Custom, Excise & Service Tax Tribunal
Interglobe Aviation Ltd vs Delhi-Iv on 21 July, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHANDIGARH.
REGIONAL BENCH.
SERVICE TAX APPEAL NO. 44 OF 2016
[Arising out of the Order-in-Original No. DLI-SVTAX-004-COM-002-15-16
dated 29/10/2015 passed by The Commissioner, Service Tax, Delhi - IV,
Gurgaon (Haryana).]
M/s Interglobe Aviation Ltd., ...Appellant
Tower D, 4th Floor, Global Business Park,
Mehrauli Road, Gurgaon,
Haryana - 122 002.
Versus
Commissioner of Service Tax, ...Respondent
Delhi - IV, Plot No. 36 & 37,
Opposite Medanta Hospital, Sector - 32,
Gurgaon (Haryana).
APPEARANCE:
Shri B.L. Narasimhan, Advocate, Ms. Krati Singh, Advocate, Ms.
Priyanka Singla, Advocate for the appellant.
Shri Bhasha Ram, Authorized Representative for the Department
CORAM:
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
HON'BLE MR. AJAY SHARMA, MEMBER (JUDICIAL)
FINAL ORDER NO. 60072/2022
DATE OF HEARING : 05.07.2022
DATE OF DECISION: 21.07.2022
P.V. SUBBA RAO
M/s Interglobe Aviation Ltd1 operates scheduled aircrafts
for passengers and cargo. To acquire aircrafts on financial lease
in the course of its business, the appellant borrowed money from
foreign banks - through a process known as External Commercial
1
Appellant
2 ST/44 OF 2016
Borrowings (ECB). The overseas banks require foreign guarantors
for the ECBs and the guarantors, in turn, charge various forms of
fees for their services such as- arrangement fees, facility agent
fees, trustee fees, legal and professional charges, management
fees and ECA premium guarantee, fees. It is undisputed that the
services rendered by these guarantors were in connection with
the borrowing of money and that these services are leviable to
service tax at the hands of the appellant under reverse charge,
i.e., the appellant, as the service recipient, was liable to
discharge the service tax as if the services were rendered by it. It
is also undisputed that after paying the service tax, the appellant
can take Cenvat credit of the service tax so paid and utilize it to
pay the service tax on its output services. The appellant has been
doing so up to July 2012 and had not paid service tax from
August 2012 to March 2014.
2. On 10 March 2014, the Directorate General of Central
Excise Intelligence2 pointed out that the appellant was liable to
pay service tax on these services received by it. The appellant
agreed and paid service tax and intimated its jurisdictional Range
officer (who is the assessing officer) by a letter dated 26 March
2014 that it has paid all the service tax due, along with interest.
It further requested that the letter may be considered as an
intimation under section 73(3) of Chapter V of the Finance Act,
19943. Section 73 of the Act deals with the issue of show cause
notice to recover service tax not paid, short paid or erroneously
2
DGCEI
3
Act
3 ST/44 OF 2016
refunded. Sub-section (3) of this section specifies that if the
assessee pays the service tax due before the show cause notice
is issued, no notice should be issued. Sub-section (4) of this
section, however, excludes cases where the service tax was not
paid or short paid by reason of fraud or collusion or willful
misstatement or suppression of facts from the scope of sub-
section (3). In other words, if any of these elements are present,
a show cause notice has to be issued. These very elements also
make the assessee liable to penalty under section 78.
3. A show cause notice4 was issued in this matter to the
appellant on 2 June 2014 demanding the service tax with interest
and proposing to impose penalties which culminated in the Order
in Original5 dated 29 October 2015 being passed by the
Commissioner confirming the demand of service tax and interest,
appropriating the amounts already paid by the appellant and also
imposing a penalty of Rs. 35,85,57,546/- as penalty under
Section 78 and a penalty of Rs. 10,000/- under Section 77 of the
Act. Aggrieved by the impugned order, this appeal is filed. The
short questions to be answered in this case are as follows:
a) In the given factual matrix, is the appellant's case covered
by Section 73(3) or Section 73(4) of the Act?
b) Are the penalties under Section 77 and 78 correctly
imposed upon the appellant?
Submissions of Learned Counsel for the appellant
4
SCN
5
Impugned order
4 ST/44 OF 2016
4. There is no suppression, collusion, fraud, willful-
misstatement or contravention of provisions with an intent to
evade on the part of the appellant as the situation is revenue
neutral. The service tax paid by the appellant was immediately
available to it as Cenvat credit and hence the entire exercise is
revenue neutral. The appellant would have gained nothing by not
paying the service tax and it cannot, therefore, be said that the
appellant had an intention to evade paying service tax. The
department cannot, therefore, allege suppression, willful mis-
statement, fraud or collusion. Reliance was placed on the
following case laws in support:
a) British Airways versus Commissioner of Central
Excise, Delhi6
b) Jet Airways (I) Ltd. versus Commissioner of
Service Tax, Mumbai7 affirmed by Supreme Court8
c) Kirby Building Systems India Ltd. versus
Commissioner9
5. The benefit of Section 73(3) is available to the appellant.
This case is not covered under Section 73(4) because none of the
elements required under Section 73(4) were present and can
even be alleged to have been present in view of the above
submissions.
6
2014(36) STR 598 (Tri-Del)
7
2016(44) STR 465(Tri-Mum)
8
2017(7) GSTL J35 (SC)
9
2019(10)TMI 688-CESTAT Hyderabad
5 ST/44 OF 2016
6. The entire demand is within the normal period of limitation.
The appellant was also entitled to waiver of penalties under
Section 80 of the Act which was available during the relevant
period. Although the impugned order was issued in October
2015, the lis in the matter has begun with the issue of the show
cause notice. Section 80 was available during the period of
dispute including at the time of issue of show cause notice and its
benefit cannot be denied to it.
Submissions on behalf of the Revenue
7. Learned Authorized Representative for the Department
vehemently supported the impugned order. He submitted that
the appellant had not paid service tax due on its own. It was the
investigation by the DGCEI which uncovered the evasion and the
appellant paying the service tax. But for the investigation, the
appellant would have continued to evade paying the service tax.
8. The appellant also cannot claim ignorance because it was
fully aware that the services which it was receiving were liable to
service tax and it was also paying service tax up to before the
period of dispute. In 2012, the service tax regime has changed
and instead of the taxable services being listed in the Act, all
services except those in the negative list were made taxable thus
enlarging the scope of service tax. It is nobody's case that the
disputed services were covered under the negative list.
Therefore, if the appellant was paying service tax prior to 2012, it
had no reason whatsoever to presume that it did not have to pay
6 ST/44 OF 2016
service tax after 2012. Thus, the intention to evade service tax is
very clear. Had the DGCEI not pointed out, the appellant would
have continued to evade service tax on these services.
9. This was clearly a case of suppression of the receipt of
services by the appellant and it is not covered by Section 73(3)
of the Act. Revenue neutrality as a defence claimed by the
appellant has no legal basis. There is nothing in the Act which
makes a distinction based on Revenue neutrality. Learned
Authorized Representative placed reliance on the following case
laws:
a) Star Industries versus Commissioner of Customs
(Import) Raigarh10 in which Supreme Court ruled that if
the exercise is revenue neutral, then there is no need even
to file appeal;
b) Vogue Textiles versus Commissioner of Central
Excise, Delhi III11 in which the Tribunal held that
revenue neutrality cannot be an argument to justify wrong
classification and availing benefit of an exemption
notification;
c) Shree Raine Gums & Chemical Pvt. Ltd. versus
Commissioner of Central Excise, Jaipur II12 in which it
was held that there is no general rule that the assessee
need not pay tax if the same is available as credit to them.
10
2015(324) ELT 656(SC)
11
2017(351) ELT 310(Tri-Chandigarh)
12
2017(4) GSTL 340 (Tri-Del)
7 ST/44 OF 2016
d) Kala Sagar versus Commissioner Service Tax,
Mumbai II13 in which the Tribunal found that the
appellant in that case had not taken service tax
registration not filed any returns and provided documents
and therefore, rejected the contention of the appellant of
bonafide belief based on revenue neutrality.
10. The appellant has not brought on record any evidence to
show its bonafide to claim waiver of penalties under Sections 77
and 78.
11. We have considered the arguments on both sides and
perused the records. Relevant portions of Section 73 are as
follows:
SECTION 73. Recovery of service tax not levied or
paid or short-levied or short-paid or erroneously
refunded. --
(1) Where any service tax has not been levied or paid or
has been short-levied or short-paid or erroneously
refunded, Central Excise Officer may, within thirty 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 :
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
13
2015(38) STR 1017 (Tri-Mumbai)
8 ST/44 OF 2016
tax or his agent, the provisions of this sub-section shall
have effect, as if, for the words "thirty months", the words
"five years" had been substituted.
*****
(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub- section (1) in respect of the amount so paid :
Provided that the Central Excise Officer may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been 18 paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of "thirty months"
referred to in sub- section (1) shall be counted from the date of receipt of such information of payment.
Explanation.1-- For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the [Central Excise Officer], but for this sub- section.
Explanation 2. -- For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon.
(4) Nothing contained in sub-section (3) shall apply to a case 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) willful mis-statement; or
(d) suppression of facts; or 9 ST/44 OF 2016
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax.
12. It is undisputed that the appellant had, initially, not paid service tax on the services received under reverse charge mechanism for the relevant period and had, on being pointed out by DGCEI, immediately paid the same with interest and took Cenvat credit of the service tax paid. It is also undisputed that the Cenvat credit was available to it. Needless to say that the appellant could not have and has not taken Cenvat credit of the interest paid on the service tax because it is not available as Cenvat credit. It is also undisputed that it was paying service tax prior to the disputed period and was availing Cenvat credit of the service tax paid. After the changes in the Act in 2012, from a regime where only specified taxable services were chargeable to service tax to one where all services were taxable except those in the negative list, the appellant had not paid service tax but did so after being pointed out by DGCEI.
13. The service tax was paid alongwith interest and an intimation was also given to the assessing officer by the appellant on 26 March 2014 well before the show cause notice was issued on 2 June 2014. According to the appellant, it is therefore, covered by Section 73(3) and no show cause notice should have been issued to it. On the other hand, according to the Revenue, the benefit of Section 73(3) is not available to the appellant 10 ST/44 OF 2016 because it is covered by Section 73(4) which overrides Section 73(3).
14. This leads us to the next question as to whether the appellant is covered by Section 73(4). This sub-section applies to cases where service tax has not been paid by reasons of (a) fraud; or (b) collusion; or (c) willful misstatement; or (d) suppression of facts or contravention of the provisions with an intent to evade payment of service tax. According to the Revenue the appellant had suppressed the facts and contravened provisions with intent to evade paying service tax. It is a well settled law that fraud, collusion, willful misstatement and suppression all require the intent to be established. According to the Revenue, the intent is evident because the appellant was paying service tax before and stopped paying service tax for the relevant period and paid it only when it was pointed out by the DGCEI. According to the Revenue, this is not a bonafide lapse and therefore, the appellant is squarely covered by Section 73(4) which over-rides Section 73(3). Hence, the show cause notice was correctly issued and the impugned order has correctly confirmed the demand and imposed penalties.
15. According to the appellant, it was genuine lapse on its part of not paying service tax for the relevant period. Prior to this period, it was paying service tax and taking Cenvat credit. When this was pointed out by DGCEI, it immediately paid the service tax along with interest and took Cenvat credit. Since it was 11 ST/44 OF 2016 paying service tax with one hand and immediately taking Cenvat credit, the entire exercise is Revenue neutral and therefore, it cannot be alleged to have any intention to evade because it can gain virtually nothing by evading. Therefore, Section 73(4) does not apply to this case.
16. Learned Authorized Representative for the Revenue submitted that there is no legal provision under which Revenue neutrality can be considered. Tax has to be paid regardless of Revenue neutrality as held in various case laws relied upon by him.
17. We fully agree with the learned Authorized Representative of the Revenue and in the various case laws relied upon by him that tax has to be paid regardless of revenue neutrality. Taxability depends on the charging section and nothing else. If tax is covered by the charging section, it has to be paid. It does not matter that the tax so paid may be available as Cenvat credit either the assessee or to its buyer. In fact, the schemes of Central Excise, Service Tax, state VAT and the GST are based on charging tax or duty at several stages and allowing credit of the tax paid at the previous stage. Thus, A supplies goods or provides services to B and pays Central Excise duty or Service tax and B can take credit of the duty or tax so paid and use it to pay Central Excise duty or service tax. The duty or tax so paid by B will then be available to its customer C and so on. This sequence of payments of tax or duty and credits will come to an 12 ST/44 OF 2016 end when the final goods or services are sold to someone who is not liable to pay tax or duty such as a trader or customer or someone manufacturing exempted goods or providing exempted services. This does not mean that anyone can take a stand that since his customer would have got a credit there is no net impact on the Revenue and not pay duty or tax. Thus, regardless of revenue neutrality, the charge of tax or duty remains.
18. However, if the service tax which is due is not paid or short paid, the remedy to the Revenue to recover it is by issuing a show cause notice under Section 73 which itself is subject three limitations- WHO, WHY and WHEN. Only the Central Excise officer can issue the notice and not anybody else. The officer can issue a notice only to recover the service tax not levied, short levied, not paid, short paid or erroneously refunded. The notice can be issued within the normal period of limitation (which varied from time to time) OR extended period of limitation of five years if the elements of fraud, collusion, willful misstatement or suppression of facts or contraventions with an intent to evade are present. This power to issue the show cause notice is further limited by Section 73(3) which states that no show cause notice can be issued if the tax is paid before the notice is issued. However, Section 73(3) does not apply in cases covered by Section 73(4) which applies if there are elements of fraud, collusion, etc. which are identical to the elements required to invoke extended period of limitation.
13 ST/44 OF 2016
19. Thus, the charge of service tax is not reduced or abated with efflux of time but only the remedy available to the Revenue goes if it is time barred. Further, the remedy available to the Revenue is also subject to the other limitations under Section 73(3) which is available in all cases where the tax is paid before the issue of show cause notice unless the elements of fraud, collusion, etc. indicated in Section 73(4) are present. As discussed above, each of these elements require an intention.
20. Revenue neutrality becomes significant to determine if the appellant had an intention to evade or otherwise although it does not make any change to the charging section. The intention of any person can only be inferred from the circumstances of the case. The case of the Revenue is that the appellant had intention to evade service tax. We find no evidence of it. If the appellant pays service tax and can get Cenvat credit immediately of what it paid, we do not find it can have any intention to evade. All that happened in this case is by not paying the service tax when it is due but by paying it late, the appellant had to pay interest on it as well. The interest is not available as Cenvat credit. The appellant had, in fact, lost by not paying service tax in time and has not gained anything at all. We, therefore, find that there is no evidence of fraud or collusion of willful misstatement or suppression of facts or contraventions with an intent to evade service tax on the part of the appellant. In the absence of these elements, the appellant is not covered by Section 73(4) and is 14 ST/44 OF 2016 squarely covered by Section 73(3). The show cause notice should therefore not have been issued to the appellant.
21. The elements required to impose a penalty under Section 78 are identical to the elements required to invoke Section 73(4) and as we found that they are not present, the penalty under Section 78 should not have been imposed on the appellant. Further, Section 80 under which penalties could have not been imposed for reasonable cause for failure was also available to the appellant since the lis in the case began when the show cause notice was issued on 2 June 2014 and Section 80 was abolished only in 2015. The fact that the Commissioner adjudicated the matter after 2015 makes no difference as cases have to be decided as per the law when the lis began.
22. For all the aforesaid reasons, we find that the impugned order cannot be sustained and needs to be set aside and we do so.
23. The impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.
(Order pronounced in open court on 21/07/2022.) (P.V. SUBBA RAO) MEMBER (TECHNICAL) (AJAY SHARMA) MEMBER (JUDICIAL) PK