Bank Of Baroda vs Commissioner Of Service Tax, Mumbai

(Arising out of Order-in-Original No. 05/S.T.-II/K.K.S./2011 dated 28-02-2011 passed by Commissioner of Service Tax, Mumbai)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) and Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

====================================================== Bank of Baroda Appellant Vs. Commissioner of Service Tax, Mumbai Respondent

Appearance: Shri S.S.Gupta, C.A. for Appellant Shri R.K. Das, Deputy Commissioner (AR), for Respondent

CORAM: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing : 21/09/2015 Date of Decision : 21/09/2015

ORDER NO

Per: M.V. Ravindran

This appeal is directed against Order-in-Original No. 05/S.T.-II/K.K.S./2011 dated 28-02-2011.

2. The relevant fact that arise for consideration are appellant herein is a public sector bank and was appointed by the Reserve Bank of India for setting up MICR-CPC to attend cheque clearances of Financial Institutions etc in Gujrat state. They obtained service tax registration and paid service tax under the head of Banking and Other Financial Services. The DGCEI after collecting the details of MICR-CPCs operated by various banks from Reserve Bank of India, followed up with the appellant for the details of the amounts collected by them when they conducted the business of cheque processing. After recording various statements, the authorities came to a conclusion that appellant is liable to discharge service tax liability on the amounts collected by them on MICR cheque processing charges during the period 16.07.2001 to 28.02.2005; during the pendency of the proceedings appellant discharged the service tax liability under protest and also paid the interest. Show cause notice was issued to appellant for demand of the service tax with interest and proposal to impose penalties. Appellant contested the matter on merits before the adjudicating authority and also on limitation. The adjudicating authority after following the due process of law, did not agree with the contentions raised by the appellant, confirmed the demand of service tax with interest; dropped the proceedings initiated for imposition of penalties.

3. Learned Chartered Accountant would submit that the definition of Banking and Other Financial Services is not applicable in the case in hand as appellant is charging One Rupee per cheque for executing the cheque processing of various Banks and Financial Institutions. He would submit that on reading the definition Banking and Other Financial Services, there has to be a client or customer, which in the case in hand is absent as they were extending the cheque clearance activity to other member Banks and not to any customers. He would submit that the cheque which has been cleared is for their members i.e. Indian Bank Association no services are rendered to any client. He would submit that the issue was in litigation and Indian Bank Association Mumbai had taken up the taxability on the charges collected for clearing of cheque with the Reserve Bank of India, who in turn took up the matter with CBEC and it was informed by letter dated 25.02.2005, that the ministry of Law and justice was consulted, after due deliberation it was clarified that the activities under taken and the charges collected by the appellant from members bank was squarely covered under Banking and Other Financial Services. He would submit that there was no intention to evade the service tax and hence the interest, as has been charged by the adjudicating authority needs to be set aside, he relies on the judgment of Honble High Court of Gujarat in the case of C.C.E.&C., Vadodara-II Versus Gujarat Narmada Fertilizers Co. Ltd. 2012 (285) E.L.T. 336 (Guj.) as it is directly in the point. He would also draw our attention to paragraph number 39 of Order-In-Original to press home the proposition that there was a bona-fide conduct and no intention to evade any tax; as recorded by the adjudicating authority, hence the interest liability be set aside.

4. Learned departmental representative would reiterate the findings of the adjudicating authority, he would submit that the liability of interest arises irrespective of whether there is intention to evade tax or otherwise.

5. We have considered the submissions made at length of by both sides and perused the records.

6. On perusal of records, we find that the issue involved in this case is regarding the taxability of the services rendered by the appellant as to clearing of cheques of member banks and collecting charges for the same and whether this is covered under category of Banking and Other Financial Services or otherwise.

7. Undisputed facts are appellant has been appointed, during the material period, as clearing house for the state of Gujarat; collects an amount as charges from the Banks for clearing of cheques; the issue was under dispute, and Law ministry was consulted, before intimating Indian Banks Association that service tax liability arises on the amounts collected by the appellant; appellant had discharged the service tax liability with interest during the proceedings.

8. It is seen from the records that the appellant is not seriously contesting the service tax liability. The clarification issued by CBEC vide letter dated 25.02.2005 will indicate that the amount collected by the appellant as charges for clearing cheques or clearing house, under the category of Banking and Other Financial Services. To that extent the appellants appeal fails on merits. On limitation also we find that the appellant could have contested the matter.

9. As regards the interest, we find that the claim of the department that once payment of tax is made, interest liability would arise, is legally contrary to the views as has been laid down by the Honble High Court of Gujarat in the case of Gujarat Narmada Fertilizers Co. Ltd. (supra). In that case, though the period of limitation had expired, the assessee therein has discharged the duty liability, but did not discharge the interest. Revenue proceeded against the assessee therein for the recovery of interest claiming that having discharged duty, interest liability arises. Tribunal set aside the impugned order before it, holding that if the assessee would have contested the matter on limitation, he would have succeeded and no duty liability would have arisen, holding so, set aside the interest liability. Aggrieved by such an order revenue preferred an appeal before Honble High Court. Honble High Court in their judgment at paragraph number 11, 12 and 13 held that the order of the Tribunal was correct. With respect, we reproduce the said paragraphs.

11.?In the present case, when the period of limitation had already expired and when the extended period beyond one year was not available to the department as held by the Commissioner himself in his order-in-original, to our mind the respondent was not liable to pay even the basic duty. But for the respondent voluntarily making payment of such duty short-paid, it was not open for the Department to recover the same under sub-section (1) of Section 11A of the Act. In absence of any such voluntary payment, recovery of the unpaid duty would not have been possible. In that view of the matter, we do not find the case would fall under sub-section (2B) of Section 11A of the Act. Sub-section (2B) of Section 11A of the Act applies in a case where there is voluntary payment of unpaid duty before issuance of show cause notice under sub-section (1) of Section 11A. When the provision refers to show cause notice, it means a show cause notice which could have been validly issued and surely not a notice which had become time-barred. If by efflux of time and in absence of availability of extended period of limitation, such show cause notice itself had become time-barred, any payment made voluntarily by the manufacturer cannot be viewed as one made under sub-section (2B) of Section 11A of the Act.

12.?In the present case, we have already held that time for issuing such a notice was one year, which period had already expired.

13.?Accepting the stand of the Department that even in such a case once the payment of duty is made, interest liability would follow would bring about an incongruent situation. The recovery of the unpaid or short paid duty would become time-barred. If the manufacturer does not pay it voluntarily, it would not be possible for the Department to recover the same. But if he does it voluntarily despite completion of period of limitation, he would, further be saddled with the liability to pay statutory interest. Surely, this was not the intention of the Legislature while sub-section (2B) was introduced in Section 11A of the Act.

10. It can be seen from the above reproduced relevant paragraphs the ratio would squarely apply in the case in hand, as on limitation, we do find that the appellant could have succeeded and the findings of the adjudicating authority in paragraph no. 39 of the impugned order also indicates that there was no intention on appellants part of evading the service tax liability, which would mean that demand of service tax liability can be only within the limitation period, that is the one year from the date of issuance of show cause notice.

11. In view of the forgoing respectfully following the authoritative judicial pronouncement on similar facts, we hold that appellant is not liable to discharge any interest on the amount of service tax liability paid by them during the proceedings of lower authorities, the appeal to that extent is allowed.

12. In sum, while upholding the uncontested service tax liability, we set aside the interest liability confirmed by the adjudicating authority.

(Operative portion of the order pronounced in court on completion of the hearing of case).

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

akp 1 4 APPEAL No.ST/356/11-Mum