2017 (9) TMI 165 - HC - Service Tax

Scope of SCN - Whether the Tribunal, while remanding the matter, addressed any of the issues or questions which were not included in the show-cause notice? - Held that - It would appear from the SCN that the allegations made were on disclosures by his client as required by the department upon having conducted inquiry and investigation. No part of the information furnished by his client could be demonstrated to be incorrect. The question of suppression cannot arise and accordingly the SCN carries only a bald allegation in regard thereto. On top of that by the impugned order the Tribunal purported to find that the adjudicating authority did not cause proper inquiry nor investigation, to cite that as reason for the directions of remand. By the impugned order there was remand of the issues for reconsideration on the aforesaid directions which amount to taking of additional evidence. The Tribunal being an appellate forum exercised its power to remand as well as give directions for taking additional evidence. Power of remand and directions for taking additional evidence by an Appellate Court is provided for in Order 41 Rules 23, 23A and 27 to 29 of the Code of Civil Procedure, 1908. The Code separately provides for remand and production of additional evidence in Appellate Court which is not so under section 35C of the Central Excise Act, 1944. The power of remand prescribed by the Code is that where the Court, from whose decree an appeal is preferred, disposed of the suit upon a preliminary point or the case was disposed of otherwise than on a preliminary point, the decree is reversed in appeal and a re-trial is or considered necessary, the Appellate Court will exercise the power of remand in both such instances. However, this power of remand requires the Court from whose decree appeal was preferred, to determine the suit; and the evidence (if any) recorded during the original trial shall, subject to all just exceptions, be evidence during the trial after remand. Penalty - Held that - no part of the adjudicated demand can be said to be outside the purview of the scope of section 73 prior to its substitution. Before that authority no ground had been taken that the SCN did not disclose reason to believe omission or failure on the part of the assessee or that such omission or failure was not covered under clause(a) sub-section (1)in section 73 as it stood before substitution. There are specific findings of the adjudicating authority regarding omission, failure and suppression by the appellant on the allegations made in the SCN - On a reading of sections 73, 78 and 83A we are unable to hold that upon determination of a demand, where the extended period of limitation has been invoked, the adjudication of penalty that stand attracted is to be made by initiating a separate proceeding. The penalty adjudged and direction made in regard thereto by the adjudicating authority is clearly under the provisions of section 78 as it stood before substitution - suppression and imposition of penalties are in favor of the Revenue. Appeal allowed - decided partly in favor of appellant.

Summary

Issues Involved:
1. Whether the Tribunal addressed issues not included in the show-cause notice (SCN).
2. Legality of the Tribunal's remand order.
3. Classification of services and applicability of service tax.
4. Validity of the demand based on "gain on securitization."
5. Justification of the service tax demand on "collection commission."
6. Legality of the penalty imposed for suppression.

Detailed Analysis:

1. Whether the Tribunal addressed issues not included in the show-cause notice (SCN):
The appellant argued that the demand for ?4283.17 lakhs on account of "gain on securitization" was not mentioned in the SCN and could not be adjudicated. The Tribunal's direction for remand on this issue was challenged as it allowed the Revenue to cure defects in the SCN, which is impermissible under the law. The Tribunal's action was seen as exceeding its jurisdiction by addressing issues not originally included in the SCN.

2. Legality of the Tribunal's remand order:
The Tribunal remanded the matter for fresh adjudication, which the appellant contended was unjustified. The Tribunal was criticized for not providing specific reasons for remand and for allowing the Revenue to rectify deficiencies in their case. The Tribunal's remand without setting aside the original order and directing additional evidence was seen as an overreach. The High Court found that the Tribunal's directions for remand were made without sufficient reason and emphasized that the adjudicating authority should not be directed to "fish out evidence."

3. Classification of services and applicability of service tax:
The Commissioner had held that operating lease, loan against hypothecation, and hire purchase finance were not taxable under "banking and other financial services." The Tribunal's remand for re-examination of agreements to ascertain the true nature of transactions was challenged. The High Court upheld the Commissioner's findings, stating that the Tribunal did not provide sufficient grounds to overturn the Commissioner's interpretation of the transactions.

4. Validity of the demand based on "gain on securitization":
The appellant argued that "gain on securitization" was not mentioned in the SCN and thus could not be part of the adjudication. The High Court agreed, noting that the SCN did not notify the claim on this account. The Tribunal's direction for remand on this issue was found to be without basis, as the adjudicating authority had already dropped the demand on this ground.

5. Justification of the service tax demand on "collection commission":
The Commissioner had recalculated the demand based on available records, rejecting the figures from RBI returns as they did not reflect true income under "collection commission." The Tribunal's remand on this issue was challenged, and the High Court found that the Revenue had not provided any material to show that the Commissioner's reasons were erroneous. The Tribunal's direction for remand on this issue was deemed unjustified.

6. Legality of the penalty imposed for suppression:
The appellant contended that the penalty for suppression was imposed without proper adjudication. The High Court found that the appellant was on notice regarding the penalty and that the adjudicating authority's findings on suppression were sufficient. The penalty was upheld as being within the provisions of Section 78 of the Finance Act, 1994.

Conclusion:
The High Court answered the questions in favor of the appellant, except on the issues of recovery of ?93 lakhs, suppression, and imposition of penalties, which were in favor of the Revenue. The Tribunal's remand order was set aside, and the original order dated 31st March 2009 was restored. The appeals were disposed of accordingly.