced below:
"B.1.8 "On going through the above contentions, I am of the view that in fact no reply was given by the officers of SBH on the said question regarding providing ATM services on reciprocal basis without consideration by the Noticee. That is, none of the officer could justify the providing of ATM services without consideration by the Noticee. As there was no reply on such transaction without consideration, it can be easily assumed that the consideration in the case was on reciprocal basis (that is neither I will charge you for my service nor you will charge me for your services"
32. The term "Reciprocal Basis" or "Barter" has not been defined in the Finance Act. It would, therefore, be appropriate to refer to the dictionary meanings, which are as follows:
Reciprocal S. Dictionary Meaning No.
1. Cambridge Dictionary Reciprocal action or arrangement involves two people or groups of people who behave in the same way or agree to help each other and give each other advantages
2. Collins A reciprocal action or agreement involves two people or groups who do the same thing to each other or agree to help each another in a similar way
3. Oxford Learner's Involving two people or groups who agree to help each other or behave in the same way to each other 28 ST/50862/2019 & 9 others
4. Longman dictionary A reciprocal arrangement or relationship is one in which two people or groups do or give the same things to each other 5 Britannica Dictionary Used to describe a relationship in which two people or groups agree to do something similar for each other, to allow each other to have the same rights, etc. Barter S. Dictionary Meaning No.
1. Merriam Webster : to trade by exchanging one commodity for another : to trade goods or services in exchange for other goods or services
2. Cambridge Dictionary : to exchange goods for other things rather than for money
3. Investopedia Barter is an act of trading goods or services between two or more parties without the use of money- or a monetary medium, such as a credit card. In essence, bartering involves the provision of one good or service by one party in return for another good or service from another party.
4. Collins If you barter goods, you exchange them for other goods, rather than selling them for money 5 Oxford Learner's : to exchange goods, property, services, etc. for other goods, etc. without using money barter (with somebody) (for something)
6. Britannica Dictionary : to exchange things (such as products or services) for other things instead of for money.
33. It is clear that 84% of the total number of ATMs were owned by SBI and the other five constituents of SBG Banks owned between 3 to 4%. As seen above, in Reciprocal Arrangement/ Barter each party to the arrangement derives the same or almost similar benefit from the contract. In fact, the adjudicating authority itself in paragraph 40 has recorded the following findings:
29
ST/50862/2019 & 9 others "In this context, I agree with the Noticee that this arrangement between the SBI and the Associate Banks could not be strictly called as barter arrangements or on reciprocal basis."
34. Service tax would be leviable on the transaction value which would be the consideration for the service provided. There is no direct or indirect consideration either in monetary or non-monetary form flowing to the Associate Banks from the SBG Banks. In this connection reference can be made to the decision of the Tribunal in State Bank of Bikaner & Jaipur vs. Commr. of C. Ex. & S. T., Alwar 11. After referring to the provisions of section 67 of the Finance Act, the Tribunal observed:
"36. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of sub-section (1) of section 67. What needs to be noted is that each of these refer to "where the provision of service is for a consideration", whether it be in the form of money, or not wholly or partly consisting of money, or where it is not ascertainable. In either of the cases, there has to be a "consideration" for the provision of such service. Explanation to sub-section (1) of section 67 defines "consideration" to include any amount that is payable for the taxable services provided or to be provided, or any reimbursable expenditure, or any amount retained by the lottery distributor or selling agent. It is clear from the aforesaid definition of "consideration" that only an amount that is payable for the taxable service will be considered as "consideration".
37. A Larger Bench of the Tribunal in Bhayana Builders (P) Ltd. vs Commissioner of Service Tax 12 observed that "implicit in the legal architecture is the concept that any consideration whether monetary or otherwise, should have flown or should flow from the service recipient to the service provider and should
11. 2021 (45) G.S.T.L. 293 (Tri.-
12. 2013 (32) S.T.R. 49 (Tri.-LB) 30 ST/50862/2019 & 9 others accrue to the benefit of the latter." In the said decision, the Larger Bench made reference to the concept of "consideration‟, as was expounded in the decision pertaining to Australian GST Rules, wherein a categorical distinction was made between "conditions‟ to a contract and "consideration‟. It has been prescribed under the said GST Rules that certain "conditions‟ contained in the contract cannot be seen in the light of "consideration‟ for the contract and merely because the service recipient has to fulfil such conditions would not mean that this value would form part of the value of the taxable services that are provided.
38. The Supreme Court in Commissioner of 13 Service Tax vs. M/s Bhayana Builders , while deciding the appeal filed by the Department against the aforesaid decision of the Tribunal, also explained the scope of Section 67 of the Act, both before and after the amendment, in the following words:
"The amount charged should be for "for such service provided": Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section
67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a
13. 2018 (2) TMI 1325 31 ST/50862/2019 & 9 others consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined."
(emphasis supplied)
39. The aforesaid view was reiterated by the Supreme Court in Union of India vs. Intercontinental 14 Consultants and Technocrafts and it was observed:
"23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the "value of taxable services‟. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression "such‟ occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such‟ taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such "taxable service‟. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66
14. 2018 (10) GSTL 401 (SC) 32 ST/50862/2019 & 9 others and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service‟ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of subsection (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider."
40. What follows from the aforesaid decisions is that "consideration" must flow from the service recipient to the service provider and should accrue to the benefit of the service provider and that the amount charged has necessarily to be a consideration for the taxable service provided under the Act. It should also be remembered that there is marked distinction between "conditions to a contract" and "considerations for the contract". A service recipient may be required to fulfil certain conditions contained in the contract but that would not necessarily mean that this value would form part of the value of taxable services that are provided."
(emphasis supplied)
35. What further needs to be noticed is that the SBG Switch was set up much prior to the levy of service tax on ATM services in 2006. At the time of setting up of the SBG ATM Switch it was a common understanding that none of the constituents of the SBG Banks would charge any fee on 33 ST/50862/2019 & 9 others transactions between them. There is nothing on the record which may indicate that any change has taken place in the manner of operation of the SBG ATM Switch. The SBG Banks did not charge interchange fees for transactions. This can be said to be a condition of contract for the setting up of the co-owned ATM Switch and cannot be considered as a consideration.
36. In Commissioner of CGST & Central Excise, Mumbai East vs. Edelweiss Financial Services Ltd 15 , the department contended that service tax would be leviable on corporate guarantee given for subsidiary company without any consideration. This contention was not accepted by the Tribunal and it was observed:
"8. ................ Any activity must, for the purpose of taxability under Finance Act, 1994, not only, in relation to another, reveal a 'provider', but also the flow of 'consideration' for rendering of the service. In the absence of any of these two elements, taxability under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as 'corporate guarantee' issued by respondent on behalf of their subsidiary companies is concerned.
9. The reliance placed by Learned Authorised Representative on the 'non-monetary benefits' which may, if at all, be of relevance for determination of assessable value under section 67 of Finance Act, 1994 does not extend to ascertainment of 'service' as defined in section 65B(44) of Finance Act, 1994. 'Consideration' is the recompense for the 'contractual' undertaking that authorizes levy while 'assessable value' is a determination for computing the measure of the levy and the latter must follow the former."
37. The Civil Appeal filed by the department against the aforesaid order of the Tribunal in Edelweiss Financial Services was dismissed by the
15. (2023) 5 Centax 57 (Tri.-Bom) 34 ST/50862/2019 & 9 others Supreme Court and the decision is reported as 2023 (4) TMI 170 - SC Order 16. The relevant paragraph of the judgment of the Supreme Court is reproduced below:
"7. The above would suggest that this was a case where the assessee had not received any consideration while providing corporate guarantee to its group companies. No effort was made on behalf of the Revenue to assail the above finding or to demonstrate that issuance of corporate guarantee to group companies without consideration would be a taxable service. In these circumstances, in view of such conclusive finding of both forums, we see no reason to admit this case basing upon the pending Civil Appeal No. 428 @ Diary No. 42703/2019, particularly when it has not been demonstrated that the factual matrix of the pending case is identical to the present one."
38. The second set of five appeals have been filed by the department against the finding recorded by the adjudicating authority that the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked.
39. The adjudicating authority held that the Associate Banks as well as the ATM Switch Centre had been regularly filing ST-3 returns and the records of the Associate Banks and ATM Switch Centre had been audited by the department without raising any objection. In such circumstances, the adjudicating authority held that though the department was fully aware of the factual position, yet the show cause notice was not issued within the stipulated time. The relevant findings recorded on this issue by the adjudicating authority are reproduced below:
"C.5. I have carefully gone through the provisions of Section 73 as stated above and the facts of the case. I find that the Noticee is a Public Sector Bank
16. Commissioner of CGST and Central Excise vs. M/s. Edelweiss Financial Services Ltd.35
ST/50862/2019 & 9 others engaged in providing banking and other services including services related to ATM/Debit cards and other payment/charge, cards. I find that the Noticee is registered as a Service Tax assessee with the Department and holds Service Tax registration No. AADCS4009HST001 for providing Banking and other Financial services etc. I find that the Noticee along with other members of SBG banks [Associate banks and SBI] jointly holds a Switch Centre which is functioning from State Bank Global IT Centre, Sector-11, CBD Belapur, Navi Mumbai. The said Switch centre by name of SBI Switch Centre had been settling the ATM transactions of SBG Group banks with Non- SBG banks through NPCI Switch. The said SBI Switch Centre had been separately registered with the Department with registration number AAACS8577KSTYG1 and had been paying service tax for ATM services provided by SBG members. The said arrangement continued till 30.09.2010 till the said services were shifted to SBI from October 2010.
C.6. I find that SBI Switch centre was a separate assessee and had been filing the Service Tax returns (ST-3 returns). I find that the Noticee has enclosed sample copies of ST-3 returns filed by SBI Switch Centre for the period upto March 2010. I further find that the Noticee have also enclosed some sample copies of ST-3 Returns filed by SBI with the Department starting with the period October 2010 to March 2011 and October 2014 to March 2015. l also find that there is no dispute towards the fact that ST-3 returns have also been regularly filed by SBH with the Department. I further find that records of the SBI Switch centre have been regularly audited by the Department as can be seen from the Audit Report No. 39/10-11 dated 06.01.2011 covering the period from 2006-07 to 2008-09. Similarly the Service Tax and Financial records of the Noticee were audited by the Department as per the Audit report submitted by the Noticee vide Annexure-7 covering the period from April 2011 to March 2014. I find from the audit reports as submitted by the Noticee that 36 ST/50862/2019 & 9 others no such objection was raised by the Department as regards the two objections being under consideration in the show cause notice regarding the non-payment of service Tax on the ATM transactions with Non-SBG Banks and as well as non- payment of Service Tax on the ATM transactions within the SBG members. Further, I also find that none of the ground as mentioned in the SCN and as briefed under para no. C.1. above could be attributed to cover any suppression of facts by the Noticee. In my view all the grounds on which the extended period is proposed to be covered in the present SCN could well be known from the records of the Noticee as were discovered by the Investigating officers during the Investigations. Further also looking to the fact that Noticee is a Public Sector Bank, suppression or mis- declaration with intent to evade Service Tax cannot be assumed in the case. Hence, based on the facts that the Noticee is a Public Sector bank. had regularly been filing ST-3 returns, had regularly being audited by the Service Tax Department, where no such objection has ever been raised, I am of the view that extended period of limitation in the case cannot be applied in the case."
(emphasis supplied)
40. In order to appreciate whether the extended period of limitation was correctly invoked, it would be appropriate to reproduce section 73 of the Finance Act as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows;
"73.(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen 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:37
ST/50862/2019 & 9 others 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 "eighteen months", the words "five years" had been substituted."
41. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within eighteen months from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
42. The 'relevant date' has been defined in section 73 (6) of the Finance Act as follows;
"73(6) For the purpose of this section, "relevant date"
means,-
(i) In the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short paid-
(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
38
ST/50862/2019 & 9 others
(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;"
43. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word "eighteen months", the word "five years" has been substituted.
44. In Pushpam Pharmaceuticals Company vs. Collector of Central Excise, Bombay 17 , the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows;
"4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the
17. 1995 (78) E.L.T. 401 (S.C.) 39 ST/50862/2019 & 9 others authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
(emphasis supplied)
45. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise 18 and the observations are as follows:
"26 ...........This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression "suppression of facts" in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:-
"In taxation, it ("suppression of facts") can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he
18. 2005 (188) E.L.T. 149 (SC) 40 ST/50862/2019 & 9 others must have done, does not render it suppression."
27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act."
(emphasis supplied)
46. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited vs. Commissioner of Central Excise, Raipur 19 and the observation are:
"18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944."
47. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commissioner of Central Excise, Chandigarh-I 20 also held:
"10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct
19. 2013 (288) E.L.T. 161 (SC)
20. 2007 (216) E.L.T. 177 (SC) 41 ST/50862/2019 & 9 others information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct."
(emphasis supplied)
48. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication) 21 also examined at length the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act and held as follows;
"27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression‟ in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. "fraud, collusion, wilful misstatement". As explained in Uniworth (supra), "misstatement or suppression of facts" does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty.
xxxxxxxx Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention."
xxxxxxxx The Revenue has not been able to prove an intention on the part of the Appellant to avoid tax by
21. 2018 (12) GSTL 368 (Del.) 42 ST/50862/2019 & 9 others suppression of mention facts. In fact it is clear that the Appellant did not have any such intention and was acting under a bonafide belief."
(emphasis supplied)
49. It is, therefore, clear that even when an assessee has suppressed facts, the extended period of limitation can be invoked only when "suppression‟ is shown to be wilful with intent to evade the payment of service tax.
50. The Commissioner has correctly appreciated the legal position relating to the invocation of the extended period of limitation. The burden of proving that the appellant had suppressed facts with an intent to evade payment of service tax was clearly upon the department. It was necessary for the department to illustrate any positive act on the part of the appellant.
51. As noticed above, since the SBG Switch was registered with the service tax authorities in the name of SBI and service tax is claimed to have been paid by SBI as agent of the Associate Banks, the Associate Banks claim that they were under a bona-fide belief that the SBG Switch was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax did not arise. The service tax returns were filed regularly in which all the required disclosures had been made. An audit of the records had also been conducted in 2011 for the period 2006-07 to 2008-09. The service tax and financial records were also audited by the department for the period covering from April 2011 to March 2015. No objection was ever raised by the department in these two audits regarding non-payment of service tax 43 ST/50862/2019 & 9 others on the two ATM transactions referred to in the show cause notice. There is, therefore, no suppression of material facts from the department, much less with an intent to evade payment of service tax. Post the enquiry by the DGGI in 2013, the Associate Banks started separately discharging service tax liability and it is stated that even with the changed methodology the service tax liability of SBG Banks remained the same. Thus, the earlier arrangement did not have any service tax impact. There is, therefore, no reason to doubt the contention of the Associate Banks that they were under a bonafide belief that the liability to pay service tax was being discharged by SBI as their agent.
52. In this connection, it would be pertinent to refer to the judgment of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd 22. The Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of an assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bonafide manner. The relevant portion of the judgment of the Supreme Court is reproduced below:
"23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its duty liability. The mere
22. 2023 (385) E.L.T. 481 (S.C.) 44 ST/50862/2019 & 9 others fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a mala fide belief particularly when such a belief was emanating from the view taken by a Division Bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co- exist. In such cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bona fides. In any scheme of self-assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bona fide manner.
24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. xxxxxxxxxxx. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee's action of including the value of deemed exports within the value of domestic clearances."
(emphasis supplied)
53. The extended period of limitation contemplated under the proviso to section 73(1) Finance Act, therefore, was correctly invoked in the facts and circumstances of the case. The finding recorded by the Commissioner 45 ST/50862/2019 & 9 others on the invocation of the extended period of limitation, therefore, does not suffer from any infirmity.
54. Thus, for all the reasons stated above, the five appeals filed by State Bank of India deserve to be allowed and are allowed. Cross Objection No. 50518 of 2019 filed by the department deserves to be dismissed and is dismissed. The five appeals filed by the department deserve to be dismissed and are dismissed. The four Cross Objections filed by the appellant in the four appeals filed by the department stand disposed of.
(Order Pronounced on 25.09.2024) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Shreya, Jyoti