TaxTMI 
TaxTMI 
2014 (3) TMI 1160
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....emanding Service Tax amounting to Rs. 3,59,94,021/- for the period 2007-08 to 2011-12, under Section 68 read with proviso to Section 73(1) of the Act, read with Rule 6 of the Service Tax Rules, alone with applicable interest thereon under Section 75 of the Finance Act, 1994. The same has been registered as SA (E) 250/2013. Brief facts of the case as per SCN 2.1 The applicant, having registered office located at Plot No. 92, Road No. 16, MIDC, Marol, Andheri (E), Mumbai-400 093 are holders of Service Tax Registration No. AACCA0535FST001 and are engaged in providing global software solutions and SAP services; they have a skilled pool of employees comprising of IT engineers who provide development, study, analysis, design and programming, upgradation, enhancement and Implementation of Information Technology, software; they also provide the services of their staff to other outsourcing companies, for which they charge Service Tax under the taxable service "Manpower Recruitment Agency" and "Management Consultancy". 2.2 The officers of the Commissioner of Service Tax-I, conducted investigation during the month of August, 2012 and observed that the Service Tax leviabilit....
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....le services under the provisions of Finance Act, 1994 :- (1) Undertaking Manpower supply services. (2) providing SAP implementation services. (3) providing software development services. (4) providing advice, consultancy and assistance on matters related to IT Software. (5) providing the right to use information technology software for commercial exploitation. 2.6 The officers recorded statement of Shri Anish R. Goenka, Managing Director of the applicant firm on 26-9-2012, under Section 14 of the Act, read with Section 83 of Chapter V of the Finance Act, 1994 wherein he deposed, inter alia : (i) that the applicant are engaged in providing global software solutions and SAP services. (ii) that their skilled employees comprising IT engineers provide development, study, analysis, design and programming, upgradation, enhancement and implementation of Information Technology Software. (iii) &n....
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.... provisions of Section 78 of the Act for suppressing the receipt of value of taxable services, with intent to evade payment of Service Tax; (vi) Penalty should not be imposed for not furnishing the returns in the prescribed form with such late fee, as prescribed under the provisions of Section 70 of the act read with Rule 7C of the Service Tax Rules, 1994, as the applicant failed to file any returns from the period 2007-08 onwards. (vii) Penalty should not be imposed upon them under Section 77 of the act, for contravention of the provisions of the act and rules made there under. Disclosure of the applicant 3. The applicant in their settlement application have submitted that : (i) the Show Cause Notice demanded duty of Rs. 3,59,94,021/- which has been paid along with interest of Rs. 34,23,854/- and penalty of Rs. 30,000/- for late filing of [returns] paid vide Challan No. 00220, dated 8-10-12. (ii) the applicant's interest was not to evade duty, but it was due to financial crunch and wrong interpretation of definition of service. Moreover, the appellants have fully co-ope....
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.... not deposit such tax collected with the treasury on due dates as stipulated under Section 68 of the Finance Act and Rule 6 of the Service Tax Rules. The submission of the applicant that they were facing severe financial crunch which led to delays in payment is not correct, as it appears that such Service Tax, collected by them was used by them in their business activity instead of depositing in the Government Treasury on due dates. (b) During the course of the investigation, the contracts entered into by the applicant with M/s. TCS, M/s. Microsoft and M/s. Infosys were called for, wherein it was noticed that for the period April, 2007 to May, 2008, they had provided on sub-contract or on hire basis, their personnel/employees to these companies for the particular project. Such services rendered by the applicant fall within the ambit of Manpower Supply Agency and leviable to Service Tax. (c) The submission of the applicant that there was no willful mis-statement or suppression of facts on their part did not appear to be correct. In fact, they had not filed any ST-3 returns for the period from 2007-2008 onwards up to t....
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....r and other relief, as the Hon'ble Settlement Commission may deemed fit and proper in the nature and circumstances of the case. Hearing 6.1 A hearing was held in the case on 13-11-2013. Shri Rajan Mashelkar, Consultant and Shri Anup, Sr. Ex. Finance appeared for the applicant whereas S/Shri S.R. Naik. Superintendent & N.K. Thakur, Inspector Commissioner of Service Tax-I, Mumbai appeared on behalf of Revenue. 6.2 The Ld. Consultant, Shri Rajan Mashelkar at the outset reiterated the contention of his settlement application. 6.3 On a query from the Bench as to whether they had filed the requisite ST-3 returns during the relevant period to which demand relates, the Ld. Consultant submitted that they had not filed the returns during the relevant period but had filed the returns together for the periods 2007-2008 to 2011-2012 on 9th October, 2012, and thereafter filed the present application in March, 2013. He was, therefore, of the view that since the returns had been eventually filed for the relevant period, though belatedly, there was no legal bar in their filing the instant application or the Bench in dealing with the same. However, the Ld. Consultant was g....
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.... filed further submissions dated 19-11-2013 as per the directions given by the Bench at the time of hearing, as under : A. The requirement of filing ST-3 returns has been met, which though filed late, were filed before filing the application for settlement. (i) Section 32(E), sub-section (1), clause (a) provides that no such application shall be made unless, the applicants has filed returns showing production, clearance and central excise duty paid in the prescribed manner. Since the provisions of the sections of settlement relating to Central Excise, have been made applicable to Service Tax, the aforesaid provisions have to be read with the relevant provisions of Service Tax. (ii) Applicants submit that though the aforesaid provision does place a specific bar from filing applications for settlement where no returns are filed, the issue of whether there will be due compliance with the requirement of filing returns where the filing of returns are only delayed but filed before the filing of the application for settlement, is to be considered. (iii) The aforesaid clause of sub-section 32(E)(1) mentions that the returns should be ....
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....he total amount payable in terms of this rule for delayed submission of return, shall not exceed the amount specified in Section 70 of the Act : Provided further that where the applicant has paid the amount as prescribed under this rule for delayed submission of return, the proceedings, if any, in respect of such delayed submission of return shall be deemed to be concluded : Provided also that where the gross amount of Service Tax payable is nil, the Central Excise Officer may, on being satisfied that there is sufficient reason for not filing the return, reduce or waive the penalty. Explanation : It is hereby declared that any pending proceedings under Section 77 for delayed submission or non-submission of return that has been initiated before the date on which the Finance Bill, 2007 receives the assent of the President, shall also be deemed to be concluded if the amount specified for delay in furnishing the return is paid by the assessee within sixty days from the date of assent to the said Finance Bill." Reading the provisions of the aforesaid rules and section harmoniously, it may be seen that in case of delayed filing of Service Tax returns, a late....
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....se (a) of Sub-Section 32E of Central Excise Act, 1944. 7.6 The interest of Rs. 44,32,744/- has been calculated as per the report of the Commissioner, Service Tax-I, Mumbai. Of this, an amount of Rs. 34,23,854/- has already been paid and the report mentions that balance if Rs. 10,08,890/- is recoverable from Applicants. In this regard Applicant submitted that they had paid Rs. 5,00,000/- towards balance interest vide Challan No. 00016, dated 19-11-2013. The Applicants submitted that they were going through a period of financial constraint and therefore requested the Settlement Commission to grant Applicant a week's time to make the balance payment towards interest. Further submissions of the revenue dated 19-11-2013 8. As per the direction of the Bench Revenue has filed a corrected copy of Annexure-A regarding calculation of interest for Rs. 44,32,744/- vide their letter F. No. V/ST/HQ/AE/F/260/09, dated 19-11-2013, which is reproduced below :- 2007-08 Payable Due date of payment Amount paid and date of payment Balance after deducting amount payable No. of days delayed Interest @ 13% April 93375 5-5-2007 244479 (7-10-2008) 15110....
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.... 1000000 (30-4-2010) 807618 298 40957 July 403140 5-8-2009 (30-4-2010) 404478 267 38337 August 430488 5-9-2009 503000 (30-4-2010) 473990 236 36185 September 459883 5-10-2009 (30-4-2010) 14107 206 33741 October 430260 5-11-2009 500000 (18-8-2010) 83447 285 43715 November 474925 5-12-2009 500300 (16-9-2010) 108522 284 48039 December 2527398 5-1-2010 2578980 (29-9-2010) 2160104 266 49965 Jan. 534064 5-2-2010 (29-9-2010) 1626040 235 44700 Feb. 548966 5-3-2010 (29-9-2010) 1077074 207 40473 Mar. 2927074 31-3-2010 1850000 (5-10-2010) 4341954 187 194951 658046 5000000 (28-4-2011) 392 91874 Total 736103 2010-11 Payable Due date of payment Amount paid and date of payment Balance after deducting amount payable No. of days delayed Interest @ 13% Interest @ 18% April 483026 5-5-2011 (28-4-2011) 3858928 357 61417 May 443240 5-6-20....
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....; Total 1336561 Grand Total : 44,32,744/- Further submissions of the applicant dated 3-12-2013 The applicant with reference to their earlier submission dated 19-11-2013 have submitted that they have paid the balance interest amount of Rs. 5,08,890- vide Challan No. 00055, dated 28-11-2013 and also submitted copy of the said challan. FINDINGS Per Shri A.K. Prasad, Member 10.1 The Bench has examined the records of the case, the submissions made by the applicants and the co-applicants in the settlement applications, during the personal hearing and written submissions filed thereafter. The Bench has also perused the report and submissions of the Revenue. 10.2 The Bench observes that the main issue relating to the admissibility of the present application itself needs to be addressed first. For a proper appreciation of the issue involved the relevant provisions of law, namely, clause (a) of sub-section (1) of Section 32E of the Central Excise Act, 1944, is reproduced below :- "SECTION 32E. Application for settlement of cases. - (1) An assessee may, in respect of a case relating to him, make an application, before....
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....or consideration is whether it can be said that the applicants had "filed returns.............. in the prescribed manner". The 'manner' prescribed for filing returns (half yearly) in Service Tax is contained in Rule 7 of the Service Tax Rules, 1944 reproduced above), which requires an assessee to file returns by 25th of the month following, the particular half year. In the present case the applicants have admittedly filed the half yearly returns for the impugned period very late for each half year, that too after the Investigations were initiated by Revenue. Hence it cannot be said that the applicant had, during the relevant period, filed "returns........ in the prescribed manner". 10.4 The applicants have laid great stress on the provisions of Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1944 which have been extracted above and which inter alia, provide for payment of late fee at different rates for belated filing of Service Tax returns. The said Rule 7C also provides that once the prescribed late fee has been paid all proceedings including penal proceeding initiated under Section 77 of the Finance Act, 1994 for late filing of returns wou....
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....ive Member Larger Bench decision of the Settlement Commission in the case of Emerson Electric Co. India P. Ltd. [2005 (189) E.L.T. 377 (Sett. Comm.)], wherein similar issues were discussed and decided. The relevant portion of the Special Bench order is reproduced below : "................. (b) Whether a consolidated return filed Just before filing the application or along with the application by a parson who is not registered with Central Excise and did not obtain ECC Number can be considered as satisfying the condition in Clause (a) of Sec. 32E(1) of the CEA, 1944. Answer : No. Though Section 32E(1) does not refer to Rule 12 of the C.E. Rules under which ER1/ER3 returns are prescribed, since the said returns contain details of excisable goods manufactured, cleared and duty paid in the prescribed manner, the said return can be deemed to be the 'return' referred to in Section 32E(1). Therefore, even if the views of the counsels that clause (a) of the first proviso to Section 32E(1) lays down (sic) for filing of returns in the prescribed manner are to be accepted, then too as per Rule 12 of the Central Excise Rules, 2002, 'returns' are to be f....
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....ould not be able to indicate 'duty paid' in the prescribed manner (or even in any manner) and question would continue to agitate about the details of production and clearance to be filled in such belated returns. However, in case the applicant had filed monthly/quarterly returns voluntarily, even if late, but before the commencement of any inquiry or at least issuance of a SCN, the position would be different. In the said belated returns filed after getting ECC Code the applicant would be able to indicate the duty paid by him in the prescribed manner at least from the date of obtaining the ECC Code, along with production and clearance as desired by him. Such returns can be taken cognizance of for the purpose of Section 32E(1) of the Central Excise Act, 1944 to allow filing of settlement application. .................." 14 EXH-"H" Copy of Written submissions dated 16-11-2013 filed by the Petitioners. 117 - 122 15 EXH-'I' Copy of Appellants' letter dated 3-12-2013. 123 - 124 16 EXH-"J" Copy of Order dated 7-2-2014 passed by the Settlement Commission. 125 - 126 17 Affidavit-in-Support of Petition 127 - 129 18 ....
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.... Settlement Commission in the case of M/s. Emerson Electric Co. (India) P. Ltd. (supra). 10.10 This view has been upheld by various High Courts also. In the case of R. Builders v. Union of India in 2008 (223) E.L.T. 348 (Guj.) it was held that the applicants should have filed returns for the disputed period before detection of the case by Revenue authorities to get over the bar of clause (a) of the first proviso of Section 32E(1) of the Central Excise Act, 1944. The relevant portion of the judgment is reproduced below : "4. As recorded in the impugned order it is an accepted fact that the petitioners had been filing annual declarations from the years 1998-99 to 2001-2002 but thereafter it had not filed any declarations, and more particularly for the disputed period i.e. from 7th April, 2004 to 31st December, 2004. It is also an admitted fact that the petitioner unit had crossed the specified limit of annual clearance value and was required to be registered, file the return and pay the duty at least with effect from April, 2004. It is further found from the record that the petitioner unit ought to have filed returns before detection by the revenue authorities a....
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....department. In Central Excise also late filing of returns can be regularized by imposition of penalty or otherwise, under Rule 27 of the Central Excise Rule, 2002. Regularization of a contravention by payment of late fee, fine or penalty does not mean that the contravention did not take place at all. Further, it can be nobody's case that filing of late returns can be the 'prescribed manner' of filing returns. 10.13 There is a reason why the law requires filing of returns during the relevant period as per prescribed procedure. When a return is filed in time before the proper officer the department gets to know the production, clearance and duty paid during that period. When a Settlement application is filed by an applicant one of the pre-conditions is that it must make a full and true disclosure of the duty liability not disclosed to the proper officer. The exact wordings of Section 32E(1) are reproduced below :- "SECTION 32E. Application for settlement of cases. - (1) An assessee may, in respect of a case relating to him, make an application, before adjudication, to the Settlement Commission to have the case settled, in such form and in such manner as may....
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....ore the issue of the SCN or before filing of the settlement application, it would make the provisions of clause (a) of Section 32E(1) of the Central Excise Act, 1944, totally redundant, because every applicant would then be able to fulfill this condition. 10.16 Keeping the above position of law in mind, and the fact that the returns in the present case, for the period 2007-08 to 2011-12 were filed only after the enquiry/investigations had been initiated by the Revenue, it cannot be said that the conditions of Section 32E(1) were satisfied. ORDER 11. In view of the above, the Settlement application filed by the applicant, M/s. A.G. Technologies Pvt. Ltd., is dismissed as not maintainable as it is hit by clause (a) to the first proviso to Section 32E(1) of the Central Excise Act, 1944, as made applicable to Service Tax matters by virtue of Section 83 of the Finance Act, 1994. 12. [Per Contra Shri J.P. Gregory, Member]. - This is a case where the applicant will be held ineligible for settlement of his case if he does not satisfy condition (a) of Section 32 E(1) of Central Excise Act, which requires him to file returns for the relevant period. The applicant s....
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....le 7 of the Service Tax Rules for regular returns, payment of late fee has also been prescribed under Rule 7C to regularize delayed filing of returns. Reading the provision of Section 70(1) with Rule 7C in a harmonious manner it can be understood that late filing of return with prescribed fee can be construed as regularization of the returns which were not filed according to the prescribed frequency. 15. In this case returns for the period 2007-08 to 2011-12 were filed only in 9th Oct, 2012. The SCN was issued on 12th Oct, 2012 and the Application for settlement was filed on 22nd March, 2013. Thus, it can be construed that they have filed the return before filing the application for settlement and tried to comply with the requirement of filing returns in the prescribed manner in terms of Rule 7C, for the limited purpose of becoming eligible for settlement on merits. 16. In Central Excise, no late fee is prescribed for late filing of returns because under Rule 12 there is no provision for the same and non-filing of returns in time invites penal action. It is settled law that late filing and consolidated filing of returns cannot satisfy condition of Section 32E(1) in ....
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....of returns was not sufficient compliance of the provisions of clause (a) because late filing was an offence liable for penalty. However, in two other cases, the Hon'ble High Court had granted relief to two applicants by permitting them to file late returns for the purpose becoming eligible for settlement. These are the cases of Bharat Industrial Works [W.P. (C) 5091/2003, dated 30-7-2004] and Rohit Bal Designer Pvt. Ltd. [AIT-2007-133-HC] where relief was granted without interpreting the provisions of Central Excise Law. While it is settled law that late filing of returns is not sufficient compliance for eligibility for settlement under Section 32E(1) as far as Central Excise Law is concerned, Service Tax Rules have an extra provision which permits regularization of late return with a prescribed fee. Para 4 of the master Circular No. 97/8/2002-S.T., dated 23-8-2007 clarifying procedural issues relating to Service Tax issued by CBEC, Ministry of Finance also states at para 6.4 that "mere non-submission of evidence of payment of late fee along with return is, however not a ground for refusal to allow filing of the return". In other words the Departmental officers are bound to accept ....