Custom, Excise & Service Tax Tribunal
M/S Oriental Insurance Company Limited vs Cce&Cst, New Delhi on 31 December, 2015
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No.2, R. K. Puram, New Delhi, Court No. I Date of hearing / decision : 31.12.2015 For Approval and Signature: Honble Mr. Justice G. Raghuram, President Honble Mr. R. K. Singh, Member (Technical) 1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether their Lordships wish to see the fair copy of the Order? 4 Whether Order is to be circulated to the Departmental authorities? Service tax Appeal No. 978 of 2009 (Arising out of order-in-original No. 03/Comm/2009/103 dated 08.09.2009 passed by the Commissioner, Customs, Central Excise and Service Tax, New Delhi). M/s Oriental Insurance Company Limited Appellant Vs. CCE&CST, New Delhi Respondent
Appearance:
Sh. B. L. Narasimhan, Advocate for the appellant Sh. M. R. Sharma, DR for the Revenue - Respondent Coram:
Honble Mr. Justice G. Raghuram, President Honble Mr. R. K. Singh, Member (Technical) Final Order No. 73977 / 2015 Per: R. K. Singh:
Appeal has been filed against order-in-original dated 08.09.2009 in terms of which service tax demand of Rs.52,01,062/- alongwith interest and penalties was confirmed. The impugned demand comprises the following components:
(i) Rs. 3,49,642/- on account of reverse charge mechanism on the ground that the appellant paid brokerage / commission to foreign broker / commission agent from 2002 to 2005-06 and Indian agents/ brokers during the period 17.01.2001 to 31.03.2005 but did not paid service tax thereon.
(ii) Rs. 48,20,574/- on the ground that this was the amount payable on the difference in the value of taxable service as shown in the following table.
Year As per worksheet submitted to Hqrs. (value of taxable service) Rs.
As per worksheet prepared division-wise (value of taxable service) Rs.
Difference in value of taxable service on which service tax not paid Rs.
Difference in service tax payable and paid Rs.
2002-03 1815415240/-
1911826717/-
96411477/--
4820574/-
(iii) Rs.3,846/- on the ground that cenvat credit was taken on electricity and water charges during the period 2004-05 which was not admissible. However, this amount has been deposited vide TR-6 challan dated 04.05.2006 alongwith interest of Rs.12,679/-. (paid vide TR-6 challan dated 07.08.2007).
2. The appellant has contended as under:
(i) The demand of Rs.3,49,642/- was confirmed in respect of services which were received from insurance intermediaries and not from insurance agents. The services of various brokers (foreign and Indian) was received by the appellant for finalising deals with reinsurers and such brokers would be covered in the category of intermediaries and not in the category of insurance agent as defined under Section 65(54) of the Finance Act, 1994.
(ii) As regards demand of Rs.30,846/-, the appellant has not contested the same and the same has already been deposited alongwith interest.
(iii) Regarding demand of Rs.4820574/- this arose on account of difference while reconciling the figures coming from its regional office for the period 2002-03. For the said period the provisional assessment of the appellant was already finalised vide order dated 11.05.2005. Further there was excess payment of service tax of Rs. 1.25 crores during 2004-05 on account of similar reconciliation problems which is not disputed. It was the appellant itself which apprised the audit team of said short payment due to reconciliation problem and thus there was no malafide intention to evade payment of service tax. It is a public sector undertaking and so the impugned demand is time barred as there was no wilful mis-statement or suppression of facts. The appellant cited the judgment in its own case 2006 (3) STR 587 (Tri. Del.) in terms of which it was held that the excess payment of service tax is to be adjusted while computing the demand for short payment of service tax. It also cited the judgment in the case of BSNL vs. CCE, Ahmedabad 2009 (14) STR 359 (Tri. Ahmd.) to assert that malafide intention to evade duty cannot be attributed to public sector undertaking owned by Government of India.
(iv) The period involved in this case is prior to 18.04.2006 when reverse charge mechanism was not applicable.
4. Ld. DR on the other hand supported the impugned order and contended that the adjustment of short payment cannot be made from the excess payment made subsequently as in respect of excess payment, the provisions relating to refund and unjust enrichment would apply.
5. We have considered the submissions of both sides. As regards the demand of Rs.30,846/- relating to cenvat credit taken on electricity and water charges it is seen that the said amount alongwith interest was paid on 04.05.2007/ 07.08.2007 i.e. before the issuance of the show cause notice. It is seen from the show cause notice and from the impugned order that these both record the fact of payment of said amount alongwith interest and the allegation of suppression of facts has been invoked only in respect of other two components of the impugned demand and therefore in terms of sub-section 3 of Section 73, this amount need not have been made part of the show cause notice; in other words, no show cause notice was required to be served to the appellant in respect of this amount in which case the question of imposing any penalty in respect of this component of demand would not arise.
6. As regards the demand pertaining to service tax on brokerage/ commission paid to commission agent, the appellant has pleaded that it paid commission to various agents, foreign as well as Indian, against services received from them for finalising deals with reinsurers. Such agents would not come in the category of insurance agents defined in Section 65(54) of the Finance Act, 1994 in terms of which the insurance agent is defined as under:
Insurance agent has the meaning assigned to it in clause (10) of Section 2 of the Insurance Act, 1938 (4 of 1938) As per section 2(10) of the Insurance Act, 1938 insurance agent means an insurance agent licensed under section 42 who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or retrieval of policies of insurance.
It is evident that the agents in question were not soliciting or procuring insurance business including business relating to the continuance, renewal or retrieval of policies of insurance; they were engaged to help out is finalising deals with reinsurers. This component of demand has been confirmed under reverse charge mechanism in terms of Rule 2(1)(d)(iii) of Service Tax Rules, 1994 which states as under:
2. (1) In these rules, unless the context otherwise requires-
(a) .........................
(b).........................
(c)
(d) person liable to pay service tax means:
(i).
(ii)
(iii) In relating to insurance auxiliary service by an insurance agent, any person carrying on the general insurance business or the life insurance business, as the case may be, in India. It is evident from the said rule that the liability of the appellant under reverse charge mechanism would arise only in relation to service rendered to it by insurance agent. As the commission was paid by the appellant to persons who did not qualify to be called insurance agents the reverse charge mechanism was not applicable and therefore, the appellant being service recipient was not liable to pay service tax. In addition the liability to service tax in respect of commission paid to persons based abroad would not fall on the appellant also because reverse charge mechanism in such cases became applicable from 18.04.2006 (refer Supreme Court judgment in the case of Indian National Shipowners Associations -2010 (17) STR J57 (SC)] while period involved here is prior thereto.
In the light of the foregoing analysis we find that this component of demand is not sustainable.
7. Coming to the demand of Rs.48,20,574/- arising on account of the reconciliation of figures for the year 2002-03 it is seen that the said demand for the period 2002-03 for which provisional assessment was finalised vide order dated 11.05.2005. It was only later when the appellant further reconciled the figures, that it noticed the discrepancy as contained in the table reproduced earlier and it was the appellant only who informed Revenue about it. In para 5.2 of the impugned order the adjudicating authority has noted that the statement regarding the differential value (which lead to the said demand) was provided by the noticee itself to the audit party. Further due to such reconciliation problem faced by the appellant, it has ended up paying excess service tax in 2004-05. Thus, it is hard to fathom as to how the appellant can be held guilty of wilful mis-statement or suppression of facts to evade service tax. In the show cause notice the only paragraphs pertaining to wilful mis-statement and suppression of facts (para 3 and 4) are reproduced below:
3. As per Section 68(1) of the Finance Act, 1994, every person providing a taxable service is required to pay service tax at the rate specified in Section 66 in such manner and within such period as may be prescribed. Further as per Section 70 of the Finance Act, 1994, every person liable to pay service tax shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and as such frequency as may be prescribed. Since M/s Oriental Insurance Company Limited Delhi are having centralised registration at Delhi, they are responsible for collecting correct data from their various offices situated all over India in respect of the premium collected by them and pay the service tax to the credit of the Central Government.
4. In terms of the Section 73 of the Finance Act, 1994 ibid, where any service tax has not been levied or paid or has been short-levied or short-paid by reasons of fraud, collusion, wilful mis-statement, suppression of facts, or contravention of any of the provisions of this Chapter or of the rules made there-under with intent to evade payment of service tax, the Central Excise Officer may, within a period of 5 years from the relevant date serve notice on the person chargeable with the service tax, which has not been levied or paid. As the fact regarding payment of brokerage/ commission paid to foreign brokers/ commission agents and Indian agents/ brokers and the correct value of taxable service in respect of service provided by their Bangalore Division, was suppressed from the department with an intent to evade payment of service tax, the extended period of five years as provided for in the section 73 of the Act is invokable in this case. These facts would not have come to the notice of the Department but for the audit of the assessee.
It is evident from the foregoing paras that there is no evidence contained therein which supports the allegation of wilful mis-statement or suppression of facts on the part of the appellant. The appellant has contended that the said short payment can be adjusted out of the excess amount of Rs. 1.25 crores made during the period 2004-05 citing CESTAT order in the appellants own case reported at 2006 (3) STR 587 (Tri. Del.). We have perused the said judgment which in its para 5 observed as under:
5. In this case admitted facts are that the appellant asked for provisional assessment and assessments were finalised for the period April, 1997 to March, 2000. Revenue is not disputing that the appellant paid excess service tax and as per the contention of the appellant, the excess service tax paid by them is to be adjusted against the short payment of service tax for the same period in dispute. We find that the assessment order dated 13.06.2000 shows that after finalisation it was found that for certain period, the appellant paid excess and for some period, the appellant paid less service tax. In these circumstances, we find that the excess payment of service tax is to be adjusted while computing the demand for short payment of service tax.
Although, we do not find any legal basis cited in the said judgment to allow adjustment of duty short paid out of the duty paid in excess, the fact remains that this judgment has been passed in the appellants own case and based on that judgment the appellant has pleaded that it should be allowed to adjust the said short payment of Rs.48,20,754/- out of the excess service tax paid during the period 2004-05. We are not entirely in agreement with the CESTAT observation quoted above but we also not relying upon the said judgment in this case. The very fact that such a pleading has been made and the amount has actually been paid in excess in 2004-05 shows the bonafies of the appellant. In these circumstances, we are unable to discern any evidence which would even suggest that there was any wilful mis-statement or suppression of facts on the part of the appellant with regard to the short payment of the said amount of duty. In the case of Anand Nishikawa Co. Ltd., vs. CCE 2005-TIOL-118-SC-CX, the Supreme Court held as under:
It is settled law that mere failure to declare does not amount to wilful suppression. There must be some positive act from the side of the assessee to find wilful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclosed 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.
In the case of BSNL vs. CCE, Ahmedabad 2009 (14) STR 359 (Tri. Ahmd.) CESTAT has held that malafide intention to evade tax is not attributable to public sector undertaking owned by Government of India. In the light of the foregoing, we hold that the extended period of five years is not invocable making atleast this component of demand time barred as it pertains to the period 2002-03 while the show cause notice was issued on 23.10.2007
8. In the light of the foregoing analyses, we do not find the impugned order sustainable except the demand of Rs. 3846/- which in any case the appellant has deposited alongwith interest.
(Justice G. Raghuram) President (R. K. Singh) Member (Technical) Pant