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2025 (4) TMI 1391 - AT - Service TaxEligibility for exemption from payment of service tax under entry 29(g) of N/N. 25/2012 dated 20.06.2012 to the extent they have provided services to banking companies - ppellant have appropriately paid service tax on providing services to Rajcomp Info Services Ltd. or not - invocation of extended period of limitation - penalties - demand of late fee. Whether Appellant were eligible for exemption from payment of service tax under entry 29(g) of Notification No.25/2012 dated 20.06.2012 to the extent they have provided services to banking companies? - HELD THAT - Appellant s main activity has been opening of Saving Bank Account cash deposits cash withdrawals as business correspondent to Bank s Rural area branch. They have also submitted that in the nature of their business details of remuneration payable to them used to be computed by banks as per data available in the banks. In this connection they drew my attention to a sample copy of details provided by State Bank of Bikaner and Jaipur for the month of April 2016. As per the details the name of District; name of the concerned branch; name of the concerned location where Appellant s agent is posted and the name of the agent code are given. It is noticed that Branch Code is different and the location of the agent is also different. Appellant have submitted that each location falls in a village and that all the branches are Rural area branch in District Bikaner and Sikar - the Appellant have actually provided services with respect to accounts in Rural area branch of the Bank. Appellant have provided services as business correspondent to a banking company with respect to accounts in its Rural area branch and were eligible for exemption under entry No.29(g) of Notification No.25/2012 dated 20.06.2012 to the extent these services have been provided to State Bank of Bikaner and Jaipur (later merged with SBI) HDFC Bank Ltd. and State Bank of India. The demand of service tax alongwith interest thereon on this account is therefore set aside. Whether Appellant have appropriately paid service tax on providing services to Rajcomp Info Services Ltd. - HELD THAT - Appellants were liable for payment of service tax amounting to Rs.12, 91, 420/- on services provided to Rajcomp Info Services Ltd. As per para 8 of the SCN Appellant have already paid service tax of Rs.10, 90, 950/- Rs.2, 06, 826/- Rs.12, 97, 776/-. It is therefore clear that the Appellant have paid more than the amount due to be paid by them on providing services to Rajcomp Info Services Ltd. - there is no short payment of service tax on account of the taxable services provided to Rajcomp Info Services Ltd. Whether extended period of limitation is invokable? - HELD THAT - In the case of D. N. Pandey Co. 2019 (9) TMI 221 - CESTAT ALLAHABAD the Tribunal observed that the Revenue has not referred to any positive evidence on record to establish mala-fide intent on the part of Appellant. Longer period of limitation is not available merely for not taking registration and non- filing of ST-3 Returns - in the facts of the present case the demand could not have been confirmed by invoking extended period of limitation as the Appellant bona-fidely believed that their services to banking companies were exempted from payment of service tax under entry No.29(g) of Notification No.25/2012 dated 20.06.2012. Whether penalties and late fee are demandable from the Appellant? - HELD THAT - It has already been held that the demand of Rs.34, 80, 934/- is liable to be set aside on merits as well as on limitation. Therefore penalty under Section 78 for evasion of service tax cannot be sustained and is liable to be set aside - Penalty of Rs.10, 000/- have been imposed under Section 77(1)(d) for non payment of service tax electronically. As I have held that there is no short payment of service tax therefore there was no question of paying the same electronically. Therefore the penalty imposed under Section 77(1)(d) is set aside - Penalty of Rs.10, 000/- has been imposed under Section 77(2). As per Section 77(2) penalty is imposable for contravention of the provision of service tax for which no penalty is provided separately. It is on record that Appellant have not filed some of the service tax Returns. Therefore penalty of Rs.10, 000/- under Section 77(2) of the Finance Act 1994 upheld. Demand of late fee - HELD THAT - Late fee of Rs.40, 000/- has been demanded under Rule 7C of Service Tax Rules 1994 for not filing the ST-3 Returns during the relevant period. Rule 7 C is applicable to the cases of delayed filing of ST-3 Returns. The said Rule is not applicable where the assessee has not filed the ST-3 Returns. Therefore demand of late fee is also liable to be set aside. Conclusion - i) The appellant is eligible for exemption under entry 29(g) for services provided to banking companies in rural branches during 01.04.2015 to 30.06.2017. ii) No short payment of service tax is found on services provided to Rajcomp Info Services Ltd. iii) Extended period of limitation is not invokable; demand is barred by limitation. iv) Penalties under Sections 78 and 77(1)(d) and late fee under Rule 7C set aside; penalty under Section 77(2) upheld. Appeal disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in the judgment are: (a) Whether the appellant was eligible for exemption from payment of service tax under entry No.29(g) of Notification No.25/2012 dated 20.06.2012 for services provided to banking companies; (b) Whether the appellant had appropriately paid service tax on services provided to Rajcomp Info Services Ltd.; (c) Whether the extended period of limitation was invokable for raising the service tax demand; (d) Whether penalties and late fees imposed under various provisions of the Finance Act, 1994 and Service Tax Rules, 1994 were maintainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Eligibility for Exemption under Entry No.29(g) of Notification No.25/2012 Legal Framework and Precedents: Entry No.29(g) of Notification No.25/2012 exempts services by a business facilitator or business correspondent to a banking company with respect to accounts in its rural area branch. This entry underwent multiple substitutions:
The Court relied on the Supreme Court's interpretation in Government of India Vs. Indian Tobacco Association (2005), which held that substitution means replacement of the original entry and that such amendments apply retrospectively. The Madras High Court and Tribunal decisions were also cited to support this interpretation. Court's Interpretation and Reasoning: The Court held that the substituted entry as of 12.01.2017, which reinstates the exemption for business correspondents with respect to accounts in rural area branches, applies retrospectively for the period 01.04.2015 to 30.06.2017. The appellant's submissions and evidence, including agreements with various banks and Form 26AS data, established that services were provided as business correspondent to banks in rural branches. Key Evidence and Findings: Sample agreements with State Bank of Bikaner and Jaipur, HDFC Bank Ltd., and others showed services rendered in rural branches. The Court noted the appellant's main activities involved opening savings accounts, cash deposits, and withdrawals in rural areas. The location and branch codes confirmed rural area branches. Application of Law to Facts: Applying the retrospective substitution principle, the Court found the appellant eligible for exemption under entry 29(g) for services provided to banking companies in rural branches during the relevant period. Treatment of Competing Arguments: The Revenue argued that exemption was limited to PMJDY accounts and not all rural banking services. The Court rejected this, noting the substitution restored the broader exemption retrospectively. The appellant's bona fide belief in exemption was also considered. Conclusion: The demand of service tax and interest on services provided to banking companies in rural area branches was set aside. Issue 2: Payment of Service Tax on Services to Rajcomp Info Services Ltd. Legal Framework: Services provided to Rajcomp Info Services Ltd., a non-banking entity, were not exempt under entry 29(g). The appellant contended that amounts received from Rajcomp were inclusive of service tax (cum-tax price). Court's Reasoning: The agreement with Rajcomp Info Services Ltd. specified that all parties shall pay applicable taxes arising from their business under the agreement, indicating the price was inclusive of service tax. Key Evidence: Form 26AS data showed receipts from Rajcomp of Rs.46.2 lakhs (2015-16) and Rs.54.15 lakhs (2016-17). Calculations of tax liability at applicable rates (14.5% and 15%) yielded Rs.12,91,420 as tax payable. The appellant had paid Rs.12,97,776, exceeding the liability. Application of Law to Facts: Since the appellant paid service tax equal to or exceeding the liability on Rajcomp services, there was no short payment. Treatment of Competing Arguments: No dispute arose on the non-exemption of Rajcomp services; the issue was only on tax payment sufficiency, which was resolved in appellant's favor. Conclusion: No service tax demand sustained on services provided to Rajcomp Info Services Ltd. Issue 3: Invokability of Extended Period of Limitation Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 provides for a normal limitation period of one year for service tax demands, extendable to five years under certain conditions such as suppression or fraud. The appellant relied on Supreme Court and Tribunal decisions (Jaiprakash Industries Ltd., Lupin Ltd., D.N. Pandey & Co.) holding that extended limitation is not invokable in cases of bona fide belief or absence of mala fide intent. Court's Interpretation and Reasoning: The appellant demonstrated bona fide belief in exemption under entry 29(g), supported by frequent amendments and possible confusion. The Court found no evidence of suppression, fraud, or willful misstatement by the appellant. The appellant had disclosed information and cooperated during investigation. Key Evidence: The appellant's submissions, agreements, and tax filings indicated no concealment. The Department's demand arose from third-party information, not from appellant's suppression. Application of Law to Facts: The Court applied the principle that extended limitation requires positive evidence of mala fide intent or suppression, which was absent. The bona fide belief and frequent amendments justified rejecting extended limitation. Treatment of Competing Arguments: The Department argued for extended limitation due to alleged suppression. The Court rejected this on lack of evidence and appellant's bona fide belief. Conclusion: Extended period of limitation was not invokable; the demand was barred by limitation. Issue 4: Demand of Penalties and Late Fees Legal Framework: Penalties were imposed under:
Court's Reasoning: Since the service tax demand was set aside on merits and limitation grounds, penalty under Section 78 for evasion was unsustainable and set aside. Penalty under Section 77(1)(d) for non-payment electronically was also set aside as there was no short payment. Late fee under Rule 7C was set aside because the rule applies to delayed filing, not non-filing of returns. However, penalty under Section 77(2) for non-filing of some returns was upheld. Application of Law to Facts: The Court distinguished between penalties linked to tax evasion and those linked to procedural contraventions. Only the latter was sustained. Conclusion: Penalties under Sections 78 and 77(1)(d) and late fee under Rule 7C were set aside; penalty under Section 77(2) was upheld. 3. SIGNIFICANT HOLDINGS The Court's crucial legal reasoning includes: "The word 'substitute' ordinarily would mean 'to put (one) in place of another'; or 'to replace'. ... When a person is held to be eligible to obtain the benefits of an exemption Notification, the same should be liberally construed." "The substituted entry by Notification No.01/2017 dated 12.01.2017 is almost the same as it was mentioned in original Notification No.25/2012 dated 20.06.2012 and applies retrospectively." "Extended period of limitation cannot be invoked where there is bona fide belief in exemption and no evidence of suppression, fraud or mala fide intent." "Penalty under Section 78 for evasion cannot be sustained where demand itself is set aside on merits and limitation." Core principles established:
Final determinations:
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