2018 (6) TMI 1006 - AT - Service Tax

Liability of Interest and penalty - Point of Taxation Rules - whether the tax was paid on time or was delayed with consequential interest liability? - Held that - Section 65 (105) describes the taxable event but does not provide any clue as to the point at tax liability arises. For the first time, in 2011, rules for determining the point of taxation in various circumstances was notified and would therefore apply to only a portion of present disputed amount. The adjudicating authority has taken note of rule 3 and rule 6 of Point of Taxation Rules, 2011 as originally notified and prior to amendment of 17th March 2012 and, according to him, the receipt of payment is sufficient to determine the point of taxation. There is no doubt that applicant makes a payment along with proposal whether that first premium is encashed immediately, or otherwise, it is placed at the disposal of the appellant and is, indisputably, consideration for the admitted service - In the present dispute the appellant has admittedly paid duty according to their own interpretation of the point at which the tax liability arises. The claim of the appellant is that the service commences with the acceptance of the proposal. While that may be so, the tax liability is required to be computed from the moment the consideration is received even if the contract of insurance specified the commencement of risk from a different date. Both before and after the notification of the Point of Taxation Rules, 2011, it is the date of payment that determines the performance of the service for discharge of tax liability. The appellant has discharged his duty liability belatedly; consequently the appellant is required to pay interest for the said delay. The provision of section 75 of Finance Act, 1994 are unambiguous that the assessee is obliged to remit interest on delayed payment of tax - the interest liability of the appellant stands confirmed. Interest upheld - penalties set aside - appeal allowed in part.

Summary

Issues:
Tax liability confirmation, imposition of penalty under section 78 of Finance Act, 1994, interest charge, determination of tax liability, invocation of section 73, imposition of penalty, point of taxation, liability arising upon acceptance of proposal, applicability of Point of Taxation Rules, 2011, interest liability determination, appropriateness of penalties, confirmation of interest liability.

Tax Liability Confirmation and Penalty Imposition:
The appeal concerns an order confirming a tax liability of ?39.22 crores, imposing a penalty under section 78 of the Finance Act, 1994, and charging interest of ?43.62 lakhs for the period from April 2007 to March 2012. The appellant's Chartered Accountant argued that tax liability was undisputed, interest liability did not arise due to timely tax payments, and hence, penalty under section 78 should not apply. The Tribunal found that tax payments were regular, and the demand in the impugned order was unnecessary under section 73 of the Finance Act, 1994, as taxes were paid regularly. The imposition of penalty was deemed unjust and not tenable.

Point of Taxation and Liability Determination:
The dispute revolved around the point at which tax liability arises concerning the first premium encashed by the appellant as a life insurance provider. The appellant contended that tax liability arises upon acceptance of the proposal for insurance, while the adjudicating authority relied on the Point of Taxation Rules, 2011, stating that tax liability crystallizes upon receipt of payment. The Tribunal analyzed various legal precedents and circulars to determine that the tax liability is triggered upon the receipt of consideration, even if the service commences later. Consequently, the Tribunal confirmed the interest liability for delayed tax payment.

Interest Liability Determination and Penalty Appropriateness:
The Tribunal set aside the penalties imposed on the appellant, considering the appropriation of already paid tax as superfluous. However, the interest liability was upheld based on the delayed tax payment, as per the provisions of section 75 of the Finance Act, 1994. The Tribunal emphasized that interest liability is distinct from the recovery of tax under section 73 and confirmed the interest liability of the appellant.

This detailed analysis of the judgment highlights the key legal issues addressed by the Appellate Tribunal CESTAT MUMBAI in the case, providing a comprehensive understanding of the decision and the reasoning behind it.