Customs, Excise and Gold Tribunal - Delhi
J.K. Industries Ltd. vs Commissioner Of Central Excise on 6 February, 2006
ORDER
R.K. Abichandani, J. (President) FACTS :
1. This appeal is directed against the order dated 18-1-2005 passed by the Commissioner (Appeals-I) Customs and Central Excise, Indore dismissing the appeal of the present appellant which was preferred against order-in-original made by the Assistant Commissioner on 4-10-2004 rejecting the refund claim of the present appellant in respect of an amount of Rs. 42,42,686/- which was earlier paid by the appellant as Service tax under Rule 7A of the Service Tax Rules read with Section 71A of the Finance Act, 1994.
2. The service tax paid by the appellant was in respect of the period from 16-11-1997 to 1-6-1998 during which the appellant had received service from goods transport operators. Value of the taxable service was Rs. 8,48,53,724.66 on which the amount of service tax payable was Rs. 42,42,686/-, as stated in the return of Service tax in form ST-3B prescribed under Rule 7A of the said rules. An amount of Rs. 1,000/- was also paid on account of interest/fine/penalty payable on the said amount as mentioned in the said return filed by the appellant. The service tax was paid on 20-11-2003 on the basis of the self assessment. It was declared by the appellant that the particulars mentioned in the return were in accordance with the records and books maintained by the appellant and were correctly stated. It was also stated that the appellant had assessed and paid the service tax correctly in terms of the provisions of said Act and rules made thereunder. In the forwarding letter dated 20/24-11-2003 which is on record, it was stated by the appellant that the said amount was paid as service tax under protest, "with the right to seek refund of the same if at a later date the Apex Court holds it ultra vires and/or not payable". It was stated that the fresh returns were also filed with the requisite TR-6 challans evidencing payment of service tax on the freight amount paid during the period from 16-11-1997 to 1-6-1998. According to the appellant the service tax on the freight paid by the appellant to the goods transport operators during the period from 16-11-1997 to 1-6-1998 was not payable by the appellant. Earlier, by communication dated 10-11-2003 the appellant had informed the Revenue that they were not making any payment of service tax for the relevant period and that they were not under an obligation to file a fresh return for the said period in the prescribed form ST-3B. It was stated that the amendment brought about by Section 158 of the Finance Act, 2003 was intended to apply only to such cases where action was already taken earlier and which stood validated by Section 117 of the Finance Act, 2000. According to the appellant the intention of the amendment made by Finance Act, 2003 was not to issue fresh show cause notices or demands. However, thereafter the appellant, in fact, paid the service tax in the prescribed form by filing returns under Section 71A read with Rule 7A, as noted above.
2.1 On 19-4-2004 the appellant preferred a refund claim for the aforesaid amount stating that they were not liable to pay service tax on the freight amount paid to the goods transport operators during the said period. It was stated that the appellant was not liable to collect the service tax and file the return for the same in view of the decision of Supreme Court in Laghu Udyog Bharti case in which it was held that the provisions of the rules making persons other than the goods transport operators as being responsible for collecting the service tax were ultra vires the Act. It was submitted that the Parliament had amended the law retrospectively by Sections 116 and 117 of the Finance Act, 2000 in order to overcome the effect of the Apex Court's decision and thus the provisions newly introduced validated the collection of service tax made under the earlier provisions. According to the appellant since the amendments brought by Finance Act, 2000 merely justified the levy but did not make any provision for recovery of service tax in the Act in relation to the services provided by goods transport operators during 16-11-1997 to 2-6-1998, no recovery could be made and therefore the amended provisions justifying chargeability with, retrospective effect remained ultra vires. It was pleaded that Section 116 of the Finance Act, 2000 did not amend any of the provisions of recovery of service tax that was not deposited for the period from 16-11-1997 to 2-6-1998. Moreover, the appellant could not have foreseen that there would be a retrospective amendment, and that, by the time it was introduced more than six months had elapsed. The amendment without the machinery provisions of recovery could not empower the revenue authorities to recover service tax by resorting to the provisions of Section 73 of the Act. It was further contended that the amendment made by Section 158 of the Finance Act, 2003 inserting Section 71A and the prescribed return for the said period did not have the effect of validating any past action. It was further submitted that assuming machinery provisions had been made, service tax would have become payable latest by July 1998 for the period ending 2-6-1998 and therefore the right to demand such tax had lapsed since long. The amendment by Finance Act, 2000 should be construed so as to cover cases where notices of demand were already issued within the stipulated period of limitation. Relying upon the decision of the Tribunal in L.H. Sugar Factories Limited and Ors. v. CCE Meerut-II in which it was held that the class of persons who come under Section 71A was not brought under the net of Section 73 and therefore show cause notices issued to those appellants invoking Section 73 were not maintainable, the appellant claimed that it was entitled to the refund of the said amount.
2.2 The learned Assistant Commissioner on the basis of the material on record and considering the contentions raised by the parties came to the conclusion that in view of the amended provisions of Section 68(1) by which the proviso was inserted with retrospective effect from 16-7-1997 and which, inter alia, provided that in relation to services provided by goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent, for the transportation of goods by road in a goods carriage for the period commencing on and from the 16th day of November, 1997 and ending with the 2nd day of June, 1998, shall be deemed to be a person liable to pay service tax for such services provided to him, to the credit of the Central Government, and rejected the contention of the appellant that it was not a service provider and therefore not liable to collect the service tax. It was held that in view of Rule 7A inserted by the notification dated 14-5-2003 the assessee was required to furnish a return in respect of services provided during the period from 16-11-1997 to 2-8-1998, within six months from 13-5-2003 in form ST-3B along with the challan showing payment. The amendment made by Finance Act, 2003 extended the date of payment of service tax and filing of return for the said period up to six months from 13-5-2003 and the period of filing of return would hot therefore be computed from July 1998. The demand was not therefore barred by limitation. It was held that the decision of the Tribunal in L.H. Sugar Factories Ltd., was not applicable to the present case in view of the retrospective amendment made by the Finance Act, 2003 inserting Section 71A and prescribing for the return to be filed for the specified period and making the provisions of Section 71 applicable to it. It was also held that Section 73 clearly speaks of serving notice on an assessee for failure on its part to disclose wholly or truly all material facts required for verification of the assessment under Section 71. Thus, by applying the provisions of Section 71 to returns filed under Section 71A, persons who came under Section 71A were brought under the net of Section 73, The learned Assistant Commissioner, therefore, rejected the claim for refund.
2.3 The appellate Commissioner confirming the order-in-original held that the decision in L.H. Sugar Factories Ltd., was not applicable to the appellant's case since no notice was issued under Section 73 for recovery of tax and payments were made by the appellants on their own, in view of the amendments made by Finance Act, 2003 which required the returns to be filed in Form ST-3B within six months from 13-5-2003, since the tax was to be paid by the assessee in terms of the amendment made in the service tax provisions by Finance Act, 2003. The appellant was, therefore, not entitled to the refund,, it was noted that the appellant's protest while paying the service tax was only on the ground that they would claim the refund if the Apex Court held the provisions inserted by the Finance Act, 2000 to be ultra vires.
Arguments on behalf of the appellant:
3. It was contended by the learned Counsel appearing on behalf of the appellants that the amendments made in the years 2000 and 2003 were intended only to validate the action already taken earlier under the provisions of the rules which were set-aside as ultra vires the Act by the Supreme Court in Laghu Udyog Bharati v. UOI which was rendered on 27-7-1999. Since no action was already taken in the case of the appellant, the provision of the validating Act did not create any liability on the part of the appellant to pay the tax in respect of the said period from 16-11-1997 to 1-6-1998. It was then contended that the Finance Act, 1994 contemplated an outside period of limitation of five years in Section 73 and therefore no demand of service tax could have survived after 2nd June 2003, The retrospective amendment therefore cannot revive something which was time barred. It was submitted that the return filed by the appellant in November 2003 was "under protest", as recorded in the covering letter dated 20/24-11-2003 and the challan showing payment of service tax. It was submitted that there was no provision in the validating Acts to specifically override the effect of Section 73 of the Finance Act, 1994.
3.1 The learned Counsel placed reliance on the following judgments in support of his contentions :-
(A) The decision of the Supreme Court in District Mining Officer and Ors. v. Tata Iron and Steel Co. and Anr. was cited to rely upon the proposition that the validation Act cannot be construed to have conferred a right to make levy and collection of cess or taxes on minerals which were collectable up to 4-4-91. This dictum was laid down in paragraph 18 of the judgment in the context of the Cess and Other Taxes on Minerals (Validation) Act, 1992. Under the said Validation Act the Parliament merely provided the legislative competence for the provisions contained in the State Acts which related to cesses or taxes on minerals. The Parliament had adopted a unique device of providing legislative competence in respect of certain provisions of the State laws and that too only keeping the Act alive up to 4-4-1991. This was done because the Parliament thought that on account of the judgments of the Supreme Court the State Governments would be liable to make refund of cess and or taxes collected by them which was likely to have a serious impact on the State revenue.
(B) The decision of the Supreme Court in National Agricultural Cooperative Marketing Federation of India Ltd., and Anr. v. Union of India and Ors. was cited to point out that in the context of the amendment made in Income-tax Act, 1961 by Act 11 of 1999 the Supreme Court has held in paragraph 29 of the judgment that the said amendment cannot be construed as authorising the revenue authorities to reopen assessments already barred by limitation and that the amendment did not seek to touch on the periods of limitation provided in the Act. The Supreme Court observed that different considerations would arise if, by the amendment even final assessments were unambiguously sought to be opened, but that was not the case before it.
(C) The decision of the Supreme court in Hyderabad Industries Ltd. and Anr. v. Union of India and Ors. was cited with a view to point out that the Supreme court had referred to the notes to the clauses to the Customs Tariff Bill to find out the legislative intent of providing for a charging section in the Tariff Act.
(D) The decision of the Supreme Court in J.K. Spinning and Weaving Mills Ltd. and Anr. v. Union of India and Ors. was cited to point out that the Supreme Court rejecting the contention of the Revenue that as Section 51 of the Finance Act 1982 has made the amendments for retrospective in operation since February 28, 1944, it should be held that it overrides the provision of Section 11A, held that if the intention of the legislature was to nullify the effect of Section 11A, in that case, the legislature would have specifically provided for the same.
(E) The decision of this Tribunal in L.H. Sugar Factories Ltd. v. Commissioner of C.Ex. Meerut-II was cited for the proposition laid down in paragraph 8 of the judgment that the class of persons who come under Section 71A of the Finance Act, 1994 is not brought under the net of Section 73. The Tribunal set aside the order impugned before it on the ground that show cause notices issued to those appellants invoking Section 73 of the Act were not maintainable. The Tribunal relied upon the decision of the Supreme Court in Laghu Udyog Bharati in which it was held that by the rules framed the person who was receiving services could not be made responsible for filing the return and paying the tax because such a position was not contemplated by the Act. That decision was rendered prior to the validating laws.
(F) The decision of the Supreme Court in S.S. Gadgil v. Lal and Co. was cited to point out that in the context of Section 18 of the Finance Act 1956, by which Section 34 was extensively amended, it was held that prima facie, on the expiry of the period prescribed by Section 34 of the Income-tax Act as it originally stood, there was no scope for issuing a notice unless the legislature expressly gave power to the Income Tax Officer to. issue notice under the amended provision or unless there was overlapping of the period within which notice could be issued under the old and the amended provision.
Arguments on behalf of the Revenue :
4. The learned Authorised Representative for the department supported the reasoning and conclusions of the authorities below in rejecting the refund claim of the appellant and argued that, by Section 116 of the Finance Act, 2000 the law covered each and every recipient of goods and transport operators services during 16-7-1997 to 16-10-1998. By Section 117 of the Finance Act, 2000, the law covered the assessees who were absolved by the Court from any liability to pay service tax as recipient by virtue of the rules having been held the ultra vires. He submitted that Section 71A was added by Finance Act, 2003 to enable the recipients of goods transport operators' services during the said period to file returns. It was argued that if the law intended only to cover those against whom action was already initiated then filing of returns was not required and there was no need to enact the recovery provision of Section 71A in the Act. By inserting the said machinery provision it was made clear that every person liable to pay the service tax in respect of the said period under the amended provisions shall file the return. It was submitted that persons like the appellant could not have filed the return under Section 70 and they are covered under Section 71A. As regards service tax having been paid "under protest" it was submitted that, Section 11B of the Central Excise Act only gave right to the assessee paying duty under protest to make a claim of refund irrespective of the time limit prescribed under the proviso to Section 11B. It was submitted that the adjudicating authority was under no obligation to assess in cases of self-assessment, and even if there was no regular assessment the service tax paid by the appellant on the basis of self-assessment was to be treated as tax assessed and paid. It is only in case of provisional assessment that there would arise an obligation to assess. It was then argued that since there was no demand made by issuing any show cause notice on the appellant the question of applicability of Section 73 did not arise in the present case and the decision of this Tribunal in L.H. Sugar Factories Ltd., was not applicable to the facts of the present case. It was further argued that the obligation to pay the tax arising under the amended provision on the part of the recipient of such service was not extinguished. Moreover, the protest was only to the effect that the appellant would claim the refund in event of the Apex Court declaring the provisions amended by the Validating Acts of 2000 and 2003, as ultra vires. He pointed out that the provisions of the Validating Acts were upheld by Hon'ble the Supreme Court in Gujarat Ambuja Cements Ltd. v. Union of India and therefore the protest under which the tax was paid by self-assessment did not survive.
4.1 In support of his contentions the learned Authorised Representative for the department placed reliance on the following decisions :-
(A) The decision of the Supreme Court in Gujarat Ambuja Cements Ltd. v. Union of India was cited to point out that the constitutional validity of Sections 116 and 117 of the Finance Act, 2000 and Section 158 of the Finance Act, 2003 by which the decision of the Supreme Court in Laghu Udyog Bharati v. Union of India striking down Rules 2(1)(d), (xii) and (xvii) of the Service Tax Rules, 1994 (as amended in 1997) was sought to be overcome, was upheld. In paragraph 19 of the judgment the Supreme Court observed that under the newly inserted provision of Section 71A, the provisions of Section 69 and 70 did not apply to a person referred to in the proviso to Sub-section (1) of Section 68 as far as the filing of returns in respect of service tax for the period commencing from 16th July 1997 was concerned. The Supreme court in paragraph 22 of the judgment held that as it was apparent from Section 116 of the Finance Act, 2000, all material portions of the two Sections which were found to be incompatible with the Service Tax Rules were themselves amended so that now in the body of the Act by virtue of the amendment to the word "assessee" in Section 65(5) and the amendment to Section 66(3), the liability to pay the tax is not on the person providing the taxable service but, as far as the service provided by clearing and forwarding agents and goods transport operators are concerned, on the person who pays for the services. As far as Section 68(1A) is concerned, by virtue of proviso added in 2003, the persons availing of the services of goods transport operators or clearing and forwarding agents have explicitly been made liable to pay the service tax. The Supreme Court held in para 23 of the judgment that a legislature was competent to remove infirmities retrospectively and make any imposition of tax declared invalid, valid. It was held that the law must be taken as having always been as was now brought about by the Finance Act, 2000 and that the statutory foundation for the decision in Laghu Udyog Bharati was replaced and the decision has thereby ceased to be relevant for the purposes of construing the provisions.
(B) The decision of the Tribunal in Supreme Woollen Mills Ltd. v. Commissioner of Customs, Nhava Sheva, Mumbai was cited for the proposition that once duty legally payable by importer has been paid, question as to whether there was any provision in the Act at the relevant time for demanding duty or not is irrelevant. (Paragraph 5) (C) The decision of the Madras High Court in Eternit Everest Ltd. v. Union of India was cited to point out that even where it was held that the proceedings issued in the demand cum show cause notices were without jurisdiction and liable to be quashed, the High Court made it clear, in the context of the provisions of Section 11D of the Central Excise Act, that the liability created under Section 11D was not wiped of nor were the petitioners exonerated from the liability to pay and that steps could be taken by providing required machinery to work out or quantify and determine the liability.
Reasons:
5. It is a settled legal position that a statutory Act may be enacted prospectively or retrospectively. The retrospective effect can be given in case of curative and validating statutes. The curative statutes by their very nature are intended to operate upon and affect past transactions having regard to the fact that they operate on conditions already existing [See, ITW Signode India Ltd. v. Collector of Central Excise ]. In the present case, as already held by the Hon'ble Supreme Court in Gujarat Ambuja Cements Ltd., (supra), the law must be taken as having always been as was brought out by Finance Act, 2000 and that the statutory foundation for the decision of the Supreme Court in Laghu Udyog Bharati has been replaced and that decision has ceased to be relevant for the purposes of construing the provisions of the Act as amended by the Finance Act, 2000 and 2003. Therefore, the reliance on behalf of the appellant on the earlier decision of the Supreme Court in Laghu Udyog Bharati case (supra) and on the decision of this Tribunal in L.H. Sugar Factories Ltd., case (supra) in which relying upon, the decision in Laghu Udyog Bharati it was held that the show cause notices issued in that case by invoking Section 73 of the goods were not maintainable, is misconceived, as their ratio will not now be applicable and the matter has to be viewed in the context of the amended provisions, the constitutionality of which has been upheld by the Apex Court in Gujarat Ambuja Cement case (supra).
6. The earlier position under which the recipient of service provided by goods transport operator could not have been liable was drastically altered by the amended provisions. By Section 116 of the Finance Act, 2000 it was provided that during the period commencing on and from 16th day of July 1997 and ending with the 16th day of October 1998, the provisions of Chapter V of Finance Act 1994 (i.e. relating to service tax) shall be deemed to have effect subject to the modifications made thereunder. Section 65 of the Finance Act, 1994 was modified by substituting Clause (6) thereof, as a result of which definition of "assessee" was altered so as to, inter alia, include in relation to services provided by a goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage. Thus, in respect of the services provided to the appellant for the said period in question the appellant, by virtue of the said amendment, became "as-sessee" who was liable for collecting the service tax under the amended definition clause.
6.1 Section 117 of the Finance Act, 2000 validated the action already taken by providing that notwithstanding anything contained in any judgment, decree or order of any court, Tribunal or authority, sub-clauses (xii) and (xvii) of Clause (d) of Sub-rule (1) of Rule 2 of the Service Tax Rules, 1994 as they stood immediately before the commencement of Service Tax (Amendment) Rules, 1998 shall be deemed to be valid and to have always been valid as if the said sub-clauses had been in force at all material times and accordingly, any action taken or anything done or purported to have been taken or done during the period commencing on and from the 16th July, 1997 and ending with the day the Finance Act, 2000 receives the assent of the President shall be deemed to be valid and always to have been valid for all purposes, as validly and effectively taken or done. Provision was also made for recovery of the service tax refunded in pursuance of the said clauses having been held ultra vires.
7. By the Finance Act, 2003, the Finance Act, 1994 as modified by Section 116 of the Finance Act, 2000 was further modified and it was provided by Section 158 that during the said period from 16 July 1997 to 16th October 1998 the provisions of Chapter V of the Finance Act, 1994 as modified shall have effect and be deemed always to have had effect subject to the further modification made in Sections 68 and by insertion of Section 71A and in Section 94. As per this retrospective amendment, a proviso was added to Section 68(1) w.e.f. 16th July 97, inter alia, providing that in relation to services provided by goods transport operator, every person who pays or is liable to pay the freight either himself or through his agent for the transportation of goods by road in a goods carriage for the period commencing on and from the 16th day of November, 1997 and ending with the 2nd day of June, 1998, shall be deemed always to have been a person liable to pay service tax, for such services provided to him, to the credit of the Central Government. It thus becomes evident by virtue, of the amendments in Sections 65 and 68 made by the Finance Acts of 2000 and 2003 that the appellant, who admittedly paid the freight for the transportation of goods during the said period to the goods transport operator for the said services, was deemed always to have been person liable to pay service tax.
8. The provisions of Section 71A which were inserted by the Finance Act 2003 retrospectively w.e.f. 16th July 1997 were enacted to enable such persons falling under the proviso of Sub-section (1) of Section 68 like the appellant to file the returns in respect of service tax for the said period within six months from the day on which the Finance Act, 2003 received the assent of the President in the prescribed manner, on the basis of the self-assessment of the service tax, as provided therein. It was also provided in Section 71A that the provision of Section 71 shall apply accordingly, to such returns. Rule 7A thereupon came to be inserted by the Service Tax (Amendment) Rules, 2003 w.e.f. 14-5-2003 in which it was provided that, notwithstanding anything contained in Rule 7 which related to half yearly return, an assessee in case of service provided by goods transport operator for the period from 16th day of November 1998 to 2nd day of June 1998 shall furnish a return within a period of six months from the 13th day of May, 2003, in Form ST-3B along with copy of Form TR-6 in triplicate, failing which the interest and penal consequences as provided in the Act shall follow. It is, therefore, clear to us that not only the past recoveries were validated by Section 117, the amendment also provided for continuance of the liability of persons falling in the proviso of Section 68(1) who were to be deemed always to have been liable to pay service tax, for such services provided, to the credit of the Central Government. In such cases there was no scope for the applicability of Section 70 of the said Act and, therefore, the special provision for filing of returns was necessarily required to be made as per Section 71A, because, they could not have filed return earlier. Validating of legislation retrospectively curing defects in a taxing statute is a well recognized course, and the appellant did not acquire any vested right from the earlier defect in the statute and cannot seek a wind fall from the legislatures' mistakes. The Parliament has enacted a valid law with retrospective effect and therefore the earlier judgments become irrelevant and the matter has to be viewed only in the context of the provisions now existing, which clearly provided for the liability of the appellant in respect of the services provided by the goods transport operators for which the appellant paid the freight and was deemed always to have been liable to pay service tax for the period in question, from 16th July, 1997. The appellant was bound to file the returns as mandatorily required by Section 71A and accordingly the return was filed as per this machinery provision, with the payment of service tax as per the challan. The only protest lodged by the appellant, at the time of filing of the return, was that refund claim would be preferred if the provisions of the amending Act which made the appellant liable to file the return were held to be ultra vires, by the Apex Court. The provisions have been upheld by the Supreme Court in Gujarat Ambuja Cements Ltd., (supra), and therefore, the very basis of the protest did not survive. The returns were filed by the appellant on self-assessment basis and the validity of statements made thereunder had been vouchsafed in the returns.
9. The service tax paid on the basis of self-assessment as per the statutory provision was a valid collection of tax by the government and therefore, it was in no way refundable to the appellant who was liable to pay the same under the amended provisions. The period for filing of the returns was provided in Section 71A which was six months from the date on which the Finance Act, 2003 received the assent of the President, and the appellant filed the return within the period so prescribed. In a case which was covered by Section 71A read with Rule 7A the date of filing of return cannot be drawn from the provisions of Section 70. In fact, Section 71A clearly specified that the provision of Section 70 did not apply to persons referred to in the proviso to Sub-section (1) of Section 68 for the riling of return. It cannot, therefore, be accepted that the time limit for filing of return by the appellant should be computed on the basis of the provision of Sections 70 and 73 as from the date on which the half-yearly return could have been filed under Section 70 read with Rule 7 which were wholly inapplicable in case of the appellant when specific provision of Section 71A was made in the context of the persons like the appellant for filing of the return and period within which the return was to be furnished was also provided. The contention that the appellant was not liable to pay the service tax since the recover would have been time barred on the basis of the deemed liability having been arisen earlier on the expiry of the relevant period in 1998, is, therefore, wholly misconceived. The return filed by the appellant under Section 71A on the basis of self-assessment could have been verified under Section 71 by the concerned officer in view of the specific provision made in Section 71A to the effect that Section 71 shall apply to such return. However, even when it was not taken up for verification, it cannot be said that the service tax paid on the basis of self-assessment was not tax assessed. Since the service tax was validly paid under the liability arising under the amended provisions, particularly under Section 71A requiring the appellant to file such return, the appellants are not entitled to the refund. There was no question of issuance of any show cause notice under Section 73 for recovery, because, the appellants had paid the tax on self assessment basis under the return filed under Section 71A of the Act read with Rule 7A of the Act. None of the contentions raised on behalf of the appellant has therefore any substance.
FINAL ORDER:
10. We, find ourselves in complete agreement with the reasoning adopted and conclusions reached by the authorities below and dismiss this appeal.