2021 (5) TMI 869 - AT - Service Tax

Liability of Interest - point of taxation - point of time when liability to pay service tax on re-insurance services provided under the pool agreement arises - extended period of limitation - penalty. Extended period of limitation - HELD THAT - Even when an assessee has suppressed facts, the extended period of limitation can be evoked only when suppression is shown to be willful and with an intent to evade payment of service tax - Commissioner has not recorded any finding that even if the appellant had suppressed the fact of having received the amount, it was willful and with an intent evade payment of service tax. In fact, the Commissioner observed that there was no malafide intention on the part of the appellant to suppress this fact - the extended period of limitation could not have been invoked. Any demand up to March 2013 would, therefore, barred by limitation. Delay in Payment of Service Tax - HELD THAT - Section 64VB (5) of the Insurance Act read with rule 59 of the Insurance Rules, clearly excludes re-insurance from the general rule that no risk should be assumed until the premium is paid. The consideration in re-insurance policies can be like in any other contract (past, present or future). The issue, therefore, that arises for consideration is when service is rendered and service tax is due but the appellant is not able to pay it until the accounts are squared up and thereby delays paying the service tax, than whether in such a situation the appellant is liable to pay interest on the delayed payment, considering that the delay is not on account of the fault of the appellant - A similar issue comes up often in Central Excise matters when the transaction value of the goods is unknown, either partly or fully when the goods are cleared. This happens with Government contracts which fix the price based on a formula, several elements of which (say cost of raw material or minimum wages of the labour) are not known at the time of clearance. Later, when they get the details, they pay the differential excise duty. Although this is a service tax matter, the provisions are pari materia and if service tax is due on a date but is paid much later because data is not available with the assessee, interest has to be paid. Thus, the demand of interest from the appellant for the period post March 2013 upto March 2014 is justified. Penalty - HELD THAT - While dealing with the issue as to whether the extended period of limitation under the first proviso to section 73 of the Finance Act could have been invoked in the facts and the circumstances of the case, it has been found as a fact that the suppression of facts was not willful nor was there any intent to evade payment of service tax. Thus, for all the reasons stated while dealing with the extended period of limitation, penalty under section 78 of the Finance Act could not have been imposed upon the appellant. The Commissioner was, therefore, not justified in imposing penalty under section 78 of the Finance Act as there was no deliberate suppression of facts with intention to evade payment of service tax. In the result it is held that since the extended period of limitation could not have been invoked the demand of any interest up to March 2013 is not justified. However, the demand of interest for the period post March 2013 up to March 2014 is sustained. Penalty could also not have been imposed under section 78 of the Finance Act - Appeal allowed in part.

Issues Involved:

1. Invocation of the extended period of limitation.
2. Liability to pay interest on delayed payment of service tax.
3. Imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

Extended Period of Limitation:

The appellant argued that the extended period of limitation for demanding interest could not be invoked for any period up to March 2013. The principle that applies to the demand for service tax also applies to the demand for interest on late payment of service tax. The Delhi High Court in Kwality Ice Cream Company vs. Union of India and the Tribunal in Bank of Baroda vs. Commissioner of Service Tax, Mumbai held that the limitation for demanding interest is the same as for demanding service tax.

The Commissioner’s findings in paragraph 29.1 of the impugned order noted that the appellant paid most of the service tax amount on its own before the issuance of the show cause notice, suggesting awareness of the liability. However, the Commissioner conceded that there was no malafide intention on the appellant's part, but held that failing to include the correct amount of premiums in periodical returns amounted to suppression of facts.

The Supreme Court in Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise and subsequent cases like Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise and Uniworth Textile Limited vs. Commissioner of Central Excise clarified that suppression of facts must be deliberate and with intent to evade payment of duty. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise reiterated that mere failure to pay tax does not justify invoking the extended period of limitation unless there is deliberate suppression with the intent to evade tax.

In the present case, the Commissioner did not record any finding of willful suppression with intent to evade payment of service tax. The industry-wide issue and discussions with GIC further indicated no intention to evade tax. Thus, the extended period of limitation could not be invoked, making any demand up to March 2013 time-barred.

Liability to Pay Interest on Delayed Payment of Service Tax:

The appellant contended that there was no delay in the payment of service tax since the premium was paid only after receiving the matrix from GIC. However, the general principle under the Insurance Act that no risk is assumed unless the premium is paid does not apply to reinsurance. The risk in reinsurance is assumed as soon as the reinsurance treaty is signed, and the accounts are squared up later.

Section 64VB of the Insurance Act, which mandates that no risk should be assumed until the premium is paid, does not apply to reinsurance, as clarified by Rule 59 of the Insurance Rules, 1939. The Supreme Court in Steel Authority of India Ltd. vs Commissioner of Central Excise Raipur and CCE vs SKF India Ltd held that interest is payable even if the duty is paid later due to unavailability of data at the time of removal. Thus, the demand of interest from the appellant for the period post March 2013 up to March 2014 is justified.

Imposition of Penalty under Section 78 of the Finance Act:

The Commissioner imposed a penalty under Section 78 of the Finance Act, citing deliberate suppression of facts with intent to evade payment of service tax. However, it was found that the suppression was not willful nor intended to evade tax. The Supreme Court and Delhi High Court have held that for the extended period of limitation to apply, suppression must be willful and with intent to evade tax. Since this was not the case, the penalty under Section 78 could not be imposed.

Conclusion:

The appeal succeeds in part. The order dated September 7, 2016, by the Commissioner is set aside to the extent it demanded interest for the period up to March 2013 and imposed a penalty under Section 78 of the Finance Act. The demand of interest for the period post March 2013 up to March 2014 is sustained.

← Previous Next →