2020 (2) TMI 569 - AT - Service Tax

Service or not - appellant, Kerala Cooperative Deposit Guarantee Fund Board is constituted, under Kerala Cooperative Deposit Guarantee Scheme, 2012 for administration of Cooperative deposit fund, by Government of Kerala - whether the activity of the appellant is identical to the service rendered by Deposit Insurance And Credit Guarantee Corporation (DICGC) in the case of DICGC 2015 (5) TMI 143 - CESTAT MUMBAI ? - HELD THAT - In terms of Section 65 B (44) of Finance Act, 1994 Service is any activity carried out by a person for another for consideration and includes a declared service . Some exclusions are provided in the said Section itself like an activity constituting merely a transaction in money or actionable claim etc. - The appellant claims that they are not collecting any consideration for any particular service rendered but are only receiving contribution towards building a corpus fund and therefore, no service is involved. The collection of contribution to build a corpus fund to secure the depositors interest is not a mere transaction in money. The service rendered by the appellants does not find place either in the exclusion or in the Negative List. Therefore, the Learned Commissioner has correctly concluded that the activity undertaken by the appellants is not transaction in money. Further, Learned Commissioner referring to the Indian Contract Act, 1872 shows that the premium collected by the appellants constitutes a consideration as defined under Section 2(d) of the said Act. Learned Commissioner has relied upon the case of Deposit Insurance and Credit Guarantee Corporation. The appellants argued that it would be pertinent to note that the analogy of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC) does not apply in the instant case - the Tribunal in the case has gone into various aspects and have concluded that it is clear that deposit insurance undertaken by the appellant falls within ambit of general insurance business defined in Section 65(49) read with Section 65(105)(d) of the Finance Act, 1994 - the activity of the appellant is same as that of DICGC and if DICGC is liable to pay Service Tax so is the appellant liable to pay Service Tax. Penalty - HELD THAT - The appellants are a body constituted by the Government. There are a number of decisions by the Tribunal and Higher Courts that mens rea cannot be attributed to the Public Sector Units. The appellant is a body constituted by Government. Therefore, it is not expedient and necessitated to impose penalties. Therefore, while confirming the duty demand along with interest, the penalties imposed under Section 77 78 are liable to be set aside, by invoking the provisions of Section 80 of the Finance Act, 1994. Appeal allowed in part.

Summary

Issues:
1. Whether the activity of the appellant falls under the definition of 'service' for the purpose of Service Tax.
2. Whether the contribution collected by the appellant constitutes consideration for a service rendered.
3. Whether the appellant is liable to pay Service Tax similar to Deposit Insurance and Credit Guarantee Corporation (DICGC).
4. Whether penalties imposed on the appellant are justified.

Issue 1:
The primary issue in this case is whether the activity of the appellant falls under the definition of 'service' for the purpose of Service Tax. The appellant argued that they are not collecting consideration for any specific service but are receiving contributions to build a corpus fund. The appellant contended that their transactions with Cooperative societies constitute transactions in money, which according to the Educational Guide to Service Tax issued by CBEC, are not subject to Service Tax. However, the Tribunal found that the collection of contributions to secure depositors' interests is not merely a transaction in money and does not fall under the exclusion or Negative List. The Tribunal concluded that the activity undertaken by the appellant is not a transaction in money and is subject to Service Tax.

Issue 2:
The second issue revolves around whether the contribution collected by the appellant constitutes consideration for a service rendered. The appellant argued that the contribution to the fund is not in the nature of insurance premium or guarantee fee, which could be considered a 'service' under the Finance Act. They contended that the Commissioner erred in applying the law and cited legal precedents to support their position. However, the Tribunal found that the premium collected by the appellant constitutes consideration as defined under the Indian Contract Act, 1872. The Tribunal determined that the consideration obtained by the appellant for the activity performed qualifies as consideration for a promise under the Act.

Issue 3:
The issue of whether the appellant is liable to pay Service Tax similar to DICGC was also addressed. The Department argued that the activity of the appellant is akin to the DICGC, which provides guarantees for deposits made in commercial banks. The Tribunal noted that while the nature of the service provided by DICGC and the appellant may differ slightly, both entities receive consideration for their activities. The Tribunal found that the case of DICGC is applicable to the appellant, and if DICGC is liable to pay Service Tax, so is the appellant. Therefore, the Tribunal held that the appellant is liable to pay Service Tax similar to DICGC.

Issue 4:
Regarding the penalties imposed on the appellant, the Tribunal considered the appellant's status as a body constituted by the Government. Citing previous decisions, the Tribunal concluded that mens rea cannot be attributed to Public Sector Units, including the appellant. Therefore, the Tribunal found it unnecessary to impose penalties on the appellant. While confirming the duty demand along with interest, the Tribunal set aside the penalties imposed under Section 77 & 78 by invoking the provisions of Section 80 of the Finance Act, 1994.

In conclusion, the Appellate Tribunal CESTAT Bangalore partially allowed the appeals, confirming the duty demanded and setting aside the penalties imposed on the appellant. The judgment clarified the nature of the appellant's activity, the consideration received, the liability to pay Service Tax similar to DICGC, and the justification for setting aside penalties based on the appellant's status as a Government body.