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TMI Blog2021 (5) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... urance 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 asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed insurer under the provisions of the Insurance Act, 1938 [the Insurance Act] and is engaged in providing general insurance services. The appellant is also registered with the Service Tax Department. 4. A recently developed form of insurance is terrorism insurance. Terrorism insurance is an insurance purchased by property owners to cover their potential losses and liabilities that may occur due to terrorist activities. It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict, and the potential liability is enormous. 5. After the withdrawal of insurance and reinsurance capacity for terrorism risk in the international market post 9/11, all the non-life insurers in India along with the General Insurance Corporation of India [GIC] formed the Indian Market Terrorism Risk Insurance Pool [ Insurance Pool ] in April, 2002 to cover property damage and consequential loss arising out of any terror strike. 6. The Insurance Pool is administered by the GIC and it enables non-life insurance companies to provide insurance cover against terrorism risk in India on the combined underwriting capacity of the members a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be received by one member Company from the other member companies, it was not known from the quarterly statements as to what was the share/ amount to be received by one member company from another individual member company. 11. This amount, according to the appellant, is actually known only on receipt of detailed matrix for each financial year from the GIC, wherein the actual amount to be received as premium by one-member company from other member companies in respect of reinsurance provided under the pool was provided. The sending of matrix for determining the share of each member qua other member was a practice developed by the GIC. These matrixes were not contemplated under the Pool Agreement and were agreed between the members as a matter of practice of working of the pool. 12. It is stated that as it was only from the matrixes that the individual premiums from each company was known, the member companies deposited the service tax after receipt of the matrix, in respect of such reinsurance services rendered by them to the other member companies as well as liability under reverse charge in respect of excess of loss cover premium payable to foreign reinsurers. 13. A sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurer, the above facts would have remained unearthed. In view of this, I have no doubt in concluding that extended period of limitation of five years under proviso to Section 73(1) and 73(4) of the Finance Act, 1994 is invokable upon the noticee. (emphasis supplied) 17. In regard to the liability to pay interest at the appropriate rate under section 75 of the Finance Act, the Commissioner observed as follows : 30. As far as realisation of interest is concerned, the Noticee has submitted that taxable event takes place only when they raise invoice based on Pool administrator s information and that the compliance of rule 6 of the Service Tax Rules, 1994 is difficult as they get statement of Matrix from GIC only after 3 years and their agreement to the Pool also does not provide for payment of Service Tax on monthly basis: that they faced genuine hardships of getting matrix from GIC well in time and therefore they are not liable to pay penalty or interest. In this regard , I find that the noticee has deposited the Service Tax of ₹ 28,69,74,247/- for the period 2009-10 to 2013-14 on their own. However, they have not deposited the same within the period prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an insurance transaction as was observed by the Tribunal in Bajaj Allianz General Insurance Co Ltd v. CCE, Pune [ 2009 (13) STR 259 (Tri-Mum) ]; (vi) In the instant case, the appellant does not know on monthly basis, the details of premium receivable by it from respective member companies. These details are known only on receipt of the matrix from the GIC. On receipt of such matrix, the appellant raised invoices on the respective member companies and made book entries in its books of accounts; (vii) It is impossible for the appellant to pay service tax on monthly basis before receipt of matrix, as it does not know the consideration receivable by it from respective member companies. Till then, as the identification of another person and consideration is not possible, it cannot be said that the appellant provided any service in terms of section 65B(44) of the Finance Act; (viii) Thus, in the absence of any delay in payment of service tax by the appellant, the confirmation of demand of interest is not sustainable and the same is liable to be set aside; (ix) The extended period of limitation could not have been invoked and so the demand of interest for the period up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment of service tax. 23. It is true that the same principle would apply to invocation of the extended period of limitation for demanding interest for late payment of service tax as they would apply to the demand of service tax. 24. It was so held by the Delhi High Court in Kwality Ice Cream Company vs. Union of India [2012 (27) S.T.R. 8 (Del.)] and the relevant portion of the judgment is reproduced below: 5. It is, therefore, clear that the principle adopted by the Supreme Court was that the period of limitation, unless otherwise stipulated by the statute, which applies to a claim for the principal amount should also apply to the claim for interest thereon . If that be the position, the period of limitation prescribed for demand of duty under Section 11A is normally one year and, in exceptional circumstance of a case falling under the proviso to Section 11A(1), the period of limitation is five years. But that would be applicable only in case of misstatement, fraud, concealment etc., which is not the case here. As such, in the present case, the period of limitation for the demand for duty would be one year. By the same logic, the period of limitation for demand of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible. In that view of the matter, we do not find the case would fall under sub-section (2B) of Section 11A of the Act. Sub-section (2B) of Section 11A of the Act applies in a case where there is voluntary payment of unpaid duty before issuance of show cause notice under sub-section (1) of Section 11A. When the provision refers to show cause notice, it means a show cause notice which could have been validly issued and surely not a notice which had become time-barred. If by efflux of time and in absence of availability of extended period of limitation, such show cause notice itself had become time-barred, any payment made voluntarily by the manufacturer cannot be viewed as one made under sub-section (2B) of Section 11A of the Act. 12. In the present case, we have already held that time for issuing such a notice was one year, which period had already expired. 13. Accepting the stand of the Department that even in such a case once the payment of duty is made, interest liability would follow would bring about an incongruent situation. The recovery of the unpaid or short paid duty would become time-barred. If the manufacturer does not pay it voluntarily, it would not be possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation could not have been invoked, as mere failure to mention the receipts in the ST-3 return would not amount to suppression of facts. The contention of learned counsel of the appellant is that there should have been some positive act of suppression on the part of the appellant, which act, the impugned order has failed to establish. 28. Dr. Radhe Tallo learned Authorized Representative of the Department however, submitted that the Commissioner committed no illegality in invoking the extended period of limitation and in this connection placed reliance upon the decisions of the Tribunal in Timken India Limited vs. Commissioner of Central Excise, Jamshedpur [ 2019 (22) G.S.T.L. 282 (Tri. Kolkata) ] and Bharti Hexcom Ltd. vs. Commissioner of Central Excise, Jaipur-I [2019 (24) G.S.T.L. 588 (Tri. Del.)] and of the Bombay High Court in McKinsey Company Inc. vs. Commissioner of Central Excise [2019 (20) G.S.T.L. 198 (Bom.)]. 29. Section 73(1) of the Finance Act deals with recovery of service tax not levied or paid or short levied or short paid. The extended period of limitation can be invoked under the proviso to section 73(1) of the Finance Act, in which case noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression. (emphasis supplied) 32. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise [2005 (188) E.L.T. 149 (SC)] and the observations are as follows: 26 .. This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression suppression of facts in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:- In taxation, it ( suppression of facts ) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct. (emphasis supplied) 35. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication) [2018 (12) GSTL 368 (Del.)] also examined at length the issue relating to the extended period of limitation under the proviso to Section 73 (1) of the Act and held as follows; 27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word suppression in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. fraud, collusion, wilful misstatement . As explained in Uniworth (supra), misstatement or suppression of facts does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty. xxxxx Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y free to approach the revenue authorities for necessary clarifications. We feel that the appellant has not come clean on this aspect and therefore we feel that the extended time proviso for demanding service tax has rightly been involved in their case. 41. The Tribunal found as a fact there was a positive act on the part of the appellant in suppressing facts. This decision would, therefore, not help the department. 42. Likewise, the decision of the Bombay High Court in McKinsey Company Inc. would also not help the Department as it was based on its own facts and a categorical finding that there was an intention to evade payment service tax. 43. Thus, in the facts and circumstances of the present case, the extended period of limitation could not have been invoked. Any demand up to March 2013 would, therefore, barred by limitation. Merit- Delay in Payment of Service Tax 44. The contention advanced by learned counsel for the appellant is that since there has been no delay in payment of service tax, the demand of interest is not sustainable. 45. The details of the matrixes for the relevant period that were received from GIC have been provided by the appellant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insurance was issued. The service could have been provided only during the period of insurance and it could not have been provided after the period is over. Thus, the re-insurer assumes his share of the risk with respect to every policy issued by the insuring company as soon as the policy is issued. 50. Secondly, if no risk is assumed until the premium is paid, it will be impossible for any reinsurance to operate. If A(the insured) obtains a policy from B (the insurer) who has, as per the re-insurance treaty, ceded, say, 10% of the premium and risk to C (the reinsurer), the risk is assumed by B (to indemnify A) and C (to indemnify B) as soon as the policy is issued by B to A. It will be impractical for the insurer B to keep sharing a portion of the premium with the re-insurer C every time a policy is issued or seek a portion of the claim from C every time a claim is settled by the insurer B. Therefore, the accounts are squared up only at the end of the period. 51. Thirdly, and most importantly, section 64VB of the Insurance Act, which is relevant, does not apply to re-insurance. It reads as follows: 64VB . No risk to be assumed unless premium is received in advance.- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of policy, subject to the conditions mentioned therein: (a) (b) . (m) Policies of re-insurance.- (i) Risk may be assumed without payment of premium in advance on insurances accepted under automatic re-insurance contracts. (ii) In the case of facultative re-insurances accepted, risk maybe assumed without payment of premium in advance if the ceding insurer has given an undertaking to pay his share of the premium, installment of premium, premium subject to delayed payment or, where a deposit premium, or provisional premium was paid on the original policy, the adjusted premium, or, in the case of premiums subject to delayed payment, the delayed premium as the case may be, before the end of the calendar month succeeding the month in which the premium is due under the original policy. 53. Thus, 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). 54. The issue, therefore, that arises for consideration is when service is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial duty becomes crystalised only after the escalation is finalized under the escalation clause but it is not a case where escalation is to have only prospective operation. It is to have retrospective operation admittedly. This means the value of the goods which was only admittedly provisional at the time of clearing the goods is finally determined and it is on the said differential value that admittedly that differential duty is paid. We would think that while the principle that the value of the goods at the time of removal is to reign supreme, in a case where the price is provisional and subject to variation and when it is varied retrospectively it will be the price even at the time of removal. The fact that it is known, later cannot detract from the fact, that the later discovered price would not be value at the time of removal. Most significantly, section 11A and section 11AB as it stood at the relevant time did not provide read with the rules any other point of time when the amount of duty could be said to be payable and so equally the interest. We would concur with the views expressed in SKF case (supra) and International Auto (supra). 56. In CCE vs SKF India Ltd [(2009) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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