2013 (8) TMI 450 - AT - Service Tax

Levy of service tax on charges collected on dishonoring of cheques - Bank is charging to assessee - assessee is charging to its customers - Assessee is Non-banking Financial Company - Cenvat credit - stay - waiver of pre deposit Held that - If the applicant is charging only exactly the same amount as charged by the bank, there will not be any double taxation since Cenvat credit of the amount already paid by the bank will be available for paying service tax to be paid by the applicant. If a higher charge is billed to the customer, the service tax charged to the customer gets increased on account of the differential amount charged by the applicant. - applicant has committed serious irregularity by taking Cenvat credit on a service, the cost of which is separately billed to the customer without service tax component which situation is comparable to a situation where credit of excise duty paid on inputs is taken and utilized for clearance of final product but the input is sold without reversal of the cenvat credit taken when it was received into the factory. Service being intangible, arguments are raised based on Rule 5 of Service Tax (Determination of Value) Rules, 2006 etc. But the situation is essentially the same as in the case of removal of inputs without reversal of credit taken and prima facie cannot be approved of and full recovery of such amount may be prima facie justifiable Waiver of pre-deposit 1 Crore was ordered to be submitted as pre-deposit rest of the duty to be waived till the final disposal decided partly in favor of assesse.

Summary

Issues:
1. Jurisdictional change in the case title.
2. Classification of service and tax liability on dishonoured cheques.
3. Cenvat credit utilization and service tax implications.
4. Financial hardship and waiver of pre-deposit.

Issue 1: Jurisdictional Change
The applicant filed an application requesting a change in the respondent's name from Commissioner of Central Excise Chennai-II to Commissioner of Service Tax, Chennai for proper jurisdiction alignment. The Tribunal ordered the change to ensure correct representation in all future proceedings.

Issue 2: Classification of Service and Tax Liability
The applicant, a Non-banking Financial Company, faced service tax demands for cheque dishonour charges billed by banks. Revenue argued that such charges fell under Banking and Financial Services, making them taxable. The applicant contended that these were mere reimbursements and cited a Delhi High Court ruling on service tax determination. However, Revenue maintained that the activity was taxable under relevant sections.

Issue 3: Cenvat Credit Utilization and Tax Implications
Revenue highlighted the applicant's unauthorized Cenvat credit utilization and separate billing of service costs without service tax recovery, causing revenue loss. They emphasized the applicant's contravention of VAT principles and argued for pre-deposit based on basic taxing provisions, irrespective of Rule 5's status. The Tribunal found the applicant's actions irregular and ordered a partial pre-deposit due to financial hardship.

Issue 4: Financial Hardship and Pre-Deposit Waiver
Considering the arguments, the Tribunal acknowledged the service's taxability and irregularities in Cenvat credit handling. While justifying a pre-deposit, they balanced it with the applicant's financial difficulties, ordering a partial payment of Rs.1,00,00,000 within 8 weeks. The remaining dues were waived pending appeal, subject to compliance by a specified date.

This judgment addressed the jurisdictional change, service classification, Cenvat credit misuse, and financial hardship, providing detailed analysis on each issue while balancing tax liability, legal principles, and financial constraints for the applicant.