2024 (1) TMI 1056 - AT - Service Tax

Service tax demands of Rs. 15.95 lakh and Rs. 9.6 crore set aside, penalties waived under Sections 76-80

M/s. UCO Bank Versus Commissioner of Service Tax, Kolkata

CESTAT Kolkata allowed appeal partially in service tax matter. Tribunal set aside Rs. 15,95,552 demand for Cenvat credit on residential telephone bills ... Disallowance of Cenvat credit - residential telephones provided to employees - HELD THAT:- This issue is no longer res integra as the tribunal, Kolkata in the case of M/S INDIAN BANK VERSUS COMMISSIONER OF SERVICE TAX, KOLKATA [2023 (9) TMI 569 - CESTAT KOLKATA] has allowed the Cenvat Credit on telephone bills in respect of the telephones which were installed at the residence of employees - As per the definition of 'input services' during the material period, all activities relating to business should qualify as ‘input service’ within its ambit. Thus, by relying on the definition of 'input services' and the decision of the Tribunal Kolkata, it is held that the appellant is eligible for the Cenvat Credit of service tax paid on telephone bills in respect of the telephones installed at the residence of employees. Accordingly, we set aside the demand of Rs. 15,95,552/- confirmed in the impugned order. Demand pertaining to services rendered to mutual fund operators, which has already paid by the Appellant - HELD THAT:- The Appellant could not produce any evidence regarding the payment of interest for the delay in payment of this amount. Accordingly, out of the demand of Rs.21,65,286/-, the demand of Rs.15,95,552/- is set aside and the confirmation of the demand of Rs.5,69,734/- is upheld. The matter is remanded back to the adjudicating authority for the limited purpose of payment of interest for the delay in payment of this amount of service tax of Rs.5,69,734/. Demand of service tax (including Education Cess and Secondary and Higher Education Cess) of Rs. 9,60,92,082/- under Banking and other Financial Services - HELD THAT:- As a part of its normal banking activities, the Appellant invests in various government securities. Such investments in government securities are undertaken to comply with the requirements of maintaining the CRR and SLR as per the directives of Reserve Bank of India (RBI) issued from time to time. On several occasions, the Appellant purchases and sells these securities at cum-interest price. Thus, it is found that the Appellant pays and receives interest at the time of purchase and sale of securities respectively. It is observed that there is no element of service involved in purchases and sales of Govt. securities which is purely an investment activity - no service tax can be levied on interest income pertaining to investment made in Govt. securities and the demand confirmed in the impugned order on this count is liable to be set aside. Appropriation of Rs. 4,67,42,500/- against the aforesaid demand of Rs. 9,60,92,082/- - HELD THAT:- The demand itself has been held as not sustainable. Hence, the question of appropriation, if any, does not arise. Accordingly, the Appellant would be eligible for the consequential benefit of appropriation made against the said demand. Penalty imposed under Section 76 of the Finance Act, 1994 - HELD THAT:- As the delay in payments were unintentional and the Appellant always paid the service tax voluntarily with interest acting with bonafide belief, it is held that penalty imposed under Section 76 on this count is not justified. Thus, this is a fit case for invoking Section 80 of the Finance Act 1994 to waive the penalty. Therefore, the penalty imposed under Section 76 in the impugned order is set aside by invoking the provisions of Section 80 of the Finance Act, 1994. Penalty imposed under section 78 of the Finance Act, 1994 - HELD THAT:- It is observed that penalty under this Section can be imposed only under exceptional circumstances marked by fraud, collusion, willful misstatement, suppression of facts, contravention of any of the provisions of the Act or Rules, made there under with the intent to evade payment of service tax. As none of the said conditions justifying the imposition of penalty under Section 78 exists in the instant case, the penalty imposed under section 78 of the Finance Act, 1994 is not sustainable and the same is set aside. Appeal disposed off. Issues Involved:1. Disallowance of CENVAT credit on service tax for residential telephones.2. Demand of service tax for non-payment and delayed payment.3. Demand of service tax on interest from the sale of government securities.4. Appropriation of payments against confirmed demands.5. Invocation of extended period of limitation.6. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.Summary:1. Disallowance of CENVAT Credit on Service Tax for Residential Telephones:The appellant argued that the CENVAT credit on service tax for residential telephones provided to employees should be allowed as 'input service' under the CENVAT Credit Rules, 2004. The Tribunal referred to the case of M/s. Indian Bank vs. Commissioner of Service Tax Kolkata [2023 (9) TMI 569 - CESTAT Kolkata] and other judgments, concluding that such services qualify as 'input service' related to business activities. Thus, the demand of Rs. 15,95,552/- was set aside.2. Demand of Service Tax for Non-Payment and Delayed Payment:Regarding the demand of Rs. 21,65,286/-, the Tribunal divided it into Rs. 15,95,552/- (already addressed) and Rs. 5,69,734/-. The latter amount pertained to services rendered to mutual fund operators, which the appellant claimed to have paid. However, no evidence of interest payment for the delay was provided. The Tribunal upheld the demand of Rs. 5,69,734/- and remanded the matter for interest payment verification.3. Demand of Service Tax on Interest from Sale of Government Securities:The appellant contended that the demand of Rs. 9,60,92,082/- was raised on interest earnings from the sale of government securities, which is an investment activity and not a taxable service. The Tribunal agreed, stating that no service tax can be levied on such interest income. Consequently, the demand was set aside.4. Appropriation of Payments Against Confirmed Demands:The Tribunal found that the appropriation of Rs. 4,67,42,500/- against the demand of Rs. 9,60,92,082/- was unjustified since the demand itself was not sustainable. Thus, the appellant was entitled to the consequential benefit of the appropriation.5. Invocation of Extended Period of Limitation:The Tribunal did not find any evidence of fraud, collusion, willful misstatement, or suppression of facts to justify the invocation of the extended period of limitation. Therefore, the extended period could not be invoked.6. Imposition of Penalties under Sections 76 and 78 of the Finance Act, 1994:The Tribunal observed that penalties under Section 76 can be imposed for non-payment or short payment of service tax. Since the appellant had paid the service tax with interest voluntarily, the penalty was deemed unjustified and set aside by invoking Section 80 of the Finance Act, 1994. Similarly, the penalty under Section 78, which requires evidence of fraud or willful misstatement, was also set aside as none of those conditions were met.Orders:(i) Demand of Rs. 15,95,552/- set aside.(ii) Out of Rs. 21,65,286/-, Rs. 15,95,552/- set aside, Rs. 5,69,734/- upheld and remanded for interest verification.(iii) Demand of Rs. 9,60,92,082/- set aside with consequential benefits.(iv) Penalty under Section 76 set aside.(v) Penalty under Section 78 set aside.(vi) Appeal disposed of on these terms.