2024 (5) TMI 622 - AT - Service Tax

Service tax demand rejected due to time-barred notice and improper calculation of rates

M/s ICICI Lombard General Insurance Co. Ltd. Versus Commissioner of CGST (Audit-II), Mumbai

CESTAT Mumbai allowed the appeal against service tax demand for 2003-07. The tribunal held that extended limitation period could not be invoked as the ... Invocation of Extended period of Limitation - suppression of facts or not - short payment of service tax along with interest and penalties - difference between the service tax payable and the service tax paid in the ST-3 Returns for the period 2003-04 to 2006-07 leading to a conclusion of short payment of service tax by the appellants - disputed period of the transactions is from 2003-04 to 2006-07 - HELD THAT:- The appellants in this case is registered with the Department, paying service tax and filing periodically ST-3 returns and other declarations. It is also a fact on record that all these records are available to the Department and more so to the Audit team of the department who verified the records. In such a situation and that there being no positive act on the part of the appellants to suppress any fact or information from the department, and that there being no evidence for such allegation in the SCN, it is not proper and legal to invoke extended period. Thus, the SCN dated 20.10.2008 issued to the appellants is time barred. The issue with respect to invocation of extended period in respect of fraud, collusion, willful mis-statement or suppression of facts under tax demands is no more open to dispute, as the Hon’ble Supreme Court in the case of Uniworth Textiles [2013 (1) TMI 616 - SUPREME COURT] had held that the onus is on the Revenue to prove the presence of such specific grounds - In the absence of any specific grounds invoked for suppression of facts or willful mis-statement on the part of the appellants, the impugned order confirming the adjudged demands for extended period is patently illegal and therefore not sustainable, on the grounds of limitation. The impugned order relying on the judgement of the Hon’ble Supreme Court in MADRAS PETRO-CHEM. LTD. VERSUS COLLECTOR OF CENTRAL EXCISE, MADRAS [1999 (3) TMI 81 - SUPREME COURT] for invocation of extended period is not relevant in the present set of facts, inasmuch as the elements of obligation on the part of manufacturer under self-removal procedure to maintain the records of production, gate passes, clearance documents, stock registers etc., are not prescribed in the case of appellants - the ratio of the above case is not applicable to the present case, as the facts of the present case are entirely different. It transpires that the effective date of increase in service tax at the rate of 8%, 10% and 12% is from 14.05.2003, 10.09.2004 and 18.04.2006, respectively with applicable cess. However, from the Annexure A and B to the SCN dated 20.10.2008, it is seen that the entire payments received during the whole month i.e., May, 2003 and April, 2006 have been applied with the service tax at the rate of 8% and 12.24%, without giving due recognition to the effective rate of service tax applicable prior to 14.05.2003 and after that day for the rest of the days in the month of May, 2003; and similarly the rate of service tax applicable prior to 18.04.2006 and after that day for the rest of the days in the month of April, 2006. Thus, it appears that the calculation of the short payment of service tax is improper on this count. On perusal of the sample Certificate cum Policy Schedule produced by the appellants it is seen the period of insurance is specifically mentioned along with the date of receipt of premium thereof, with breakup details of the amount of premium and the service tax applicable thereon. Accordingly, the appellants have paid applicable service tax from the date of assumption of risk of all such contracts entered into by them, in terms of the legal provisions of the Insurance Act, 1938. There is no correlation made out either in the audit records/report or in the SCN, to state that the actual amounts received by the appellants in a particular month were of entire premium amount on which the agreements were entered into in that particular month or risks assumed in that particular month, and respective service tax was not paid - the demand for short payment of service tax, without firstly determining the grounds on which such short payment was liable to be recovered, were made out without any legal basis in the impugned order and therefore, on this ground itself the impugned order is not sustainable. Service tax liability in respect of general insurance premium - HELD THAT:- The issue of service tax liability in respect of general insurance premium has already been dealt in elaborately by the Tribunal in the case of Bajaj Allianz General Insurance Co. Ltd. [2008 (10) TMI 72 - CESTAT MUMBAI] holding that the service tax liability is calculated on the basis of prevalent rate of service tax at the relevant period on the amount of premium received and that the enhanced rate of service tax is not applicable to the policies, which were issued prior to the enhancement of the rate. As regards the payment of service tax belatedly after the due date in respect of five months, the appellants have paid the entire amount of Rs.31,22,455/- vide TR–challans No. 00359, No. 00364 both dated 11.06.2005 and No. 5758 dated 24.04.2007. Since, the appellants have accepted the liability for payment of interest for delay in payment of service tax and inasmuch as the entire amount was paid by them, the confirmation of the recovery of interest for delayed payment under Section 75 ibid in the impugned order is proper and accordingly, we uphold the same. The impugned order dated 31.08.2020 with regard to confirmation of adjudged service tax demands along with interest and penalties are not sustainable. The appeal is disposed off. Issues Involved:1. Short payment of service tax.2. Invocation of extended period of limitation.3. Retrospective application of increased service tax rates.4. Interest on delayed payment of service tax.5. Imposition of penalties.Summary:Short Payment of Service Tax:The appellants, engaged in general insurance business, were found to have discrepancies between service tax payable and paid in their ST-3 Returns for 2003-04 to 2006-07. The department concluded a short payment of service tax based on Section 67 of the Finance Act, 1994. The Commissioner confirmed the demand u/s 73(1) along with interest u/s 75 and a penalty u/s 78, but did not impose penalties u/s 76 and 77. The appellants argued that the service tax should be based on the rate effective on the date of risk assumption, not the date of premium receipt.Invocation of Extended Period of Limitation:The appellants contended that the show cause notice (SCN) did not mention grounds for invoking the extended period u/s 73(1). The Tribunal found that the SCN lacked specific grounds for suppression of facts or willful mis-statement, making the invocation of the extended period improper. The Tribunal referenced the Supreme Court's decision in Uniworth Textiles Ltd. Vs. Commissioner of Central Excise, Raipur, which held that the burden of proving mala fide conduct lies with the Revenue.Retrospective Application of Increased Service Tax Rates:The appellants argued that the impugned order incorrectly applied enhanced service tax rates retrospectively. The Tribunal noted that the rates of 8% and 12.24% were applied to the entire months of May 2003 and April 2006, respectively, without considering the effective dates of the rate changes. The Tribunal referenced the case of Bajaj Allianz General Insurance Co. Ltd. Vs. Commissioner of Central Excise, Pune, where it was held that enhanced rates are not applicable to policies issued prior to the rate increase.Interest on Delayed Payment of Service Tax:The appellants accepted the liability for interest on delayed payments, and the Tribunal upheld the recovery of interest u/s 75.Imposition of Penalties:The Tribunal found that the impugned order's imposition of penalties u/s 78 was not sustainable due to the lack of specific grounds for invoking the extended period. The Tribunal referenced the Supreme Court's decision in Madras Petrochem Ltd. Vs. Collector of Central Excise, Madras, which emphasized the necessity of specific allegations in the SCN for invoking extended periods.Conclusion:The impugned order was found unsustainable regarding the confirmation of adjudged service tax demands, interest, and penalties, except for the recovery of interest on delayed payments, which was upheld. The appeal was disposed of accordingly.