2025 (3) TMI 1321 - AT - Service Tax

Recovery of service tax on the premium collected by M/s Deposit Insurance and Credit Guarantee Corporation (DICGC) with interest and penalty - scope of remedy before the Tribunal under section 86 of Finance Act 1994 - jurisdiction under section 86 of the Finance Act 1994 to dispose of the appeal concerning the demand for interest and penalties related to the alleged short-payment of tax - HELD THAT - Without going into the thrust of the submissions made by both sides on the nature of the dispute as set out by them and narrated it is noted that the lack of legal sanction for recovery Rs. 118, 64, 34, 956 espoused for adopting cum-tax computation has attained finality. As the liability to tax does not arise and in any case ordered to be refunded to the assessee charging of interest would not arise notwithstanding the date on which those deposits had been made. Relying solely on the facts and the invalidation of short-payment of tax on premium collected between October 2011 and December 2013 the proceedings for recovery of interest set aside. Consequently the penalty imposed does not survive. Conclusion - Service tax cannot be charged as a component of the premium when the governing statutes do not permit recovery beyond the stipulated premium. Additionally interest and penalties cannot be imposed in the absence of a legally sanctioned tax liability. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the obligation to pay service tax on the premium collected by M/s Deposit Insurance and Credit Guarantee Corporation (DICGC) is enforceable under the Finance Act, 1994.

2. Whether the Tribunal has the jurisdiction under section 86 of the Finance Act, 1994, to dispose of the appeal concerning the demand for interest and penalties related to the alleged short-payment of tax.

3. Whether the appellant is liable to pay interest on the second tranche of tax liability deposited in January 2015, and whether the penalty imposed is sustainable.

ISSUE-WISE DETAILED ANALYSIS

1. Enforceability of Service Tax on Premium Collected

- Relevant legal framework and precedents: The Finance Act, 1994, governs the imposition of service tax. The Tribunal previously determined the tax liability of DICGC in 2015, following the introduction of service tax on 'insurance service' in 1994. The appellant's request for exemption was rejected by the Central Board of Excise & Customs (CBEC).

- Court's interpretation and reasoning: The Tribunal noted that the premium charged by DICGC to commercial banks is subject to tax under the Finance Act, 1994. However, the Tribunal accepted that the premium collected was not intended to include service tax, as the Deposit Insurance Act and Credit Guarantee Corporation Act, 1961, did not permit recovery beyond the stipulated premium.

- Key evidence and findings: The Tribunal found that the tax liability was initially resisted but later acceded to by the appellant, with payments made in two tranches in January 2015. The Tribunal also considered the audit report's objection to the inclusion of tax within the total premium.

- Application of law to facts: The Tribunal concluded that the service tax should not have been charged as a component of the premium, approving the 'cum-tax' computation under section 66B of the Finance Act, 1994.

- Treatment of competing arguments: The Tribunal rejected the respondent's argument that the service tax should be charged on the premium, siding with the appellant's position that the premium was not intended to include tax.

- Conclusions: The Tribunal determined that the tax liability on the premium collected was not legally sanctioned and ordered a refund to the assessee.

2. Jurisdiction of the Tribunal under Section 86

- Relevant legal framework and precedents: Section 86 of the Finance Act, 1994, outlines the Tribunal's jurisdiction concerning appeals related to service tax recovery.

- Court's interpretation and reasoning: The Tribunal considered its jurisdiction to address the appeal concerning the demand for interest and penalties, despite the respondent's argument that such matters fall outside its purview.

- Key evidence and findings: The Tribunal noted that the refund claim and the interest demand were interconnected, as the refund was contingent on the resolution of the interest demand.

- Application of law to facts: The Tribunal exercised its jurisdiction to address the appeal, concluding that the interest demand was not justified given the lack of legal sanction for the underlying tax liability.

- Treatment of competing arguments: The Tribunal dismissed the respondent's jurisdictional challenge, emphasizing the need to resolve the interconnected issues in the interest of justice.

- Conclusions: The Tribunal affirmed its jurisdiction to dispose of the appeal concerning the interest demand and penalties.

3. Liability for Interest and Penalty

- Relevant legal framework and precedents: The Finance Act, 1994, provides for the imposition of interest and penalties on delayed tax payments.

- Court's interpretation and reasoning: The Tribunal reasoned that since the underlying tax liability was not legally sanctioned, the demand for interest on the second tranche of tax liability was unfounded.

- Key evidence and findings: The Tribunal found that the appellant had been persuaded to deposit the tax in two tranches, and the subsequent demand for interest was unwarranted.

- Application of law to facts: The Tribunal applied the legal principle that interest cannot be charged in the absence of a valid tax liability, setting aside the interest demand.

- Treatment of competing arguments: The Tribunal rejected the respondent's argument for imposing interest, aligning with the appellant's position that the tax liability was not enforceable.

- Conclusions: The Tribunal set aside the interest demand and concluded that the penalty imposed did not survive.

SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: "As the liability to tax does not arise and, in any case, ordered to be refunded to the assessee, charging of interest would not arise notwithstanding the date on which those deposits had been made."

- Core principles established: The Tribunal established that service tax cannot be charged as a component of the premium when the governing statutes do not permit recovery beyond the stipulated premium. Additionally, interest and penalties cannot be imposed in the absence of a legally sanctioned tax liability.

- Final determinations on each issue: The Tribunal allowed the appeal, setting aside the proceedings for recovery of interest and concluding that the penalty imposed does not survive.