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TMI Blog2020 (11) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... s, 2004, is an authority for the banks to claim the credit in respect of all the services without establishing that the services under consideration are the common input services for providing the exempted and taxable services. - Service Tax Appeal No. 87659 of 2016, 88202 of 2019 - INTERIM ORDER NO. 7-8/2020 - Dated:- 2-11-2020 - HON BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL) AND HON BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) Shri Prasad Paranjape with Shri Sanjeev Nair, Advocates, for the Appellant Shri D.M. Shinde, Assistant Commissioner, Authorised Representative for the Respondent ORDER PER: SANJIV SRIVASTAVA The Appeal No ST/87659/2016 is directed against Order in Original No 34/STC-I/SM/16-17 dated 16.09.2016 of the Commissioner of Service Tax-I, Mumbai, and the appeal No ST/88202/2019 is directed against the Order in Original No 44/MVSC/PR. COMMR/ME/2019-20 dated 04.09.2019 of Principal Commissioner, CGST and Central Excise Mumbai East Commissionerate. 1.2 By the order dated 16.09.2016 the Commissioner has adjudicated the dispute for the period from 2010-11 to 2014-15 and by the order dated 04.09.2019, the dispute for the period April 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of these they avail the services of stock brokers to buy and sell these government securities in open market. 2.4 A show cause notice dated 08.10.2015 was issued to the appellant proposing to deny the CENVAT Credit availed by them in respect of the these input services, for the period of Financial Year 2010-11 to 2014-15. This show cause notice has been adjudicated vide order dated 16.09.2016, referred in para 1, supra. 2.5 Another show cause notice dated 26.02.2018 was issued seeking to deny the CENVAT Credit in respect of the same services claimed to be input services by the Appellant. This show cause notice has been adjudicated by the Commissioner vide his order dated 04.09.2019. 2.6 Aggrieved by both the adjudication order Appellants have preferred these appeals before CESTAT. 3.1 We have heard Shri Prasad Paranjape, Advocate for the Appellant and Shri D M Shinde, Assistant Commissioner, Authorized Representative for the revenue. 3.2 Arguing for the appellants learned Counsel submits that,- Issue in respect of admissibility of CENVAT Credit of the service tax paid on the premium paid to DICGC, by the banks, has been settled by the larger benc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3B) of the CENVAT Credit Rules, 2004 as it existed at appropriate time, provided for reversal of the credit availed. This reversal is in lieu of non maintenance of separate accounts towards taxable and exempt business. Since they have complied with the said provisions there cannot be separate demand for denial/ reversal of credit availed in respect of individual input services, as per the decision of tribunal in case of South Indian Bank. Demand for the period between April 2010 to September 2013 is barred by limitation, in view of the decisions as follows: Continental Foundation [2007 (216) ELT 177 (SC)] Tamil Nadu Housing Board [1994 (90) TMI 69 SC] Uniworth Textiles Ltd [2013 (288) ELT 161 (SC)] Penalty imposed under Section 78 needs to be set aside and relief granted under Section 80 of the Finance Act, 1994, in view of the decisions in following cases: Uniflex Cables Ltd [2011 (271) ELT 161 (SC)] Bharat Hotels Ltd [2018 (12) GSTL 368 (Del)] Even if the penalty under Section 78 is to be maintained it should be restricted to 25% of the disputed CENVAT amount. In respect of the penalty of ₹ 25,73,798/-, imposed in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en appellant takes over unsubscribed portion of the securities if any, and the assessee gets commission for the same. Subsequent sale of these government securities, is simply an act of trading in these securities and cannot be said to be input service for providing the output services. As per section 11 of the Banking Regulation Act, 1949 the banks are required to maintain a prescribed percentage of their assets in liquid form viz cash and/or approved securities. It is a fact that cash is the most liquid asset, however, it does not generate any revenue whereas approved securities are investments which generate revenue. Thus, the objective of maintaining the SLR in approved securities is to maximize the profits for shareholders and not for providing any service to their clients. Thus these are an investment and have nothing to do with the output service i.e. lending. Since these activities of purchase/ sale of government securities through the brokers is for appropriately investing their funds to maximize their profits on account of such investments they cannot be said to be in relation to providing the output services. Further these activities are in nature of trading a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of PNB Metlife Insurance and CESTAT West Bench decision in the case of Reliance Industries to argue that CENVAT Credit of service tax paid by them on the stock broker services is admissible. 4.3 We find that in the case of South India Bank, larger bench of tribunal has relied upon the decision of the Karnataka High Court in case of PNB Metlife Insurance to decide upon the admissibility CENVAT Credit in respect of the service tax paid on the premium paid to DICGC. The relevant paragraphs from the decision of South India Bank are reproduced below: 8. The Appellants herein are banking companies as defined under section 5(c) of the Banking Regulation Act, 1949. The Deposit Insurance Corporation is a subsidiary of the Reserve Bank of India and has been established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of insuring deposits and guarantee credit facilities. The Deposit Insurance Corporation transacts business of insuring the deposits accepted by the banks. It has to register every existing banking company as also a new banking company as an insured bank and the insured bank has to pay a premium to the Deposit Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing bank guarantee Safe deposit locker facilities; etc ii. Direct nexus with the lending activity. Processing fee towards obtaining necessary sanctions/approvals for lending money to customers; Documentation charges towards completing loan sanction with respect to preparing, printing and executing the various documents required post appropriate sanctions/ approvals being taken. Inspection charges towards compensation for the time spent in visiting and inspecting the factory/godown/other assets of the borrowers. 10. The banks claim that they have availed credit of service tax paid on input services such as core banking software, renting of premises of the bank, maintenance of ATMs by agencies, on which credits no dispute has been raised by the Revenue. The dispute that has been raised by the Revenue is with regard to the service provided by Deposit Insurance Corporation to the banks for insuring the deposits, which service is not considered by the Revenue as an input service for the reason that the activity of accepting deposits is not a service defined under the Finance Act and so the deposit insurance service received in rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put service. Therefore, even if the said service is received by the banks from the Deposit Insurance Corporation to fulfil a statutory requirement, such service would not qualify as an input service , unless the service rendered utilising such input service falls under the scope of output service . The deposit of insurance premium could be said to be an activity relating to the business of the banks, but the activities relating to business of the banks have been deleted by Notification dated 1 March, 2011. 4.4 From the facts as narrated and recorded by the larger bench in its order, it is quite evident that there two separate stream of services provided by the banking companies. One stream is in relation to the deposits and the other stream is in relation to the lending. These streams are distinctly identifiable and the law also admits the same. Even the DICGC, insures only the deposits and not the lending. That being so the business of banking cannot be said be said to be insured under the DCIGC. Larger bench has in its decision referred to the statement of object and reasons, of the Deposit Insurance Act, Para 33 and 34 of the order reads as follows: 33. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank that a licence cannot be granted to it and includes the State Bank and a subsidiary bank, but does not include a defunct banking company; (k) new banking company means a banking company which begins to transact the business of banking after the commencement of this Act under a licence granted to it under section 22 of the Banking Regulation Act, 1949, (l) premium means the sum payable by an insured bank under section 15 of this Act; 34. Sections 10, 11, 13, 15, 15A and 16 of the Deposit Insurance Act are also relevant and they are as follows: 10. The Corporation shall register every existing banking company as an insured bank before the expiry of thirty days from the date of commencement of this Act. 11. The Corporation shall register every new banking company as an insured bank as soon as may be after it is granted a licence under section 22 of the Banking Regulation Act, 1949. 13. The registration of a banking company as an insured bank shall stand cancelled on the occurrence of any of the following events, namely: (a) if it has been prohibited from receiving fresh deposits; or (b) if it has been informed by notice in writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provisions of this Act, be liable to pay to every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made: Provided that the liability of the Corporation in respect of an insured bank referred to in clause (a) or clause(b) of sub-section (1) of section (13) or clause (a) or clause (b) of section 13 C shall be limited to the deposits as on the date of the cancellation of the registration. Provided further that the total amount payable by the Corporation to any one depositor in respect of his deposit in that bank in the same capacity and in the same right shall not exceed ₹ 1,00,000/-. 4.5 From the plain reading of the above provisions the scheme and purpose of the DICGC, is evident, and it quite evident that such a corporation and insurance of depositor has been envisaged in law, to statutorily mitigate the risk of the depositors in making the deposits with the bank. The banking company do not operate to accept deposits but will make use of the money mobilized through the deposits, and earn profits by way of lending the mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rocess of issuance of the policy by the insurer and subsequent procurement of re-insurance policy from another company, which is a statutory requirement, is an integral part of the entire process and the insurance process does not come to end merely on the issuance of the insurance policy since it continues till the existence of the term of the policy. The High Court noted that since re-insurance has to be taken under section 101 A of the Insurance Act, it is a statutory obligation and, therefore, has to be considered as having nexus with the output service and, therefore, would be an input service , for which CENVAT credit can be availed. The portion of the judgment of the High Court pertaining to this aspect is reproduced below: 6. Having heard the learned counsel for the parties and in the fact of this case, we are of the opinion that the order of the Tribunal does not require any interference. Rule 2(l) of the Cenvat Credit Rules 2004 provides that Input Service‟ means service used by a provider of taxable service for providing an Output Service‟. The submission of the learned counsel for the appellant that once the Insurance Policy is issued by the Insu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrated in the case of reinsurance the insurance company was mitigating its risk by seeking the insurance from the certain other foreign based insurance company. To mitigate such risk they took the insurance cover from the foreign based company, and paid the premium for obtaining such an insurance cover. The service tax paid against such insurance scheme cannot be equated with the scheme as envisaged under the Deposit Insurance Scheme, because in that case what was mitigated was the risk of the insurance company and not the insured person. Definitely for the person insured it was reinsurance but for the insurance company it was the insurance service received, and was an input service. Further the decisions rendered in the case of PNB Metlife Insurance case etc, all have been rendered much prior to the decision of the Apex Court in the case of Dilip Kumar and Co [2018-TIOL-302-SCCus- CB], wherein a five member bench of Hon ble Apex Court has favored the strict interpretation of the fiscal statue. Even the decision of South India Bank has been passed without consideration of the said decision of Hon ble Apex Court. Relevant paragraph from the said decision are reproduced below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table construction, certainly, such a construction is not admissible in a taxing statute where you can simply adhere to the words of the statute. VISCOUNT SIMON quoted with approval a passage from ROWLATT, J. expressing the principle in the following words: In a taxing Act one has to look merely at what is clearly said. This is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. It was further observed: In all tax matters one has to interpret the taxation statute strictly. Simply because one class of legal entities is given a benefit which is specifically stated in the Act, does not mean that the benefit can be extended to legal entities not referred to in the Act as there is no equity in matters of taxation . Yet again, it was observed: It may thus be taken as a maxim of tax law, which although not to be overstressed ought not to be forgotten that, the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax on him , [Russel v. Scott, (1948) 2 All ER 1]. The proper course in construing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries Limited, (2004) 10 SCC 201 [hereinafter referred as Kesoram Industries Case for brevity]. In the later decision, a Bench of seven Judges, after citing the above passage from Justice G.P. Singh s treatise, summed up the following principles applicable to the interpretation of a taxing statute: (i) In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of interpretation is given to the subject and there is nothing unjust in a taxpayer escaping if the letter of the law fails to catch him on account of Legislature s failure to express itself clearly . 27. Now coming to the other aspect, as we presently discuss, even with regard to exemption cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of Legislatures failure to express itself clearly (See the passage extracted hereinabove from Kesoram Industries Case (supra)). 29. The first case with which we need to concern ourselves is the case in Union of India v. The Commercial Tax Officer, West Bengal and Ors., AIR 1956 SC 202. It may be noted that this case was dealt with by five learned Judges of this Court resulting in two different opinions; one by the then Chief Justice of India, S.R. Das for the majority, and Justice B.P. Sinha (as His Lordship then was) rendering minority view. The question before this Court was whether the sale of goods made by one private mill to the Government of India, Ministry of Industries and Supplies were to be deducted as taxable turnover of the mill for the exemption given under Section 5 of the Bengal Finance (Sales Tax) Act, 1941 (Bengal Act VI of 1941). The exemption under Section 5(2)(a)(iii) of the Bengal Finance (Sales Tax) Act, 1941 provided for exemption to sales to the Indian Stores Department, the Supply Department of the Government of India, and any railway or water transport administration . The Court was to interpret the aforesaid provision in order to ascertain w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary, the minority opinion of Justice B.P. Sinha (as His Lordship then was) provided a purposive interpretation for Section 5(2)(a)(iii) of the Act, which is clear from the following passage: The judgment under appeal is based chiefly on the consideration that the exemption clause in question does not in terms refer to the newly created department which now goes by the name of the Ministry of Industry and Supply. But this department in so far as it deals with industry, is not concerned with the main purchasing activities of the Government of India. The exemption was granted in respect of the purchasing activity of the Government of India and that function continues to be assigned to the Supply Department which has now become a wing of the newly created department of the Government. The question therefore arises whether in those circumstances the Government of India could claim the benefit of the exemption. The High Court in answering that question in the negative has gone upon mere nomenclature. It has emphasized the change in the name and overlooked the substance of the matter. 33. The minority construed strict interpretation to be an interpretation wherein lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within the province amounted to several crores. I should have thought that the business community in the province of Bengal having had the advantage of the transactions of sale, the Government of Bengal in all fairness should have allowed the purchasing agency of the Government of India the benefit of the exemption until that benefit was in terms withdrawn sometimes in the beginning of 1949. 34. In Hansraj Gordhandas v. H.H. Dave, Asst. Collector of Central Excise Customs, Surat and Ors., AIR 1970 SC 755 = (1969) 2 SCR 253 [hereinafter referred as Hansraj Gordhandas Case for brevity], wherein this Court was called upon to interpret an exemption notification issued under the Central Excise Act. It would be relevant to understand the factual context which gave rise to the aforesaid case before the Court. The appellant was sole proprietor who used to procure cotton from a cooperative society during the relevant period. The society had agreed to carry out the weaving work for the appellant on payment of fixed weaving charges at Re.0.19 np. per yard which included expenses the society would have to incur in transporting the aforesaid cotton fabric. In the years 1959 and 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be done can only be legitimately ascertained from that which it has chosen to enact, either in express words or by reasonable and necessary implication. It is an application of this principle that a statutory notification may not be extended so as to meet a casus omissus. As appears in the judgment of the Privy Council in Crawford v. Spooner. we cannot aid the Legislature s defective phrasing of the Act, we cannot add, and mend, and, by construction, make up deficiencies which are left there. Learned Counsel for the respondents is possibly right in his submission that the object behind the two notifications is to encourage the actual manufacturers of handloom cloth to switch over to power looms by constituting themselves in cooperative Societies. But the operation of the notifications has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent. 35. In the judgment of two learned Judges in Union of India v. Wood Papers Limited, (1990) 4 SCC 256 [hereinafter referred as Wood Papers Ltd. Case for brevity], a distinction between stage of finding out the eligibility to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant was entitled to the benefit of the Notification dated June 30, 1969. There was also no dispute that the refunds were eligible to be adjusted against sales tax payable for respective years. The only controversy was whether the appellant, not having actually secured the prior permission would be entitled to adjustment having regard to the words of the Notification of August 11, 1975, that until permission of renewal is granted by the Deputy Commissioner of Commercial Taxes, the new industry should not be allowed to adjust the refunds . The contention of the appellants therein was that the permission for the three years had been sought well before the commencement of the respective years but had been withheld for reasons which were demonstrably extraneous. Therefore, contention was that if, in these circumstances, the Deputy Commissioner could withhold the permission. 37. This Court while accepting the interpretation provided by the appellant, observed on the aspect of strict construction of a provision concerning exemptions as follows: There is support of judicial opinion to the view that exemptions from taxation have a tendency to increase the burden on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts as contained in the Rules. The Constitution Bench then considered and reiterated the settled principles qua the test of construction of exemption clause, the mandatory requirements to be complied with and the distinction between the eligibility criteria with reference to the conditions which need to be strictly complied with and the conditions which need to be substantially complied with. The Constitution Bench followed the ratio in Hansraj Gordhandas Case (supra), to reiterate the law on the aspect of interpretation of exemption clause in para 29 as follows The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, thought at times, some latitude can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption clause that are important. Substantial compliance with an enactment is insisted, where mandatory and directory requirements are lumped together, for in such a case, if mandatory requirements are complied with, it will be proper to say that the enactment has been substantially complied with notwithstanding the noncompliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive noncompliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. 34. The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad of cases and quite often, the critical question to be examined is whether the requirements relate to the substance or essence of the statute, if so, strict adherence to those requirements is a preconditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.8 Thus the provisions of the Finance Act, 1994 and the CENVAT Credit Rules 2004 should be considered in the light of the said the principles of interpretation as laid down by the Apex Court in the above referred decision. In our view by extending the benefit by referring to insurance of the bank, and the banking business, may not be the justified approach as per this decision. In our view the matter needs reconsideration, in light of this decision of the Hon ble Apex Court. 4.9 Since we are unable to agree with the interpretation given to the legal provisions specifically on the point that in respect of the admissibility of CENVAT Credit of the service tax on the services received for fulfilling statutory obligations by the three member bench in the case of South India Bank, the matter needs to be referred to President for constituting a larger bench to clarify the issues in this regard. Hon ble Supreme Court has in the case of Paras Laminates [1990 (49) ELT 322] held 9. It is true that a Bench of two members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the earlier decision is render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary for the healthy functioning of the Tribunal that the President should have the requisite authority to refer the case to a larger Bench. That is a power which is implied in the express grant authorizing the President to constitute Benches of the Tribunal for effective and expeditious discharge of its functions. 10. In our view, the Bench of two members acted within their power in stating the points of law which required clarification and the President acted equally within the bounds of his power in constituting larger Bench to hear and decide those points. 4.10 Following this decision of Hon ble Supreme Court, in case of Asia Brown Boveri Ltd [2000 (120) ELT 228 Tri Del], a five member bench of this tribunal held as follows: 5. As regards the constitution of the Larger Bench by the Hon'ble President pursuing the referral order, ld. Counsel had pointed out that inasmuch as the Tribunal decision in M/s. American Auto Services (supra) being a decision of a Larger Bench consisting of three members, the same was binding on the other Benches of the Tribunal and to the extent the referral order had recommended to the Hon'ble President the constitution of a Larg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perceived by them as erroneous decision in an earlier case. In such cases, it was reasonable and efficacious that the case is referred to a Larger Bench. In the Paras Laminates case, a two Member Bench had doubted the correctness of a decision of an earlier Bench consisting of three Members and reference to a Larger Bench made by the Hon'ble President was upheld by the Apex Court in the said judgment. Following the ratio of the said judgment, ld. JDR submitted that there was no legal infirmity in the referral order nor in the constitution of the present Larger Bench of five Members to hear the divergence of opinion between the three Member Bench decision in the American Auto Services case and the Single Member Bench decision in Chandigarh Bottling Co. case. In this connection, he also relied on the Supreme Court decision in Bengal Immunity Co. case reported in AIR 1955 661 (S.C). 6. On a consideration of submissions made by both the sides and the case law relied on by the Departmental representative, we note that the Apex Court judgment in Paras Laminates case has examined both the aspects, viz., (a) the competence of one Bench of the Tribunal to differ from the view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X
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