2019 (3) TMI 975 - AT - Service Tax

Tribunal overturns interest demand on government transactions, ruling in favor of appellant

The Tribunal set aside the order demanding interest under Section 11AA of the Central Excise Act, thereby allowing the appellant's appeal. The Tribunal ... Demand of service tax - Section 11AA of the Central Excise Act - non-payment of Service Tax on Government transactions - Held that:- As per the Larger Bench decision of the Tribunal in the case of CCE vs. State Bank of Patiala [2016 (10) TMI 800 - CESTAT NEW DELHI], the appellant being agent of the RBI is not liable to Service Tax on Government business. In the present case, the appellant in compliance of the direction of the RBI dated 04.11.2016 paid the Service Tax even before collecting the same from RBI. Further, the appellant has paid the Service Tax in compliance of Section 73A(2). Further, in the facts and circumstances of the case demanding interest under Section 75 is not tenable in law because the appellant is not liable to pay Service Tax under Section 68. The impugned order demanding interest in terms of Section 11AA of the Central Excise Act is not sustainable in law - appeal allowed - decided in favor of appellant. Issues:- Appeal against order passed by Commissioner (A) partly allowing the appeal and confirming demand under Section 11AA of Central Excise Act but dropping penalty under Section 80 of the Finance Act, 1994.Analysis:1. Background: The appellant, registered under the Finance Act, 1984, provides taxable services under banking and financial services category. The appellant acts as an agent of RBI for various government transactions, receiving 'agency commission' and carrying out sub-treasury functions. A show cause notice (SCN) was issued demanding Service Tax on government transactions from January 2014 to March 2015, totaling Rs. 56,03,944, along with interest and penalty under relevant sections.2. Appellant's Contentions: The appellant contended that they are not liable to pay Service Tax on government transactions as they act as RBI's agent, relying on a Larger Bench decision. They highlighted RBI's directive to pay Service Tax and seek reimbursement, which they complied with even before collecting the tax from RBI. The appellant argued that they paid the tax in compliance with Section 73A, depositing it to the government before receiving it from RBI.3. Department's Position: The Department filed an appeal before Commissioner (A) for demanding interest under Section 75 and imposing penalty under Section 76 of the Finance Act. The Commissioner (A) partly allowed the appeal, upholding interest demand but dropping the penalty under Section 80 of the Finance Act.4. Tribunal's Decision: The Tribunal, considering the Larger Bench decision, held that the appellant, as RBI's agent, is not liable to pay Service Tax on government business. The Tribunal noted the appellant's early compliance with RBI's directive to pay the tax and found demanding interest under Section 75 not sustainable. Citing a precedent, the Tribunal set aside the interest demand, allowing the appeal of the appellant.5. Conclusion: The Tribunal found the impugned order demanding interest under Section 11AA of the Central Excise Act unsustainable in law and set it aside, thereby allowing the appellant's appeal.This detailed analysis showcases the legal arguments, precedents, and the Tribunal's reasoning leading to the decision in favor of the appellant.