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BRIEF FACTS OF THE CASE
M/s Cadila Pharmaceuticals Ltd. ,1389, Trasad Road, Dholka, Ahmedabad[hereinafter
referred to as “the noticee”) is engaged in manufacturing of P&P Medicaments as well as
providing services viz. GTA , Business Auxiliary, Maintenance &Repair, Management Consultant,
etc. having Service Tax Registration No. AAACC6251EST001..
2.
The E.A.2000 audit for the year 2009-10, was conducted by the Central Excise
Commissionerate, Ahmedabad-II, accordingly Final Audit Report No.282/2009-10 dtd.
18.05.2010 was issued by the Assistant Commissioner, Audit, Central Excise, Ahmedabad-II.
During the course of Audit from of the noticee, following objection was observed from the
ledger account, Balance Sheet of the noticee by the audit team, for the year 2009-10, as under.
2 (i) Revenue Para-3 (by Audit) :
“On scrutiny of the assessee’s records viz. ST-3 Returns, Ledgers, balance Sheet etc., it
has been observed that the assessee has availed Services of Foreign Bank to receive
export proceeds. The services rendered by the Foreign Bank is taxable under the
category of Banking and Financial Services as per Section 65 (19) (vii) of the Finance Act,
1994. Since the service has been provided from outside India, the recipient of the service
is liable to discharge service tax liability in terms of Section 66A of the Finance Act, 1994
read with Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994 and Rules 3(iii) of Taxation of
Services (Provided from outside India and received in India) Rules 2006. The noticeehas
not paid Service tax on Foreign Bank Charges . The noticeehas been already written a
letter dtd.15/02/2010 for getting the details regarding Foreign Bank Charges but the
noticeehas not given any data. The Range Superintendent/Assistant Commissioner, C.EX.
Div.IV, is hereby requested to collect the information and issue Show Cause Notice in the
matter.”
3. Therefore, information was called for from them, and the noticee vide their letter
dtd.05.12.2011 submitted as under:
“They have not availed services of foreign banks to receive export proceeds. The amount
deducted by the Foreign Banks to send the amount of their export proceeds on behalf of
their clients and these transactions are between two banks and not by Foreign Banks
and Cadila Pharmaceuticals Limited”.
4. Further, the noticee replied through their letter dtd. 31.12.2012, and dtd.07.08.2013 under
which they have made submission to this office that they have already paid the service tax on
foreign Bank Charges and that as Bank had collected the service tax on their bank advices and
deposited the same with Central Government Treasury, the department asking them to pay
service tax on the same amount was without authority and not sustainable in Law. In this
regards, it appeared that the noticee had repeatedly submitted wrong submissions. In fact they
had not paid the service tax and the same had been confessed by the noticee in their statement
dtd.21.08.2013 recorded u/s 14 of the C.Ex. ACT, 1944 made applicable to Service Tax vide
section83 of the Finance Act, 1994.
5.
The JRO issued summons under Section 14 of the Central Excise Act made applicable
vide Section 83 of the Finance Act, 1994. The statement of Shri Dinesh Keshavlal Diwan was
recorded on 11.06.2012 in which he interalia stated that;
“On being asked that why you have not paid Service Tax, I state that we do not avail
services of foreign banks to receive export proceeds. The amount deducted by the
Foreign Banks to send the amount of our export proceeds on behalf of their clients and
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these transactions are between two banks and not by Foreign Banks and Cadila
Pharmaceuticals Limited. I further state that we do not know how much charges will be
deducted by the foreign banks. I further state that Reverse Charge Mechanism is not
applicable to us as we don’t pay anything to Foreign Banks. I state that we can come to
know when Export Proceed Intimation / Advice is received from our Bank. I further state
we have already provided details of Bank Charges for the year 2009-10 and 2010-11.”
5.1
The noticee had stated in the above mentioned statement that, they had not paid any
amounts to Foreign Banks, and they only came to know when Export proceed intimation/
Advices was received from their Bank.
5.2
Here, it appeared that the noticee had made a wrong statement, as the Bank advice
clearly proved that whatever amount was billed by them, was paid in the Foreign Bank by the
Foreign Customer and after deducting some of the amount as charges, remaining amount was
received by them. Thus, the entire amount which was billed by the noticee was paid by the
foreign based customer, but they had not received entire amount and hence, they had
received less amount to that extent, therefore in other way they had paid the amount of Bank
Charges as they have borne the burden.
6. Whereas the noticee had submitted some specimen copies of FOREIGN BILLS TRASACTION
ADVICEs i.e. Bank Advice (hereinafter referred to for the sake of brevity) along with their letter
dtd.05.12.2011 and information in respect of Foreign Bank Charges for the year 2009-10 and
2010-11.Also they submitted the same information for the year 2008-09. According to which
they had shown Foreign Bank Charges are as under.
Period
Amt. of
Foreign
Bank
Charges
(Rs.)
Amt. of
Service
S.T.paid
Tax to be
(Rs.)
recovered
(Rs.)
2008-09
754211
0
93220
2009-10
2282499
0
235097
2010-11
2127079
0
219089
2011-12
1663585
0
205619
2012-13
1716319
0
176781
TOTAL
8543693
929806
7. On verification of the Bank Advice and enclosed annexure showing Bank advice wise details it
was found that the noticee had not submitted information as per the Exchange Rate details
mentioned on the Bank Advice. The Bank had shown Rate to Currency Rs.46.14 (i.e. printed rate
on advice) by the Bank, however, the noticee had shown Rs.43/- with pencil, which was not
correct., and they had calculated less amount as per rate of exchange mentioned by their own
hand (with pencil) in some of the cases.
7.1
Therefore, the JRO letter dtd.06.08.2013 to the noticee, was requested to send the
entire information as per the Exchange Rate mentioned by the Bank on the Bank Advice.
Despite the same, they did not submit the complete information and submitted some
information which was not according to the requirement of the Department. Therefore, the
JRO issued a summon under Section 14 of the Central Excise Act made applicable vide Section
83 of the Finance Act, 1994 and for information in respect of 2011-12 and 2012-13.
Accordingly, Shri Mukesh Parikh, Manager Indirect Taxation of M/s. Cadila Pharmaceuticals Ltd
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personally visited this office and made necessary correction in their information provided for
the year 2009-10 and 2010-11and put his dated signature on correction made on
21.08.2013.Also statement under section 14 of the said Act, has been recorded on 21.08.2013
by the Superintendent of this Range in question answer form which is reproduced as under.
Q.1 I show you the letter dtd.05.12.2011 issued by your company, along with
information submitted in respect of ‘Foreign Bank Charges’ for the year 2009-10, 201011. Do you confess that the contents mentioned in the letter as well as information
attached with the said letters are true and correct ?
Ans. Yes. I confessed.
Q.2 I show you this office letter dtd. 06.08.2013 issued by the Superintendent Range-VI,
Division-II, Service tax written to your company for providing information in respect of
‘Foreign Bank Charges’ for the year 2011-12 and 2012-13. Further, I also show you your
reply issued vide letter dtd.07.08.2013 Do you confess that the contents mentioned in
the letter as well as information attached along with the said letters are not correct and
not according to this office letter.
Ans. Yes. I confessed.
Q. 3.I show you the information submitted today i.e. 21.08.2013 by your company, in
respect of ‘Foreign Bank Charges’ for the year 2011-12, 2012-13. Do you confess that the
information are true and correct ?
Ans. Yes. I confessed. However, it is to state that as per clarification issued by the CBEC
Cir. No.163/14/2012 dated 01.07.2012 no service tax is payable.
Q.4
Now, as an Example, I show you copy of Bank Advice No.MI05512 dated
29.01.2010 issued by the Bank of Baroda, Corporate Financial Services branch i.e. CFS
Branch, Opp. Law Garden, Ellisbridge, Ahmedabad-380006 and submitted by your
company. You have sign on the same in token of having seen the same. Do you confess
that the Bill amount shown on the advice is US$ 135000/- further it is also mentioned on
the advice that US$ 260/- shown as deducted and remaining US$ 134740/- were paid to
M/s. Cadila Pharmaceuticals Ltd.
Ans. Yes. I confessed.
Q.5 Thus, do you confess that whatever amount was charged i.e.US$ 135000/- as Bill
amount was deposited by your foreign buyer entirely in the Foreign Bank, but your
company had not received entire amount of US$ 135000/- and some of the amount i.e.
US$ 260 was deducted by the Foreign Bank and as a result less amount was received by
your company and burden to that extent was borne by your company ?
Ans. Yes. I confessed.
Q.6 As far as the amount of US$ 260/- shown as deducted on the above mentioned
advice, do you confess that, on the body of Bank advice, nowhere it is mentioned that
Service Tax is paid on US$ 260/-.
Ans. Yes. I confessed, no service tax is paid on the US$ 260/-.
Q.7 Now, I again show you, your company’s letter dtd.31.12.2012, and dtd.07.08.2013
under which your company has made submission to this office that ”we have already
paid the service tax ”. Do you confess that this submission made by your company was
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not correct as no service tax had been paid till date on the Charges deducted by the
foreign Bank.
Ans. Yes. I confessed. However, it is to state that we have not paid service tax on foreign
bank charges as transaction was between two banks.
Q.8 Again I show you the above mentioned Bank Advice having ID No.MI05512
dtd.29.01.2010, the advice is also showing amount of Rs.111/-as FOREIGN EXCHANGE
SERVICE CHARGES including Rs.100 towards Foreign Exchange Service Charges and
Rs.11/- Service Tax = total Rs.111/- and the same is confirmed by the Assistant General
Manager, Bank of Baroda, of above mentioned Branch vide their letter dtd.13.07.2013.
Do you confess that this amount of service tax deducted by the Bank is not having any
relation with the Foreign Bank Charges deducted amt. to US$ 260/-. , But the same is
merely FOREIGN EXCHANGE SERVICE CHARGES which is being charged “per
transaction”Rs.111/-(inclusive of Rs.11 Service Tax) by the Bank according to the banking
Rules and Regulations. Thus, you have mis-lead the Service tax department through your
letter 31.12.2012, and dtd.07.08.2013.
Ans. Yes. I confessed. However, it is to state that the same was due to our misunderstanding.
Q.9 Do you confess that as regards foreign bank charges, you have not mentioned the
same in the ST-3 Return and not informed to the Service tax department and no service
tax is paid on the same till date?
Ans. Yes. I confessed.
8. Thus, the noticee had confessed that whatever amount was Billed by them was paid by the
Foreign based customer entirely, and some of the charges were deducted by the Foreign Bank
towards charges and accordingly less amount was received to that extent by them. Hence they
confessed that they have borne the Foreign Bank Charges. Further, they confessed that
whatever submission they have made in their letter dtd. 31.12.2012, and dtd.07.08.2013 were
not correct and they had mis-lead service tax department. Also they had confessed that the
service tax was paid only on FOREIGN EXCHANGE SERVICE CHARGES which is being charged
“per transaction”Rs.111/-(inclusive of Rs.11 Service Tax) by the Bank according to the banking
Rules and Regulations and not on Foreign Bank Charges and they have mis-lead the
department. They also confessed that as regards foreign bank charges, they had not
mentioned the same in their ST-3 Return and not informed to the Service tax department and
no service tax is paid on the same till date. Thus, the noticee had suppressed the facts by not
mentioning in their ST-3 Return and not informing the department and not paid the service tax.
Further, they mis-lead the department by giving incorrect information.
9. It was observed that the noticee had not discharged their Service Tax liabilities as discussed
in the foregoing paras of this Show Cause Notice and they had suppressed the facts from the
department by not mentioning the same in the ST-3 returns and not informing to the
department.
10. Further Section 66 A, has been inserted vide Section 68 of the Finance Act, 2006.
Accordingly, the recipient of taxable service from outside India is deemed to be provider of
such service and shall have to observe all provisions of Chapter V of the Finance Act, 1994. Such
person is required to pay under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 and registered under
provisions of such services(Provided from outside India and received in India) Rules, 2006.
(d)
"Person liable for paying service tax" means,-
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(iv)
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in relation to any taxable service provided or to be provided by any person from a
country other than India and received by any person in India under section 66A of the
Act, the recipient of such service;
11. However the noticee had not paid the service tax for the services received regarding
Foreign Bank Charges. Whereas it appeared that the noticee had exported goods to their
foreign buyers and the said foreign buyers deposited remuneration of the exported goods in
Foreign Banks. These Foreign Banks thereafter deducted some amounts towards service
provided to them, and they got back the balance amount and therefore they were required to
pay up service tax on the said charges in terms of Rule 2(1)(d)(iv) read with Section 66A along
with applicable interest under Section 75 of the Act read with Rule 4 of the provision of
“Taxation of Services (provided outside India and Received in India)Rules, 2006.
12. Further, w.e.f. 16-07-2001, the Banking & other Financial Services were brought under levy
of service Tax as per Section 65 (12) of Finance Act, 1994, the same were expanded to Co-op
banks & were made liable to pay Service Tax w.e.f. 10-09-2004. As per Section 66A, where any
service is:
(a) Provided or to be provided by a person who has established a business or has a fixed
establishment from which the service is provided or to be provided or has his
permanent address or usual place of residence in country than India and
(b) Received by a person, who has his place of residence in India such service shall, for the
purpose of this section, be taxable service and such taxable service shall be treated as if
the residence has himself provided the service in India.
13. The said noticee had not paid service tax amt. to Rs.9,29,806/-(including Edu.Cess 2%& SHE
Cess 1%) on the Foreign Bank Charges under the category of “Banking and Financial Services”,
as definer under Section 65(105)(zm) of the Finance Act, 1994 and they have contravened the
provision of Sec.68 of the Finance Act,1994 and the rules made there under with intention to
evade payment of service tax.
14.Thus the noticee had suppressed the facts by not mentioning the facts in ST-3 Returns and
not informed to the department with intend to evade the payment of tax.
15.. In view of the above discussion, it appeared that the said service recipient/noticee had
contravened the provisions of Section 66 A of the Finance Act, 1994 on account of suppression
of facts and they have contravened the provision of Sec.68 of the Finance Act,1994 and the
rules made there under with intention to evade payment of service tax. It is evident that the
said service provider has escaped the assessment. Therefore they were required to pay up the
amount of service tax under Sec.68 of the Finance Act, 1994 along with applicable interest
under Section 75 of the Act.
16.
The government from the very beginning placed full trust on the service providers, so
far as service tax concerned and accordingly measures like self assessment etc., based on
mutual trust and confidence are in place. Further, a taxable service provider is required to
maintain any statutory or separate records under the provision of service tax rules as
considerable amount of trust is placed on the service provider and private records maintained
by them for normal business purposes are accepted, practically for all the purpose of service
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tax. All these operates on the basis of honesty of the service provider; therefore, the governing
statutory provisions create an absolute liability when any provision is contravened as there is a
breach of trust placed on the service provider, no matter how innocently. The deliberate efforts
by not paying the correct amount of service tax is utter dis-regard to the requirements of law
and breach of trust deposed on them, such outright act in defiance of law appears to have
rendered them liable for stringent penal action as per the provisions of section 78 of Finance
Act, 1994 for suppression on concealment with intent to evade payment of service tax..
17. Therefore , M/s. Cadila Pharmaceuticals Ltd. ,1389, Trasad Road, Dholka, Ahmedabad was
issued a show cause notice no. STC/4-23/O&A/13-14 dated 11.10.2013 by the Additional
Commissioner, Service tax, Ahmedabad, as to why:(i)
Service Tax Amt. to.Rs.9,29,806/-(including Edu.Cess 2%& SHE Cess 1%) for
Services received by them from foreign based service provider who has no
office in India, should not be considered as taxable service under the
category of Banking and Financial Services as defined under Section 65 (105)
zm of the Finance Act, 1994 and should not be demanded and recovered
from them under the proviso to Section 73 (1) of the Finance Act, 1994,by
invoking the larger period of five years as discussed herein above.
(ii)
Interest at the applicable rate on the amount of their service tax liability should
not be recovered from them under Section 75 ibid of the Finance Act, 1994.
(iii)
Penalty should not be imposed upon them under Section.78 of Finance
Act, 1994 for Service tax not paid as mentioned herein above.
(iv)
Penalty should not be imposed upon them under Section
of Finance Act, 1994 for Service tax not paid as mentioned here in above.
(v)
76
Penalty should not be imposed upon them under Section 77 of Finance Act, 1994
as they have not filed the ST 3 return in respect of ‘Foreign Bank Charges’
under Finance Act, 1994.
DEFENCE REPLY
18.
The noticee filed their reply dated 24-03-2014, wherein they submitted as under:
18.1 That in the above matter, they were called upon to show cause as to why service tax of
Rs. 9,29,806/- should not be demanded with interest and penalty should not be imposed. The
demand covered the longer period from 2008-09 to 2012-13. The demand was in respect of
liability as recipient of service arising out of audit observation dated 18-05-2010 for the year
2009-10.
18.2 That it appears that the statement of Shri Diwan dated 11-06-2012 was recorded.
However, in para 5.2 of the show cause notice, the same was labeled as wrong statement.
18.3 That it was submitted by the noticee that they are regular exporter of the goods. When
they export the goods, the consideration for such exports is required to be realized through
banking channel. For this purpose, the documents are handed to their banker in India for
realizing the amount. It would appear that the Indian bank in turn sends the documents to
foreign bank of the buyer and thus, through banking channel, the sale proceeds are realized.
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Normally, some small deduction is made by the foreign bank from the amount payable to us
and to that extent; lesser amount is realized by Indian bank.
18.4 That the Indian bank charges them their charges for collection and service tax is paid by
bank in India on the charges raised by them.
18.5 That the issue in the present case is the amount deducted by the bank and the nature
thereof and liability to tax on such amount.
18.6 That now the matter was directly covered by the Trade notice issued by the Bombay
Service tax Commissionerate which is reproduced below:
Bank Charges paid by Foreign Banks — Processing charges for Import/Export documents
— Clarifications
During verification of the records of some of the banks, it has been noticed that, in the case of
export and import transactions, where foreign exchange is required to be received in the country
or to be remitted, the foreign banks charges a commission/fee from the bank in India, but no
Service Tax is being paid thereon. These foreign banks are those with whom the importer or exporter
in the foreign country holds a bank account or the said foreign bank is providing some services in
relation to forwarding of documents and realisation of proceeds by way of remittances of money.
As per the law, Service Tax is required to be paid by the recipient of services in India, in cases where
services are provided by a foreign person. In order to examine the factual and legal position, a
meeting of major banks along with representatives of Indian Banks' Association (IBA) and Foreign
Exchange Dealers' Association of India (FEDAI) was held and their views were taken. After examination
of the factual and legal position, the following clarification is issued.
2.
Banks in India are providing services to their customers who may be exporters or importers.
For
the purpose of forwarding of documents and realisation of proceeds by way of
receiving remittance in foreign currency or making payment in foreign currency, the banks
in India have to obtain and utilise the services of foreign banks. It was explained to us,
including by IBA, that there is no written agreement between banks in India and foreign banks for
providing the said services. In fact, in a typical case of export from India, the exporter submits
the documents to a bank in India and the said bank in turn forwards these documents to a
foreign bank, which may be the banker of the importer in the foreign country or it may be the
intermediary bank, which may in turn contact the banker of the importer in the foreign country.
The said banker of the importer and/or the intermediary bank in the foreign country charges
certain amounts and normally these charges are recovered by them by deducting from the total
amount to be remitted to the Indian exporter. Furt her, in the case of import transactions, where
the Bank in India, at the request of the importer, issues an LC, foreign bank charges are paid to
the Foreign Bank. The foreign bank and/or the intermediary bank, as the case may be, deal only
with the bank in India, and they only correspond and transact with the bank in India and not
with the exporter. It is informed to us that since there is no formal agreement between the
banks in India and foreign banks regarding the scope of their activity or the quantum of
charges etc., all banks around the world, who transact in import and export transactions, subscribe
to the "Uniform Rules for Collection of Commercial Paper, International Chamber of Commerce
Brochure No. 522 (URC 522) effective from 1-1-1996"Uniform Customs and Practice for
Documentary Credits" (UCP 600), both issued by International Chamber of Commerce,
effective from 1-7-2007, which provide Articles containing terms and conditions which are binding
on all the parties subscribing to them. Thus, the need for agreements between banks is
superfluous, as they subscribe to the URC 522 and UCP 600, and only the rates of charges need to be
periodically fixed.
3.
While going through sample import -export documents obtained from the banks, it was
noticed that some of the banks are affixing stamps on documents stating that the said
transactions of forwarding of documents and realisation of proceeds by way of remittances
of money are subject to URC 522/UCP 600. The banks in India appears to be following URC
522/UCP600 for transactions of forwarding of documents and realisation of proceeds by way of
remittances of money.
4. In order to understand the obligations of the foreign banks, the banks in India and
impo rter/expo rter, the said URC 522/UCP 600 were examined. Article Nos. 4, 8, 10, 11, 16,
21, 26 of URC 522 and Article Nos. 3, 4, 7, 8, 9, 13, 37 of UCP 600, read with other relevant Articles in
these two brochures are relevant for the present issue. A combined reading of these Articles shows
that there is an implied contract between a bank in India and a foreign bank, whereby, the foreign
bank recognizes only the Bank in India for providing their services and for collection of their charges.
In case of any clarification on any issue regarding their activity, there is always correspondence
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between the foreign bank and the bank in India. Even the amount of charges collected by foreign
bank is informed only to the bank in India. The exporter or the importer in India comes to know
about these charges through their own bank in India. In fact the most interesting aspect is that the
importer or the exporter in India is not even aware of the quantum of charges which are charged by
the foreign bank. Further, in case of export transactions, if the remittance could not be paid by the
foreign importer, in that case the foreign bank recovers the charges from banks in India only and in
case of import transactions, if the foreign exporter does not bear the foreign bank charges, the
same are recovered by the foreign bank from the bank in India. The combined reading of the
relevant articles in the said two internationally accepted conventions, undoubtedly show that
services are provided by the foreign bank to the bank in India. Therefore, as per the Service Tax
law, as a recipient of service, the bank in India, is required to pay Service Tax under erstwhile Section
66A of the Finance Act prior to 1-7-2012 and under the provisions of Notification No. 30/2012-S.T.,
dated 20th June, 2012 after 1-7-2012.
5.
The views of the banks that services provided by the foreign bank are received by the
importer or exporter in India is not factually and legally correct because, for a person to be
treated as recipient of service, it is necessary that he shou ld kno w who the s e rv ic e p rov ide r
is and the re sho u ld b e an agreement to provide service, which may be oral or written. In the
present case, the importer and exporter does not even know who the service provider is, as they
are not aware of the identity of the foreign banks which would be providi ng services. Exporter or
importer in India does not have any formal or informal agreement with the foreign bank.
Importer or exporter in India does not even know the quantum of charges which the foreign
bank would be recovering. Therefore, in view of the above mentioned factual position and also
in view of the various articles of URC 522/UCP 600, it is clear that services are provided by the
foreign bank to the bank in India. Further, Tribunals have also prima facie held that in such
cases, services are provided by the foreign bank to the Indian bank and not to the Indian
Exporter. [M/s. Gracure Pharmaceuticals Ltd. v. Commissioner of Central Excise, Jaipur -I - 2013
(32) S.T.R. 249 (Tri.-Del.), M/s. Gujarat Ambuja Exports Ltd. v. Commissioner of Service Tax, Ahmedabad 2013 (30) S.T.R. 667 (Tri.-Ahmd.)].
6.
It is therefore clarified that, in cases where the foreign banks are recovering certain
charges for processing of import/export documents regarding remittance of foreign currency, the
banks in India would be treated as recipient of service and therefore required to pay Service Tax.
7.
All the banks are requested to follow the above mentioned clarification and to also pay
tax for the past period.
8.
This Trade Notice is issued with the approval of Chie f Commissioner, Central Excise, Mumbai
Zone-I.
9.
All the Trade Associations are requested to bring the contents of this Trade Notice to the
notice of their members in particular and the Trade in general.
[Commissioner of Service Tax-l, Mumbai, Trade Notice No. 20/2013-14-ST-I, dated 10-2-2014]
18.7 That since the matter was directly covered by Trade notice the present notice was
required to be set aside.
19.
That without prejudice to above, it had been their consistent stand that they have no
privities of contract with foreign bank and in the present proceedings which bank is involved is
also not forthcoming. The notice proceeds on the presumption that the foreign bank has
rendered service which is taxable under the category of Banking & Financial Services. It would
be appreciated that the service would be taxable only if it was covered within the definition of
taxable service. The taxable service u/s 65 (105)(zm) is defined to mean the term banking and
other financial service is also defined u/s 65 (12) as under:
U/s 65 (105) (zm)
Taxable service means any service provided or to be provided (to any person) by a
banking company or a financial institution including a non banking financial
company, or any other body corporate or (commercial concern, in relation to
banking and other financial services:
U/s 65 (12):
Banking and other financial services means:
10
(a)
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following services provided by a banking company of a financial institution
including a non banking financial company of any other body corporate or
commercial concern, namely:(i)
financial leasing services including equipment leasing and hire
purchase;
Explanation – for the purpose of this item, “financial leasing” means a
lease transaction where –
(i) contract for lease is entered into between two parties for
leasing of a specific asset;
(ii) such contract is for use and occupation of the asset by the
lessee;
(iii) the lease payment is calculated so as to cover the full cost
of the asset together with the interest charges; and
(iv) the lessee is entitled to own, or has the option to own, the
asset at the end of the lease period after making the lease
payment;
(ii)
***)
(iii)
Merchant banking services;
(iv)
Securities and foreign exchange (forex) broking, and purchase
or sale of foreign currency, including money changing)
(v)
Asset management including portfolio management, all forms
of fund management, person fund management, custodial,
depository and trust services
(vi)
Advisory and other auxiliary financial services including
investment and portfolio research and advice, advice on
mergers and acquisitions and advice on corporate
restructuring and strategy;
(vii)
Provision and transfer of information and data processing; and
(viii)
Banker to an issue services; and
(ix)
Other financial services, namely, lending, issue of pay order,
demand draft, cheque, letter of credit and bill of exchange,
transfer of money including telegraphic transfer, mail transfer
and electronic transfer, providing bank guarantee, overdraft
facility, bill discounting facility, safe deposit locker, safe vaults,
operation of bank accounts;)
(b)
foreign exchange broking and purchase or sale of foreign currency,
including money changing provided by a foreign exchange broker or an
authorized dealer in foreign exchange or an authorized money changer,
other than those covered under sub-clause (a);
Explanation: For the purposes of this clause, it is hereby declared that “purchase or
sale of foreign currency, including money changing” includes purchase or sale of
foreign currency, whether or not the consideration for such purchase or sale, as the
case may be, is specified separately;)
19.1 Therefore, it was submitted that unless it is shown and proved that the services
rendered by foreign bank are covered within the said definition, no tax can be demanded. It
was submitted that the taxability of service is a burden casted on the department. In the
present proceedings, no efforts are made to even remotely demonstrate that this burden is
discharged. On this limited ground alone, the notice was liable to be set aside. Without
prejudice to above, it was submitted that the foreign bank would not be a banking company
since the term banking company is defined is a defined term. As per Reserve Bank of India Act,
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section 45 (A)(a), the term banking company is defined. There is nothing on record to show that
the foreign bank which is not even identified is covered within the meaning of banking
company under the Reserve Bank of India Act. Therefore, it is submitted that the primary
requirement of service being taxable service is not satisfied.
19.2 Without prejudice to above, it was submitted that the payment to foreign bank is not
made by them. This payment is made by Indian bank. Therefore, applying logic of present
notice, it is the Indian bank which would be liable to service tax. Therefore also, no liability to
service tax arise.
20.
It was submitted that their contention was explained before the Officer in reply to the
letter as well as during the course of statement. The statement can be either relied upon fully
or to be rejected fully. It appears that as per para 5.2 of the show cause notice, the statement is
considered a wrong statement. Clearly, wrong statement or a statement not accepted by the
department is not relied upon. Once the statement is not relied upon for apart, the same was
required to be rejected wholly. It is not permissible to bifurcate the statement as Partially relied
upon and partially rejected. It was submitted that the Department was expected to meet with
the explanation given in the statement. Unfortunately, except for labeling the statement to a
wrong statement, no efforts are made to show how the statement or the submissions made
therein, were not correct or were not tenable in law. The statement gave explanation and it is
only the provision of law which could have counted the submissions or explanation given in the
statement. When no such provision of law is referred or relied upon in the notice, the
explanation should have been accepted and the demand should have been dropped.
21.
Without prejudice to above, it was submitted that the department was in know of the
facts of our case as is evident from the audit report dated 18-05-2010. It was submitted that for
the period post 18-05-2010, the department cannot plead ignorance of facts. Therefore, the
impugned notice demanding tax up to 2012-13 under notice dated 11-10-13 is clearly beyond a
period of one year and was, therefore, not maintainable.
21.1 Even otherwise, it was submitted that the explanation given itself shows the bona fide
belief and the belief is reasonable and probable. Therefore, the non payment of tax, if any, is on
account of a bona fide belief and hence there was no intention to evade tax. The invocation of
extended period, therefore, is clearly not tenable.
22.
Without prejudice to above, it was submitted that up to 2011, the credit of banking
services were covered under rule 6(5) and was available irrespective of manufacture of
exempted goods. Therefore, the entire amount of tax paid was available as credit. Therefore,
the matter was revenue neutral and therefore, no intention to evade could be attributed to
them. The demand was, therefore, barred by limitation. It was submitted that for the
subsequent period, they would be entitled to a sizeable portion of the credit which was
attributable to the dutiable goods.
23.
It was further submitted that the entire matter related to goods exported and the
services availed in respect of the goods exported. It was submitted that when the goods are
exported, the services which are consumed should be not subjected to any tax since it is the
policy of the Government that the tax cannot be exported. Therefore also, no tax is payable.
24.
Without prejudice to above, it was submitted that the services were performed and
availed by Indian bank abroad. The entire transaction took place out of territorial limits of India.
Therefore, the Indian Tax Laws cannot be made available to transaction occurring abroad.
Therefore also, no tax is payable.
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25.
It was submitted that since the tax was not payable, the question of interest or penalty
does not arise. It was further submitted that the penalty u/s 78 cannot be imposed
simultaneously with penalty u/s 76. The show cause notice was issued post the amendment to
section 78 and therefore, the notice proposing penalty under both the provisions is not tenable.
It was further submitted that in view of the detailed submissions made above, as regards
limitation, the penalty u/s 78 cannot be imposed since it was on the same basis as the
provision for extended period. That when the demand was not tenable, no question of interest
arises.
PERSONAL HEARING
26.
The noticee was granted PH on 25.02.2014, 12.03.2014 and 20.03.2014. Shri S J Vyas,
Advocate, appeared on behalf of the noticee on 20.03.2014 and argued the case. He stated that
he will file a written brief within a week which may be considered for decision in the matter.
Thereafter the noticee has filed a written reply dated 24.03.2014 , as stated above in the
foregoing paras, which is taken on record.
DISCUSSIONS AND FINDINGS
27.
I have carefully gone through the facts on records, the show cause notice under
reference and submissions made by the noticee vide their letter dated 24.03.2014 and during
the personal hearing.
28.
I find that the moot point to be decided in the instant case is whether noticee is liable to
pay service tax on services rendered by the Foreign Bank taxable under the category of ‘Banking
and Financial Services’ as per Section 65 (19) (vii) of the Finance Act, 1994.
29.
I find that the noticee in their reply has described the procedure under which the above
services are rendered, as under :
“that we are regular exporter of the goods. When we export the goods, the
consideration for such exports is required to be realized through banking channel. For
this purpose, the documents are handed to their banker in India for realizing the
amount. It would appear that the Indian bank in turn sends the documents to foreign
bank of the buyer and thus, through banking channel, the sale proceeds are realized.
Normally, some small deduction is made by the foreign bank from the amount payable
to us and to that extent; lesser amount is realized by Indian bank.”
30.
Thus the noticee is contending that as the transactions were between two banks, they
were not a party to it and therefore service tax was not payable by them under the said
category. I do not find any merit in the said explanation. I observe that the entire amount is
billed by the noticee to their foreign based customers and these foreign based customers pay
the entire amount to the noticee . However, the foreign banks deduct some amount from the
said total amount given to the noticee by their foreign customers, as a way of service given to
these foreign customers, which is therefore borne by the noticee. Further, when the foreign
bank is deducting the said amount for its services, from the customers of the noticee, the
Indian Bank does not come into the picture in any way and thus there is no transaction
between the Indian Bank and the foreign bank.
30.1 I find what the noticee has paid is the service tax payable on ‘FOREIGN EXCHANGE
SERVICE CHARGES ‘which is being charged “per transaction” by the Bank according to the
Banking Rules and Regulations, and not on ‘Foreign Bank Charges’, as discussed above. I find
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that the above difference has been admitted by the noticee in their statement dated
21.08.2013, where at Q No. 8 , the following was asked to them :
“Q.8 Again I show you the above mentioned Bank Advice having ID No.MI05512
dtd.29.01.2010, the advice is also showing amount of Rs.111/-as FOREIGN EXCHANGE
SERVICE CHARGES including Rs.100 towards Foreign Exchange Service Charges and
Rs.11/- Service Tax = total Rs.111/- and the same is confirmed by the Assistant General
Manager, Bank of Baroda, of above mentioned Branch vide their letter dtd.13.07.2013.
Do you confess that this amount of service tax deducted by the Bank is not having any
relation with the Foreign Bank Charges deducted amt. to US$ 260/-. , But the same is
merely FOREIGN EXCHANGE SERVICE CHARGES which is being charged “per
transaction”Rs.111/-(inclusive of Rs.11 Service Tax) by the Bank according to the banking
Rules and Regulations. Thus, you have mis-lead the Service tax department through your
letter 31.12.2012, and dtd.07.08.2013.
Ans. Yes. I confess. However, it is to state that the same was due to our misunderstanding. “
30.2 I further find that the noticee has submitted the Commissioner of Service Tax-l, Mumbai,
Trade Notice No. 20/2013-14-ST-I, dated 10-2-2014, in their favor. While the Trade Notice issued by
the Mumbai Commissionerate may be correct in a situation where the Indian Bank receives the
services of a foreign bank and in turn does the billing to the exporter as a package service.
Therefore the provisions of the said Trade Notice cannot be summarily applied in all cases. Nature
of transaction is each case only would determine the issue. In the instant case, nature of transaction
is such that there is no transaction between the foreign bank and the Indian Bank. The only
transaction is between the foreign bank and the exporter wherein the importer is directly paying to
the foreign bank by way of receiving lesser remittance to that extent from the foreign bank after
deducting service amount from the sale proceeds
30.3 Further, the noticee has contended that unless it is shown and proved that the services
rendered by foreign bank are covered within the said definition of ‘Banking & Financial Services’
, no tax can be demanded. I find the nature of services carried out by the foreign banks could be
covered at clause (ix) of the said definition , which is as under :
“Banking and other financial services means:
(a)
following services provided by a banking company of a financial institution
including a non banking financial company of any other body corporate or
commercial concern, namely:……………………………………………..
(ix)
Other financial services, namely, lending, issue of pay order, demand draft,
cheque, letter of credit and bill of exchange, transfer of money including
telegraphic transfer, mail transfer and electronic transfer, providing bank
guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe
vaults, operation of bank accounts;)”
30.4 The noticee also contends that foreign bank would not be a banking company since the
term banking company is defined is a defined term, as per Reserve Bank of India Act, section 45
(A)(a).
30.5 In this context, I reproduce the contents of Section 66A of the Finance Act, 1994 which
was brought into force w.e.f. 18-4-2006 is reproduced as under:
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SECTION 66A. Charge of service tax on services received from outside India (1) Where any service specified in clause (105) of Section 65 is,(a) provided or to be provided by a person who has established a business or has a
fixed establishment from which the service is provided or to be provided or has his
permanent address or usual place of residence, in a country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of
business, fixed establishment permanent address or usual place of residence, in India.
Such service shall, for the purposes of this section, be taxable service, and such taxable
service shall be treated as if the recipient had himself provided the service in India, and
accordingly all the providing of this Chapter shall apply :
Provided that where the recipient of the service is an individual and such service received
by him is otherwise than for the purpose of use in any business or commerce, the
provisions of this sub-section shall not apply :
Provided further that where the provider of the service has his business establishment
both in that country and elsewhere, the country, where the establishment of the provider
of service directly concerned with the provision of service is located, shall be treated as
the country from which the service is provided or to be provided.
(2) Where a person is carrying on a business through a permanent establishment in
India and through another permanent establishment in a country other than India, such
permanent establishments shall be treated as separate persons for the purposes of this
section.
Explanation 1. - A person carrying on a business through a branch or agency in any
country shall be treated as having a business establishment in that country.
Explanation 2. - Usual place of residence, in relation to a body corporate, means the
place where it is incorporated or otherwise legally constituted.
(emphasis supplied)
30.6 Further, under Rule 2(1)(d)(iv) of Service Tax Rules, 1994 and registered under
provisions of such services(Provided from outside India and received in India) Rules, 2006.
(d)
"Person liable for paying service tax" means,-
(iv)
in relation to any taxable service provided or to be provided by any person from a
country other than India and received by any person in India under section 66A of the
Act, the recipient of such service;
30.7 I find from the above, that the general scheme of levy of service tax is that service tax is
leviable (on the value of taxable services) from the service providers within the territory of
India. Section 66A of the Act embodies an exception to this general scheme. It is an
independent charging provision which provides for levy of service tax in India on services
provided or to be provided by a person located outside India and received by a person located
in India. Section 66A lays down that such services (specified in clause (105) of Section 65 of the
Act) shall be treated as having been provided in India by the recipient. This deeming provision
of Section 66A makes the Indian recipient liable to pay service tax on the services provided by
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the foreign service provider. This exception to the general scheme of levy of service tax is also
called ‘reverse charge mechanism’. Thus any foreign bank providing the services to an Indian
company, as discussed in the foregoing paras, would be covered under the provisions given
under Section 66A of the Act, and thus the noticee’s contention on this ground is also not
tenable.
30.8 Further, the noticee contends that no efforts are made to show how the statement (
dated 11.06.2012 ) or the submissions made therein, were not correct or were not tenable in
law. In this context, I find that the Department had examined some specimen copies of Foreign
Bills Transaction Advice submitted by the noticee in this regard, which were found to be
wanting in details and on the basis of which another statement was recorded on 21.08.2013.
Further at Question No. 8 of the statement dated 21.08.2013, the noticee has admitted the
difference between FOREIGN EXCHANGE SERVICE CHARGES ‘which is being charged “per
transaction” by the Bank according to the Banking Rules and Regulations, and ‘Foreign Bank
Charges’, and that they had not paid service tax on the said Foreign Bank Charges. Thus, I find
that the noticee’s contention on this ground is unwarranted.
31.
In view of the above, I confirm the service tax liability of Rs. 9,29,806/- under the
category of “ Banking & Financial Services” and order it to be recovered under Section 66A
read with Section 73 of the Act.
32.
As discussed above, the demand has been held to be sustainable on merits. Thus I find
that it was the duty of the noticee to declare such activities, and receipt towards the same in
their ST-3 returns filed by them from time to time. With regard to the issue that extended
period of limitation & suppression of facts, I note that the noticee are a reputed organization
and are well aware of the Rules & Regulations as laid down under Service Tax Rules, 1994. They
had deliberately withhold the information relating to the services of the Foreign Banks thereby
contravening the provisions of Section 67 of the Finance Act, 1994 and which was noticed only
when the details were sought by the audit team. I find that they were well aware of the facts
regarding such transactions and the payments made thereof had not been disclosed before the
department and therefore the contention of the noticee that they have not suppressed the
facts is not acceptable in this case. I find that Shri Mukesh Parikh, Manager Indirect Taxation of
the noticee in his statement dated 21.08.2013 has also admitted that they have not mentioned
the same in their ST 3 returns nor informed the Service Tax Department. The noticee’s
contention that department was in knowledge of the facts of their case as is evident from the
audit report dated 18-05-2010 and that for the period post 18-05-2010, the department cannot
plead ignorance of facts. In this connection, I refer to the judgment in the case involving Aircel
Digilink India Ltd. v/s Commissioner of Central Excise, Jaipur, as reported in 2006 (3) STR 386
(Tri.-Del) and the case involving Bharti Cellular Ltd. v/s Commissioner of Central Excise, Delhi, as
reported in 2006 (3) S.T.R. 423 (Tri.-Del). In both the cases, the Hon. Tribunal upheld invocation
of extended period after taking note of the fact that appellants had not disclosed certain details
and mode of computation in their ST-3 details and that there was nothing on record to suggest
that appellants ever approached the office of the service tax authorities to ascertain the details
of their liability to pay the service tax. Similarly, in case of Insurance & Provident Fund
Department v/s. Commissioner of Central Excise, Jaipur-I, 2006 (2) S.T.R. 369 (Tri.-Del.), Hon.
Tribunal held that non-disclosure of full amount of premium collected would attract invocation
of extended period. The ratio of the above judgments can be applied to the present case also
as the noticee had kept the Department in dark about its activities and had not only suppressed
the material facts from the department but has also failed to comply with law and procedures,
including payment of service tax. In view of the above, I hold that in the facts and
circumstances of the present case, proviso to section 73 (1) of Finance Act, 1994, is rightly
invoked for raising the demand for service tax against the noticee. I find that the malafide
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intention on the part of the noticee to evade payment of service tax by not showing the said
transactions in their ST 3 returns and not informing the department in any way , has been
proved and thus the invocation of extended period is valid in this case. Thus, the suppression
with an intent to evade payment, on part of the noticee, is established beyond doubt and
proviso to Section 73(1) of the Finance Act, 1994 has rightly been applied in the instant case
and therefore, by their such act of omission and commission, the assessee have rendered
themselves liable for penalty.
32.1 Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs Neminath Fabrics Pvt. Ltd.,
reported at 2010 (256) ELT 369 (Guj), while deciding the similar issue in Central Excise, has held
that proviso can not be read to mean that because there is knowledge, suppression which
stands established disappears – concept of knowledge, by no stretch of imagination, can be
read into provisions – suppression not obliterated, merely because department acquired
knowledge of irregularities. The relevant para is reproduced below ;
“20. Thus, what has been prescribed under the statute is that upon the reasons
stipulated under the proviso being satisfied, the period of limitation for service of show
cause notice under sub-section (1) of Section 11A, stands extended to five years from the
relevant date. The period cannot by reason of any decision of a Court or even by
subordinate legislation be either curtailed or enhanced. In the present case as well as in
the decisions on which reliance has been placed by the learned advocate for the
respondent, the Tribunal has introduced a novel concept of date of knowledge and has
imported into the proviso a new period of limitation of six months from the date of
knowledge. The reasoning appears to be that once knowledge has been acquired by the
department there is no suppression and as such the ordinary statutory period of
limitation prescribed under sub-section (1) of Section 11A would be applicable. However
such reasoning appears to be fallacious inasmuch as once the suppression is admitted,
merely because the department acquires knowledge of the irregularities the suppression
would not be obliterated.”
32.2 In view of the above, I find that extended period for recovery of service tax on category
of “Banking & Financial Services” on rendering of taxable services, under the proviso to section
73(1) of the Finance Act, 1994 was rightly invoked and the SCN is sustainable on limitation.
Therefore, the service tax amount of Rs. 9,29,806/- is recoverable from the noticee along with
Interest as provided in proviso to Section 73(1) of the Finance Act, 1994 read with Section 75 of
the Act ibid.
33.
Since the noticee had not discharged service tax liability on the amount of taxable value
on the services mentioned in the foregoing paras and as demanded under the show cause
notice and therefore, they have contravened the provisions of Section 67 and 68 of the Finance
Act, 1994 and thereby rendered themselves liable to penal action under Sections 76 & 78 of
Finance Act 1994.
34.
As regards the issue of imposition of penalty under Section 76 of the Finance Act, 1994, I
observe that penalty under Section 76 and 78 of the Finance Act, 1994 are mutually exclusive
w.e.f. 10.05.2008 and once penalty under Section 78 is imposed, no penalty under Section 76
can be imposed in terms of the proviso inserted in Section 78 w.e.f 10.5.2008 in this regard.
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Therefore, no penalty under Section 76 is imposable for the period from 10.5.2008 onwards. In
the case before me, the demand of service tax is for the period from 2008-09 to 2012-13,
therefore, I hold that penalty under Section 76 of the said Act is imposable on the noticee. I find
that as the noticee has not paid service tax within the stipulated time period as prescribed
under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, I hold
them liable to penalty under Section 76 of the Finance Act, 1994. My conclusion is also based
on various decisions of Hon’ble High Courts & Tribunals as mentioned below ;






CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)
UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)
UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)
Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)
CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)
Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)
34.1 I further observe that the Hon’ble CESTAT in the case of M/s Gujarat Industrial Security
Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010,
has held that no lenient view can be taken under section 76 of the Finance Act, 1994. The
relevant paras are reproduced below;
“2.
After hearing both the sides, I find that in this case, the assessee was registered
more than 6 years back and no explanation has been given by them for delayed filing of
return and delayed payment of service tax. Under these circumstances, I am not finding
fault in stand taken by the lower authority that penalty is imposable under section 76 and
once it is held that penalty is imposable under section 76, the amount fixed as per the
provision of section 76 is required to be imposed. Under these circumstances, even
though the Ld. Advocate submitted that the appellant is a non profit organization, no
lenient view can be taken in view of the provisions of law.
3.
Accordingly, the appeal is rejected.”
34.2 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010
(19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant para is
reproduced below ;
“10. A plain reading of Section 76 of the Act indicates that a person who is liable to
pay service tax and who has failed to pay such tax is under an obligation to pay, in
addition to the tax so payable and interest on such tax, a penalty for such failure. The
quantum of penalty has been specified in the provision by laying down the minimum
and the maximum limits with a further cap in so far as the maximum limit is
concerned. The provision stipulates that the person, who has failed to pay service tax,
shall pay, in addition to the tax and interest, a penalty which shall not be less than one
hundred rupees per day but which may extend to two hundred rupees for everyday
during which the failure continues, subject to the maximum penalty not exceeding the
amount of service tax which was not paid. So far as Section 76 of the Act is concerned,
it is not possible to read any further discretion, further than the discretion provided by
the legislature when legislature has prescribed the minimum and the maximum limits.
The discretion vested in the authority is to levy minimum penalty commencing from
one hundred rupees per day on default, which is extendable to two hundred rupees
per day, subject to a cap of not exceeding the amount of service tax payable. From this
discretion it is not possible to read a further discretion being vested in the authority so
as to entitle the authority to levy a penalty below the stipulated limit of one hundred
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rupees per day. The moment one reads such further discretion in the provision it would
amount to re-writing the provision which, as per settled canon of interpretation, is not
permissible. It is not as if the provision is couched in a manner so as to lead to
absurdity if it is read in a plain manner. Nor is it possible to state that the provision
does not further the object of the Statute or violates the legislative intent when read
as it stands. Hence, Section 76 of the Act as it stands does not give any discretion to
the authority to reduce the penalty below the minimum prescribed.”
34.3 The Hon’ble High Court of Gujarat has further confirmed the above view in the case of
CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises
reported at 2011 (21) STR 107 (Guj.).
35.
Now I come to the issue of imposition of penalty under Section 78 of the Finance Act,
1994. I find that as the noticee had suppressed the facts with intention to evade payment of
service tax, penalty under Section 78 of the Finance Act, 1994 is mandatorily imposable as has
been held by the Apex court in the case of Dharmendra Textile Mills Ltd-2008 (231) ELT 3 (SC)
and Rajasthan Spinning & Weaving Mills Ltd-2009 (238) ELT 3 (SC). Therefore, I hold that
penalty is imposable on the noticee under Section 78 of the Finance Act, 1994. I, therefore,
hold that they have rendered themselves liable to penalty under Section 78 of the Finance Act,
1994. My above view also gets support from below mentioned case laws;
 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.)
 CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.)
 Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of M/s Bajrang
Security Services Vs CST, Ahmedabad.
 Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010 in the case of M/s
Dhaval Corporation Vs CST, Ahmedabad.
35.1 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of
CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also
upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994.
Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K
Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)
36.
I also find that penalty under Section 76 ibid is provided for failure to pay service tax
whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant
case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax
Rules, 1994, have not been found paid as well as service tax has not been paid by suppressing
value of taxable service by reason of wilful mis-statement and suppression of facts. Of course
these two offences may arise in the course of same transaction, or from the same action of the
person concerned. But the incidents of imposition of penalty are distinct and separate and even
if the offences are committed in the course of same transaction or arises out of the same act
the penalty is imposable for ingredients of both offences, this aspect was also considered by
the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna
Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of
Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16)
S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty who commits default
simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which
provides harsher penalty who commits default with mens rea. Since in this case also, the
noticee has committed default with mens rea, the decision of the tribunal is squarely
applicable.
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37.
Further, as regards imposition of simultaneous penalty, I place my reliance on the
judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central
Excise v. Krishna Poduval (supra) which is aptly applicable to the present case. I find that the
imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and
suppression of value of taxable service respectively which are two distinct and separate
offences attracting separate penalties. I find that the said assessee have committed both the
offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are
imposable on the said service provider for the period upto 9.5.2008. Therefore, I am of the view
that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under
the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions
of Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further supported
by various decisions of tribunals in the cases of ;
a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009
(14) S.T.R. 680 (Tri.-Ahmd.)
b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13) S.T.R.
40 (Tri.-Ahmd.), and
c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134)
E.L.T. 799 (Tri.-Del.).
d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated
30.06.2010 / 26.08.2010.
e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010
dated 09.06.2010 / 23.06.2010.
f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh
– 2009 (16) STR 183 (Tri.Del.)
38.
In light of the aforesaid discussions and findings, I hold that the service tax amount of
Rs. 9,29,806/- alongwith interest is liable to be confirmed under Section 73 of the Finance
Act,1994 read with Section 75 of the Act ibid and they are also liable to penalty under the
provisions of Section 76, 77 and 78 of the Finance Act, 1994.
39.
Accordingly, I pass the following order:-
ORDER
(i)
I confirm the demand of Service Tax amounting to Rs.9,29,806/-(including
Edu.Cess 2%& SHE Cess 1%)(Rupees Nine Lacs Twenty Nine Thousand Eight
Hundred and Six Only) for Services received by the noticee from foreign
based service provider who has no office in India, under the category of
‘Banking and Financial Services’ as defined under Section 65 (105) zm of the
Finance Act, 1994 and order it to be recovered from them under Section 73
& Section 66A of the Finance Act, 1994.
(ii)
I direct the noticee to pay Interest as applicable on the amount of service tax
liability for the delay in making the payment, under Section 75 of the Finance
Act, 1994 as amended.
20
OIO No. 48/STC/AHD/ADC(JSN)/2013-14
(iii)
I impose a penalty of Rs. 200/- (Rupees Two Hundreds Only) per day /{ Rs. 100/(Rupees One Hundred only) w.e.f. 8.04.2011 per day} or at the rate of 2% of
the service tax amount per month/ {1% of the service tax amount per month
w.e.f. 8.04.2011} , whichever is higher, subject to maximum of the
outstanding tax amount, from the date on which such tax was due till the
actual payment of outstanding tax amount, whichever is earlier, under the
provisions of Section 76 of the Finance Act, 1994, as amended, for failure to
pay Service Tax within the stipulated period as required under the provisions
of Section 68 (1) of the Finance Act, 1994 read with Rule 6 of the Service Tax
Rules, 1994, as amended.
(iv)
I impose a penalty of Rs 10,000/- (Rupees Ten Thousand Only) under Section 77
of the Finance Act, 1994 on the noticee for not filing ST 3 return in respect of
‘Foreign Bank Charges’ under Finance Act, 1994.
(v)
I also impose a penalty of Rs. 9,29,806/- (Rupees Nine Lacs Twenty Nine
Thousand Eight Hundred and Six Only) upon them under Section 78 of the
Finance Act, 1994 for suppressing the value of taxable services provided by
them before the Department with an intent to evade payment of service tax.
If the service tax amount is paid along with appropriate interest as
applicable, within 30 days from the date of receipt of this order, then the
amount of penalty under Section 78 shall be reduced to 25% of the service
tax amount, provided if such penalty is also paid within such period of 30
days.
( J.S. Negi )
Additional Commissioner
Service Tax, Ahmedabad
F.No. : STC/04-23/O&A/13-14
Ahmedabad, Date : 26.03.2014
By R.P.A.D./Hand Delivery
To,
M/s. Cadila Pharmaceuticals Ltd. ,
1389, Trasad Road,
Dholka, Ahmedabad
Copy to:
1.
2.
3.
4.
The Commissioner, Service Tax, Ahmedabad (Attn RRA Cell)
The Assistant Commissioner, Division-II, Service Tax, Ahmedabad.
The Range Supdt., Service Tax, Range-VI, Ahmedabad (alongwith one extra copy of
OIO to be served upon to the noticee and forward acknowledgement to this office)
Guard File .