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CESTAT case regarding Service tax discharged on commission amounts from the GoI

CLR Editorial Notes: This case is related to a show cause notice sent to an assessee for evasion of Service Tax Payments. The appeal was against the show cause notice on confirmation of demand of service tax liability, interest thereof and for the imposition of penalty. They did not demand refund of  service tax, but only prayed only to set-aside the penalty imposed by the lower authorities.

Based on facts placed before them, the CESTAT observed that the issue involved in this case is regarding service tax to be discharged on the amounts of commission received by the appellant from the Govt. of India. It was found that the assessee had discharged the service tax liability, though they were not required to, before the issuance of show cause notice and also claimed that the records were lost in a flood. The CESTAT, held on basis of facts of this case and references to similar cases, the CA certificate on discharge of service tax liability, as  true and considered that the service tax liability have been discharged, and thus the appellant is not required to be visited with the penalties.

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2013-ITS-126-CESTAT-Commissioner of Central Excise, Surat -Vs- M/s. State Bank of India , Decision : 05.02.2013

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad

Appeal No. : ST/603 and 692 of 2011

Arising out of : OIA No. RKA/261-62/SRT-I/2011 dated 25.08.2011

Passed by : Commr. (Appeals) C. Excise & Customs, Surat

For approval and signature : Hon ble Mr. M.V. Ravindaran, Member (Judicial)

Appellant (s) : Commissioner of Central Excise, Surat

M/s. State Bank of India

Represented by : Shri K. Sivakumar, AR

Shri Kamlesh Dalal, Advocate

Respondent (s) : M/s. State Bank of India

Commissioner of Central Excise, Surat

Represented by : Shri Kamlesh Dalal, Advocate
Shri K. Sivakumar, AR

CORAM : Hon ble Mr. M.V. Ravindaran, Member (Judicial)

Date of Hearing / Decision : 05.02.2013

Bottom line:-Since the assessee, State Bank of India has discharged the service tax liability before the issuance of show cause notice and there being a claim that the records are lost in flood in the year 2005, I have to held that the certificate produced by the learned advocate to be correct as on date. Since the appellant, State Bank of India has already discharged the service tax liability and in my opinion, such service tax liability need not have been paid by them as per the decision given by this Bench in the case of Canara Bank (wherein I was one of the Member).

ORDER No. _____________ /WZB/AHD/2013

Per : Mr. M.V. Ravindaran;

These two appeals are taken up for disposal by a common order as the appeals are directed against a very same order in appeal.

2. In appeal No. ST/692 of 2011 the assessee, State Bank of India (SBI) is in appeal for the confirmation of demand of service tax liability, interest thereof and for the imposition of penalty under Section 78, while in appeal No. ST/603 of 2011 the department is in appeal for non imposition of penalty under Section 76 of the Finance Act, 1994.

3. Brief facts of the case are that the appellant M/s. State Bank of India is providing taxable services falling under the category of Banking and Other Financial Services and registered with the department. On the basis of the intelligence gathered by the officers of Director General. Central Excise Intelligence, it was revealed that State Bank of India provided taxable services in relation to operation of accounts of the Employees Provident Fund Organization (EPFO) and Employees State Insurance Corporation (ESIC) classifiable under Banking and other financial services. However, State Bank of India did not make any payment of service tax leviable on the said services. On the basis of further investigations and on scrutiny of records, it was alleged that State Bank of India had evaded payment of service tax on the Banking and Other Financial Services provided by them for the period from 10.9.2004 to 31.3.2007. Therefore, appellant was served with show cause notice on 19.10.2009 proposing to recover inter-alia (a) Rs. 9.80,215/- being service tax not paid and (b) the interest payable under Section 75 of the Finance Act, 1994 on the above amount of service tax. After due process, the adjudicating authority passed an order confirming the demand of service tax of Rs. 8,81,090/- and interest thereof. He also imposed penalty of equal amount under Section 78 of the Finance Act, 1994. However, he has not imposed any penalty under Section 76 and 77 of the Finance Act, 1994.

4. Aggrieved by such an order of the adjudicating authority, appellants State Bank of India and department preferred appeals before the first appellate authority. The first appellate authority, after following the due process of law, rejected the appeal filed by the assessee M/s. State Bank of India and since Revenue was also in appeal before him, he has also rejected their appeal.

5. Learned advocate appearing on behalf of the appellant submits that appellant has discharged the service tax liability, though they were not required to discharge the same, as the amount involved is the commission received by them from the Central Government for collecting and making payments towards Employees Provident Fund and Employees State Insurance. It is his submission that the said amounts which were collected by the appellant is a statutory function, which has been given to them by virtue of the provisions of Reserve Bank of India Act. It is his submission that having done the statutory function, any amount received as commission, is not taxable in the hands of the appellant, as had this action been conducted by the RBI itself, than there would not have been any levy of service tax liability. It is his submission that this ratio has been laid down by this Bench in the case of Canara Bank vs. Commissioner of Service Tax, Bangalore, reported as 2012(28) STR 369. He produced copy of the said order. He further submits that, on instructions from the client, they will not claim any amount of refund of service tax paid and praying only to set-aside the penalty imposed by the lower authorities.

6. Learned Additional Commissioner (A.R.) would submit that the issue involved in the appeal of the Revenue is that the assessee was not penalized under Section 76. It is his submission that he is not aware whether the Revenue has accepted the judgment of the Tribunal in the case of Canara Bank. It is his submission that the ratio laid down in the judgment in Canara Bank is on the similar lines.

7. On careful consideration of the submissions made by both sides, I find that the issue involved in this case is regarding service tax to be discharged on the amounts of commission received by the appellant from the Govt. of India. It is seen from the record that the appellant is claiming that they have discharged the entire service tax liability and in respect of which they have produced a certificate issued by the Chief Manager, Main Branch, Surat, which indicate discharge of service tax liability from September 2004 to July 2005. It is the claim of the Chartered Accountant that these amounts include the service tax liability which has been arrived at by the lower authorities as short payment.

8. Since the assessee, State Bank of India has discharged the service tax liability before the issuance of show cause notice and there being a claim that the records are lost in flood in the year 2005, I have to held that the certificate produced by the learned advocate to be correct as on date. Since the appellant, State Bank of India has already discharged the service tax liability and in my opinion, such service tax liability need not have been paid by them as per the decision given by this Bench in the case of Canara Bank (wherein I was one of the Member). I find that there is no reason for visiting the appellant with penalty that has been imposed by the lower authorities. In the case of appellant, the appeal is for setting aside the penalty imposed under Section 78 of the Finance Act, 1994.

8. Since I have already held that the appellant has discharged the service tax liability, as per the certificate produced by the Chartered Accountant, the service tax liability having been discharged, and held that the appellant is not required to be visited with the penalty under Section 78, under the same analogy, I find that the appellant is not to be visited with any penalty under Section 76 of the Finance Act, 1994 as has been pleaded by the Revenue in their appeal.

9. Accordingly, the assessee’s appeal for setting aside the penalties imposed by the lower authorities is allowed and Revenue s appeal for imposing penalty under Section 76 of the Finance Act, 1994 is rejected.

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