OIO No. 124/14.03.2012

Brief facts of the case:

This order is being passed in pursuance of Show Cause Notice issued under F.No. SD-02/SCZ/Dishman Biotech/SCN-21/Audit/11-12 dated 23.09.2011. The facts of the case in brief are that M/s Schutz Dishman Bio-tech, (EOU) Village Lodariyal, Taluka Sanand District Ahmedabad. (hereinafter referred to as "the said noticee") are engaged in the manufacturing of Pharmaceuticals and Fine Chemicals falling under chapter heading No 29.33.99.00, 29.33.31.00, 38.14.00.10 & 29.23.90.00 of the Central Excise Tariff Act, 1985. The said noticee has taken Service Tax Registration Certificate bearing number AACCS0988CST001 under the category of GTA, BAS Service etc.

2. During the course of Audit conducted at the premises of the said notice by the officers of Central Excise, Ahmedabad II covering a period March 2006 to December 2010 on 02.02.2011 & 03.02.2011, it was noticed that the notice is a recipient of various services

3. As per the provision of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 (hereinafter referred to as the Rules) and as per Section 66A of the Finance Act 1994 (hereinafter referred to as the Act), "in relation to taxable Service provided by any person from a country other than India and received by any person in India, then recipient of such service shall pay the Service Tax.

4. The assessee did not agree with the contention raised by the Audit party There fore a summons was issued for 22/092011 to Shri Jayesh Ratilal Shah , Sr. Manager Excise of M/s. Schutz Dishman Biotech Ltd., [100% EOU], In response to the above mentioned summons he submitted self attested copies of the following documents.(i) Copy of ST-3 return for the period of April-2005 to March 2010.(ii) Ledger for the period April-2005 to March-2010.(iii) Audited Balance-sheet for the period April-2005 to March-2010.

Question-1. The Audit was conducted for the period March 2006 to December 2010 on 02/02/2011 & 03/02/2011 by the officers Audit Branch CAAP LAB, 1st Floor. Do you agree?Answer. YesQuestion 2 M/s Schutz Dishman Biotech Ltd.(EOU) Survey No 48, Paiki Sub Plot No 1 Village Lodariyal, Taluka Sanand Ahmedabad Reg No AACCS0998CXM003 falling under range IV, Division IV, Ahmedabad is manufacturing Pharmaceuticals and Fine Chemicals falling under chapter heading no 29339900, 29333100, 38140010 & 29239000. Do you agree?Answer. Yes Question-31) When did the unit come into existence? 2) When did you start export to foreign counties? 3) When did you obtain service tax registration for GTA service?Answer1) The Unit came into existence in 1997-98 2) The export operation had started approximately, in the year 1997-98 after some trial run. 3) The service tax registration for GTA was obtained. on 08/04/2005Question-4The audit has taken and objection of non payment of Service tax on Foreign Bank Commission and Charges for the financial year 05-06 to 2009-10. The expenses incurred by you were 1) Rs.2.67 Lacs, 2) Rs. 3.19 Lacs, 3) Rs. 3.10 Lacs, 4) Rs. O.49 Lacs and 5) Rs. 11.99 Lacs during the financial year 2005-06, 2006-7, 2007-08, 2008-09 and 2009-10 respectively. Towards foreign Bank Commission and Charges in respect of export of goods as per section 66-A of the Service tax Act. The total duty works out to Rs. 3,37,798/- Do you agree with the figurative work?AnswerYes

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Question-5Do you agree with the technical aspect, that you are liable to duty of Service tax under section 66-A. in respect of Foreign Bank Commission Charges, charged, for export of goods done by you?Answer-5No, I do not agree. Similar matter is being dealt in M/S. Dishman Pharmaceuticals & Chemicals Limited, Service tax Reg. No.AAACD4164DST001. We are also issued periodical SCN in respect of Foreign Banking services in respect of Export of goods demanding service tax under section 66-A. I state that M/S Schutz Dishman Biotech is not liable for service tax duty in respect of Foreign Bank Commission Charges.Question-6You have obtained service Tax Registration for M/s Schutz Dishman Biotech Limited on 2005-06 and Allotted STC No AACCS 0988C ST001 and started paying service Tax I.e. GTA Do you agree?Answer. YesQuestion-7Did you submit copy of audit balance sheet for the year 2005-06 to 2009-10 to the Range office at the end of financial year as and when the same is finaliased? Approximately when are the balance sheet finalized?Answer.No, Copies of Balance sheet was/were submitted to the S.T. range office. The balance sheets are finalized after completion of all statuary audits, some where towards the end of September each year.Question 8When was the copy of S T – 3 returns filed for the period April-2005 to March-2006?Answer-8S T – 3 return for the period April-2005 to march-2006 was filed on 24/04/2006.Question-9During the course of E.A. – 2000 Audit of your unit, it was found that in the process of realization of export proceeds from buyer, two banks viz exporter's bank in India i.e Corporation Bank in India (for M/s M/s Schutz Dishman Biotech Ltd.) and nodal bank in foreign country render their service and both of them recover 'Bank Charges' for services rendered by them. Please enlighten?Answer-9Corporation Bank in India is the nodal Bank for M/s. Schutz Dishman Biotech Ltd., all the export transaction/ proceeds are realized through them. The nodal Bank in foreign Country may very from country to country and person to person, depending on the importers.Question-10 When the bill/LC/documents are/is presented to the bank in India. Some amount is deducted and the rest of the amount is credited towards the bill/shipping documents. The amount less credited to the account is shown / taken under the head forex charges. Answer-10Yes.Question -11The nodal bank i.e. Corporation Bank charges fee towards the service rendered and the same is paid in Indian rupees. The Corporation bank India pays service tax .Have you taken service tax credit for the same/ filed refund / rebate claim under Notification No. 17/2009 –S.Tax. ?Answer -11We have not taken service tax credit for the same. We have not filed any refund /rebate claim against the shipping bills.Question-12Do you agree that ‘Bank Charges' charged by foreign bank escapes service tax liabilities. ?Answer-12 As stated earlier we are not liable for Service tax. I do not agree with the contention of the department.Question-13'Banking and other financial institutions' has been made taxable w.e.f. 16.7.2001, the scope of which has been amended subsequently. As per Section 65(105) (zm) of Finance Act, 1994; what is your comment?Answer-13

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No comments.Question- 14The said taxable service has been defined as – "Taxable service is a service provided or to be provided to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate of [commercial concern], in relation to banking and other financial services."The Finance act has included certain services as Banking and financial services; the relevant definition is reproduced below –"Banking and other financial Services" – means – (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or [commercial concern], namely – (i)(ii)(iii)(iv)....(ix) other financial services, namely, lending; issue of pay order, demand draft, cheques letter or credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts."Answer-No commentQuestion- 15If a service has been provided by an Indian Bank to any person, then as per Section 68(1) of Finance Act, 1994, the bank will be liable for the payment of service tax. But in case, the service has been received from outside India as it has been delivered by a foreign Bank to an exporter, then the exporter being a recipient of service is liable to discharge the service tax liability as a 'deemed service provider' in terms of provisions contained in Section 66 A of Financial Act, 1994, which provided – "Where any service specified in clause (105) of Section 65 is, - (a) Provided or to be provided by a person who has established a business or has his permanent address or usual place of residence, in a country other than India, and(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purpose of this section, be taxable service, and such taxable accordingly all the provisions of this Chapter shall apply." What are your comments?Answer-No Comment.Question-16When an exporter exports the goods the documents are presented receives export proceeds, their Bank in India sends/processes the export documents to their counterpart – (Foreign Bank) for further necessary action. Such foreign banks then proceed further and realize export proceeds from buyers. They remit the export proceeds at prevalent foreign exchange rate after deducting their Service Charges to Exporter's Bank in India. Exporter's Bank in India then credit Exporter's account with proceeds so received after deducting their service tax on service charges and other misc. charges viz postage etc. AnswerI am not aware of the bank procedure. Yes a very small part is deducted. I am not aware against what.Question- 17The services provided by the foreign Bank to the exporter is nothing, but covered in 'import of service', which has been provided from outside of India and used in relation to business of commerce. Hence, as per Rule 3(iii) of the 'Taxation' of Services (provided from outside India and received in India) Rule, 2006 the exporter is liable to pay tax on it. Do You Agree?A No I do not agree with it.Question 18How is foreign banking, charges shown in your B/s, under what head.AnswerThe same is classified under the head schedule “F” expenditure in foreign currency.Question 19

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Are you merging the charges in amount short received due to foreign exchanges fluctuation treating it as amount short realized?AnswerI am not aware of the accounting procedure.Question 20Are you aware of the foreign fluctuating account? How is it accounted in the books of A/c ? Under what head?AnswerI am not aware of the accounting procedure; the same is dealt with by C.A. he would be in a better position to answer the same.Question. 21How, the amount charged by foreign bank for service rendered by them appear in financial records and does it escapes service tax liabilities. Hence is this not, suppression / fraud /mis-representation of facts with intention to evade payment of service tax liability?AnswerWe are law abiding company engaged in export, the question of non -payment of service tax 65(105) (zm) of Finance Act, 1994 does not arise .It is a question of law / interpretation. It is/was, never our intention to misrepresent any facts or figures to the department, we have always co-operated. This is an universal problem in export industry. Some clarity should be brought on the issue. Question. 22Have you claimed any rebate on the amount of tax paid to the foreign Bank on the collection of the export bills?Answer.As stated earlier we have not claimed any rebate on the amount of tax paid to the foreign bank on the collection of the export bills. Service Tax even if paid we could have got refund/ rebate thus it is revenue neutral and therefore not liable to service tax

Question 23There is/are wording "All Banking Commissions and charges outside of issuing country are for account of Beneficiary” in the L.C. what are your views/ comments?Answer. I do not have a copy of L.C. at present. The same can be verified later.Question 24CBEC, vide its letter F.No.B11/1/2002 TRU Dated 01.08.2002, reads as under.:Thus as the provision of Rule 2 (1) (d) (iv), if any foreign service provider renders any service in India, the service recipient in India would be liable to pay service tax. Rule 2(d)(iv) was accordingly amended as under by the Service Tax (Second Amendment) Rules, 2006 w.e.f. 19.04.2006. (iv) In relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under Section 66A of the Act, the recipient of such Service would be liable to service Tax.

In the instant case the Indian Bank is receiving services from the foreign bank on behalf of you and ultimately the service rendered by the foreign bank is received or is passed on to you, therefore service tax has to be paid by you . Since the service rendered by the Bank is taxable under the service category of “Banking and Financial Services” and since such service has been received from outside India, M/s Schutz Bio-Tech Dishman is liable to discharge service tax liability as per Rule 2 (1)(d)(iv) of the Service Tax Rules, 1994 read with Rule 3 of Taxation of Services (provided…..) Rules, 2006 and the services rendered by the Foreign Banks is defined under the category of “Banking and Financial Services” as per section 65(105)(zm) of the Finance Act, 1994. The Audit party has rightly pointed non payment of service tax to the tune of Rs. 3, 37,398/-

Answer As stated earlier M/s Schutz Dishman Bio-Tech is not liable to service tax.

5. It was noticed that in the process of realization of export proceeds from over seas buyers, two banks viz. exporter’s bank in India and nodal bank in foreign country are involved .They render their services and both of them recover “Bank Charges” for services rendered by them. The exporter’s bank in India was/is found to be paying Service Tax in all the cases, it appears that “Bank Charges” charged by foreign bank escapes Service

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Tax liabilities. The foreign bank deducts some charges and the rest is remitted to their counter part in India. The service rendered by foreign Bank is taxable under the category of “Banking and other Financial Services” as per Section 65(105)(zm) of Act. In the above case since the service provided , is from outside India, the exporter, being a recipient of service is liable to discharge Service Tax liabilities as per the provision of Rule 2(1) (d) (iv) of Rules and as per Section 66A of Act .

6.The details of foreign bank charges recovered from the said noticee as per the audit report for the period 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 is 12.67 Lakhs , Rs 3.19 Lakhs, Rs 3.10 Lakhs ,Rs 0.49 Lakhs and Rs 11.99 Lakhs total 31.44 Lakhs respectively as per Audit report 216/2010-11 for which they have not made payment of Service Tax (including 2% Ed. Cess & 1% S&H Cess) amounting to Rs 3,37,798 /- .

7.As per the provision of Section 67 of the Act, every person liable to pay Service Tax, shall himself shows the correct value of the services for charging service tax. In the subject case, on being asked by the officers of Central Excise and Service Tax, the year wise details of foreign bank charges for the period from 2005-06 to 2009-10 was/were given. But the said Noticee had not paid the Service Tax due and as such, the said Noticee has contravened the provisions of section 67 of the Act and rendered them selves liable to penalty as provided under section 78 of the Act.

8. As per the provision of Section 75 of the Act, if any person is required to pay the service tax, did not pay the service tax in time & has to pay the interest. In the subject case, the said Noticee has not paid the service tax as provided under Section 68 of the Act and they are required to pay the interest as provided under Section 75 of the Act.

9.The details of foreign bank charges has been shown in their profit & loss account/ Balance sheet and thereby they have short paid Service Tax to the tune of Rs 3,37,798/-. By this way the noticee has suppressed the material facts from the department with an intention to evade payment of service tax and hence the extended period is to be invoked for effecting recovery of non paid/ short paid amount of service tax, as provided under Section 73 of the Act.

10. Therefore, M/s Schutz Dishman Biotech Limited (EOU), Survey No.48, Village: Lodariyal, Tal. Sanand, Dist .Ahmedabad were called upon to show cause to the Assistant Commissioner, Service Tax, , Div – II Service Tax APM Mall , Nr Sachin Tower, Satellite, Ahmedabad , to why :-(i) The Service Tax , Education cess and Higher Edu.Cess on the services provided outside India but received in India as per the audit report 216/2010 for the period 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 - 12.67 Lakhs , Rs 3.19 Lakhs, Rs 3.10 Lakhs ,Rs 0.49 Lakhs and Rs 11.99 Lakhs respectively totally amounting to Rs. 31.44 Lakhs . The service tax amounting to Rs 3,37,798/- should not be demanded / recovered from them under the first proviso of sub-Section (1) of Section 73 of the Finance Act, 1994, by invoking extended period.(ii)Interest at the appropriate rate should not be demanded and recovered from them on the total amount of Service Tax as mentioned at ( i ) above under the provision of Section 75 of the Finance Act, 1994, from the due date of payment up to the actual date of payment.(iii) Penalty should not be imposed upon them under Section 77, of the Finance Act, 1994 for the failure to assesses the correct taxable value and show the same in ST – 3 return with in the stipulated time.(iv) Penalty under Section 76 of the Finance Act, 1994, should not be imposed upon them for failure to pay Service Tax within the period prescribed under Section 68 of the Finance Act, 1994, read with the Rule 6 of the Service Tax Rules,1994.(v) Penalty under Section 78 of Finance Act, 1994 should not be imposed upon them under Section 78 of Finance Act, 1994 for suppressing of value of taxable service with intent to evade payment of Service Tax. 11. Defence Reply11.1 The said noticee vide their letter dated 24.11.2011 and 21.02.2012 submitted their defence reply to the SCN in which they stated that they have no relation or locus standi what so ever with their banker of their buyers in foreign countries. The said foreign bankers deal only with their banker in India to whom they remit the payment on behalf of

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their buyers. They remit the payment to their banker on behalf of their clients in those foreign countries and hence they act for and on behalf of their clients i.e. their buyers. They have no any control over or relation with those banks and hence the question of providing of service or existence of a relationship of service receiver and service provider does not arise. As it is clear from the contents of the impugned SCN, Service Tax is proposed to be levied on foreign bank charges recovered or deducted by the foreign bank from the export remittance of the noticee, on which the noticee has no control whatsoever since the noticee has neither entered into any contract nor any agreement, oral or written with such bank nor has carried out any correspondence or transaction with such foreign bank. And hence this transaction cannot be termed as provision of service.

11.2 They submitted that without prejudice to whatever discussed hereinabove and in the earlier reply filed with the department on 24.11.2011, the impugned SCN is vague. They further submitted that SCN is basic foundation of proceedings which may give rise to different consequences of law. Composite SCN issued left the matter in dark.

11.3 To further elaborate they further submitted that the impugned SCN fails to point out as to under which sub-clause of section 65(105)(zm) Banking and Financial Service the alleged short payment of export proceeds received by the noticee falls. They submitted that the SCN must be clear in terms of what action it proposes to take, if the show cause notice is not clear in terms of what it proposes, then adjudication based on such SCN shall be against the violation of natural justice. Hence in the instant case its not possible for them to submit their defense against the proposed proceedings covered under the impugned SCN.

11.4 In support of their contention they drew attention on the decision in the case of[a] CCE vs. Shemco India Transport 2011 (24) STR 409 (Tri-Del.)wherein it is clarified that the SCN did not show how a "carrier" without seats could be considered as a "cab" or for what purpose -transportation of goods or passengers were the vehicles used, the Tribunal set aside the demand observing that an ill founded show cause notice not giving rise to specific charge neatly is fatal to adjudication.In the instant case also, the impugned SCN has failed to establish the relationship of service provider and service receiver and if at all the service is provided the SCN fails to specifically point out the nature of service provider. On this count the SCN is evidently vague.[b] Amrit Food vs. CC 2005 (190) ELT 433 (SC) wherein it was held that no penalty is imposable where neither the show cause notice nor the order specifies which particular clause of Rule 173Q of erstwhile Central Excise Rules, 1994 had been alleged contravened by the assessee.11.4 They submitted that impugned SCN was issued on Dt. 23.09.2011 and received by them on Dt. 08.10.2011. They drew attention to Sub Section 1 of Section 73 of the Finance Act, 1994, the same is reproduced below;" Where any service tax has not been paid or levied or paid or has been short levied or short paid or erroneously refunded the central excise officer may, within one year from the relevant date serve notice on the person chargeable with service tax, which has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-(a)fraud; or(b) collusion; or(c) Willful mis-statement; or(d) Suppression of facts; or(e) Contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax,by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "oneyear", the words "five years " had been substituted.Explanation - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of one year or five year, as the case may be.

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11.5 They drew attention to Sub Section 6 of Section 73 of The Finance Act, 1994, which defines the word "Relevant Date" the same is reproduces below;" For the purposes of this section, "relevant date " means, —(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid —(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an asses see, the date on which such return is so filed;(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made thereunder, the date of adjustment of the service tax after the final assessment thereof;(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.] 11.6 They submitted that relevant date for the issue of impugned show cause notice covering the period of 01.04.2005 to 31.03.2010 shall be reckoned from said relevant date i.e. the due date of filling the return for the period 01.04.2005 to 31.03.2010. The impugned SCN was received on 08.10.2011, hence the time limit for issuance of impugned show cause notice under section 73(1) for the period 01.04.2005 to 31.03.2009 has already expired meaning thereby that the demand was barred by limitation of time and without any evidence to be suppression of fact invoking of Section 78 of Finance Act 1994 is unlawful and the demand deserves to be set aside.

11.7 They submitted that impugned SCN at para 9 has expressed that the noticee has suppressed the material facts from the department with an intention to evade payment of service tax and hence the extended period is to be invoked for effecting recovery of non paid/ short paid amount of service tax, as provided under Section 73 of the Act.

11.8 They submitted that the instant case covered under the impugned SCN alleging payment of service tax on the foreign bank charges is a revenue neutral transaction. Thus when the alleged transactions is a revenue neutral it cannot be the intention of them to suppress the information or to make willful misstatement with intent to evade payment of service tax as alleged by the department to be payable.

11.9 They further submitted that since there was no suppression in the instant case as covered by the impugned SCN and hence the extended period of limitation cannot be invoked and consequently demand is barred by limitation of time as explained above and also the proposed penal proceedings under section 78 of the Finance Act, 1994 is without jurisdiction and bad in law hence it cannot be invoked.

11.10 The department, without any application of mind, has stated that they has suppressed facts due to which extended period of limitation is applicable. Further, they were entitle to entertain a belief that service tax is not payable on alleged foreign bank charges. That cannot be wilful misstatement or suppression. Noticee refers and relies on the following decisions.(i) Maheshwari Bajaj 2010 (19) STR 905 (Tri.-Ahmd.)(ii) Adishwar Motors Pvt. Ltd. 2011 (24) STR 81 (Tri.-Ahmd)In view of above, it is not possible to allege or conclude that the noticee had acted or taken any action to evade tax. Since, this is the case of interpretations of provisions contained in The Finance Act, 1994 regarding service tax and in a case where issue involved is the question of interpretation of law, any action taken by the assessee in the bonafide belief of the action being correct and genuine cannot be termed as the action taken with intent to evade tax. In the instant case, they have not paid the service tax on the alleged foreign bank charges on the bonafide belief that they is not liable to service tax on the alleged foreign bank charges. And hence allegation of suppression with intent to evade the tax and it proposed only to cover the extended period since the notice is issued after the expiry of the limitation period.

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11.11 They further submitted that the para 9 of the impugned SCN, the same is reproduced under;"Para. 9 The details of foreign bank charges has been shown in their profit & loss account / Balance sheet and thereby they have short paid Service Tax to the tune ofRs. 3,37,798/-. By this way the noticee has suppressed the material facts from the department with an intention to evade payment of service tax and hence the extended period is to be invoked for effecting recovery ofnon paid / short paid amount of Service Tax, as provided under Section 73 of the Act."

11.12 They submitted that going through the wordings of the para. 9 of the impugned SCN it is very clear and undisputed fact and even admitted by the department as evidenced from the para.9 of the impugned SCN that they have disclosed the details of the short payment of export proceeds alleged by the department as foreign bank charges in the Profit & Loss A/c and Balance Sheet.

11.13 They submitted that on one hand the department admit that the noticee has disclosed the details of the short payment of export proceeds alleged by the department as foreign bank charges in the Profit & Loss A/c and Balance Sheet and on the other hand the department itself contending that the noticee has suppressed the material facts from the department with an intention to evade payment of service tax.

11.14 They further submitted that impugned SCN fails to provide any evidence as to how the noticee has suppressed the material information from the department with an intention to evade payment of service tax. They submitted that the impugned SCN is also vague in the sense that it fails to provide proper justification for the action proposed in the impugned SCN and thus liable to be set aside.

11.15 In support of their argument made herein above regarding the issue of 'suppression of facts', they also relied upon the following judgements,(i) 1989 (43) E.L.T. 195 (S.C.) IN THE SUPREME COURT OF INDIA Sabyasachi Mukharji and B.C. Ray, JJ. PADMIN1 PRODUCTS Versus COLLECTOR OF C. EX. Civil Appeal No. 4080 of 1988, decided on 18-8-1989

(ii) 1989 (40) E.L.T. 276 (S.C.) IN THE SUPREME COURT OF INDIA Sabyasachi Mukharji and S. Ranganathan, JJ. COLLECTOR OF CENTRAL EXCISE Versus CHEMPHAR DRUGS & LINIMENTS Civil Appeal No. 1632 of 1988, dated 14-2-198911.16 They further submitted that the impugned SCN issued on 23.09.2011 and the same was received on 08.10.2011 proposing to cover the period 01.04.2005 to 31.03.2010, however they submitted that assuming but without admitting the contention of the department about suppression of fact invoking Section 78 of The Finance Act 1994 then also the extended period cannot be invoked for more than 5 years. However the impugned SCN had covered the 6 years period i.e. period from 01.04.2005 to 31.03.2010. They submitted that in any situation, demand cannot be made for more than 5 years and hence demand proposed under the impugned SCN covering the period from 01.04.2005 to 31.03.2006 for alleged services amounting to Rs. 1,29,234/- is deserved to be dropped.

11.17 They reproduced the provisions of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 as well as provisions of Section 66A of The Finance Act, 1994 for the sake of proper understanding of the issue involved since the entire SCN has taken the support of these two provisions to be able to recover the alleged Service Tax liability under reverse charge mechanism."Rule 2(l)(d)(iv) of the Service Tax Rules, 1994. "In these rules unless the context otherwise requires, -(d) "person liable for paying the Service Tax" means,-(iv) in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service."Section 66A"(1) Where any service specified in clause (105) of section 65 is,-(a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and

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(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India.Such service shall, for the purpose of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of the chapter shall apply:

Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply:Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided.

(2) Where a person is carrying on a business through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purpose of this section.Explanation I. - A person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country.Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.

11.18 On going through the above provisions of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 and section 66A of The Finance Act, 1994 it is clear that both these provisions provide for charging or recovering the service tax under reverse charge mechanism, they have to be separately examined in reference to the present case. Whereas Section 66A is a charging section, Rule 2(l)(d)(iv) of Service Tax Rules, 1994 is a recovering provision. Before examining the recovery aspect it is essential to examine the chargeability aspect. If tax alleged to be recoverable is not capable of being charged, the question of examining the recovery comes later.

11.19 They further submitted that the impugned SCN proposed the Service Tax, Education cess and Higher Education Cess on the alleged services provided from outside India but received in India as per the audit report 216/2010 for the period 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10, Rs. 12.67 Lacs, Rs. 3.19 Lacs, Rs. 3.10 Lacs, Rs.0.49 Lacs and Rs. 11.99 Lacs respectively totally amounting to Rs. 3,37,798/-.

11.20 From the above it can be verified that the impugned SCN has not considered the period covered for the alleged Service vis-a-vis the applicability of the provisions of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 and section 66A of The Finance Act 1994. By this they mean to say that, the test of applicability or otherwise of the provisions of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 and section 66A of The Finance Act 1994 should be carried out with respect to the period during which such services in question were provided.

11.21 There is a difference in interpretation for applying provisions of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 and section 66A of The Finance Act 1994. In other words, applicability of section 66A precedes the applicability of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 meaning thereby that if section 66A 6annot be made applicable to a transaction account of the nature of the transaction being not chargeable, the question of applicability of Rule 2(l)(d)(iv) of Service Tax Rules, 1994 does not arise since the said provision is for determining the liability about who actually is liable to pay service tax if at all the transaction is liable to service tax. Needless to mention that section 66A came into operation from 18.04.2006 since it has applicability with prospective date. Hence the transactions in the instant case taking place after 18.04.2006 can only be said to or considered for charging Service Tax under reverse charge mechanism since this is a new section introduced as a charging section with specified date of applicability i.e. 18.04.2006. Hence it cannot have any retrospective effect unless otherwise specified. In this view of the matter, the amount of Service Tax proposed to be levied for the period prior to 18.04.2006 i.e. for the period 2005-06 in respect of alleged foreign bank charges (Service Tax of Rs. 1,29,234/-) is without correct application of the provisions and hence the impugned SCN to that extent is liable to be set aside.

9

11.22 Here if the Notice is closely examined, the applicability of the above provisions, it becomes clear that Section 66A is a charging section, Rule 2 (1) (d) (iv) of Service Tax Rules, 1994 is a recovering provision. Before examining the recovery aspect it is essential to examine the chargeability aspect. If tax alleged to be recoverable is not capable of being charged, the question of examining the recovery comes later. Also both of these provisions need to be separately examined for the present case.

11.23 Their argument regarding applicability of provisions of Section 66A remains unchanged irrespective of the category of the service in so far as the services are provided prior to 18.04.2006. Hence in the instant case all the services i.e. services in relation to 'Foreign Bank Charges' provided prior to 18.04.2006 are not chargeable to Service Tax as far as the period up to 18.04.2006 is concerned. Hence the question which now needs to be examined is regarding the "proposal to levy Service Tax for the period subsequent to 18.04.2006.

11.24 They drew attention to the following citation:2009(13)S.T.R.235(Bom.) D.K. Deshmukh and J.P. Devadhar, JJ. INDIAN NATIONAL SHIPOWNERS ASSOCIATION Versus UNION OF INDIA Writ Petition No. 1449 of 2006, decided on 11-12-2008The decision in the abovementioned case was that services provided prior to 18.04.2006 are not liable to be taxed. But the revenue preferred an appeal against the order of the Hon'ble High Court before the Supreme Court and the Hon'ble Apex Court had dismissed the appeal of the revenue the citation of which is as under:"Union of India v.Indian National Shipowners Association-2010(17) S.T.R. J57(S.C.)"- In this way the proposal to levy Service Tax in respect of all cases where services are provided prior to 18.04.2006 are liable to be dropped and hence the impugned ORDER IN APPEAL passed by the Honourable Commissioner (Appeal) deserves to be dropped

11.25 They further submitted that ratio of the judgment in the case of Indian national ship owners association is also followed by the Honourable Chennai Tribunal as per the following citation2009 (16) S.T.R. 605 (Tri. - Chennai) SHARADHA TERRY PRODUCTS LTD. Versus COMMISSIONER OF C. EX., SALEMThe said judgement has also reproduced Para 16 to 20 to decision of the Honourable High court in the Indian National Ship Owners Association which clearly states as under

a) The revenue had no authority whatsoever to levy service tax in respect of services provided from outside India to a recipient in India in respect of the provisions of the services made outside India, before introduction of Section 66A in Finance Act, 1994 with effect from 18.04.06

b) The decision of the Honourable Rajasthan High Court in the case of Aditya Cement limited has also been dealt with in the case of the decision of the Honourable Tribunal at Para 3 of the citation in case of SHARADHA TERRY PRODUCTS LTD VS. COMMISSIONER OF CENTRAL EXCISE, SALEM.

c) The said decision in Indian national ship case at Para 18 very categorically specifies that it is true that when the service is provided in India to a person resident in India by a person resident outside, then service tax is applicable. But when the service is provided outside India to a person resident in India by a person resident outside India then a service tax is not chargeable prior to 18-04-2006.

11.26 Looking to the provisions of chargeability of service tax, it is clear that first of all there should be a provision of service. Provision of service can take place only when there exist a relationship of Service Provider and Service Receiver between the parties to the transaction involved. But in fact they have no such relation or locus-Standie with such banks who actually act and work exclusively for and on behalf of their buyer. They deal only with Noticee banker in India to whom they remit the payment on behalf of noticee buyer. Since they receive the instructions or act upon the instructions of noticee's buyers in foreign country, the noticee does not exercise any control or authority over such banks. In this way, the noticee has no any control over or relation with those banks and hence the

10

question of providing of service or existence of a relationship of Service Receiver and Service Provider does not arise.

11.27 Not only this but even if there is a chance of existence of relationship between service receiver and service provider, it can be between their bank in India and such foreign banks or between noticee's buyers and such foreign banks. These foreign banks are exclusively acting on behalf of their clients in the foreign country and they act exclusively for and under the instructions of noticee's buyers which also is suggestive of the facts that there is a relationship between noticee's buyer and such foreign bankers and the noticee has no any such relation with or does not have any control on such foreign banks. In addition to this, such banks have neither provided any service to the noticee nor has the noticee availed or used such services here in India. Hence alleging chargeability of Service Tax in this case is too much stretching of the provisions of Service Tax, which are applicable only within the framework of the chargeability of the Service Tax under Finance Act, 1994.

11.28 Provisions of rule 2(l)(d)(iv) of Service Tax Rules, 1994 as well as Section 66A requires that consideration for the services received should have been made in foreign currency. But here in the instant case the bank charges deducted are nothing but in the nature of short payment of export realization at the time of remittance of export proceeds and the same have been wrongly considered as consideration for services allegedly provided by such foreign banks. The contention of the noticee that this transaction cannot be termed as providing of service by any person to any other person chargeable to Service Tax U/s 66 A of the Finance Act, 1994 is true in view of the fact that, what is collected by the foreign bank is not something which the noticee has either paid or was willing to pay in exchange of or in consideration of any service or value addition provided or to be provided by such foreign banks. And hence when the bank charges deducted by such foreign banks is without provision of any kind of service or value addition actually received or in anticipation of provision of service chargeable to Service Tax U/s 66A, there arises no question either of provision of service or payment of Service Tax.

11.29 Such foreign banks deal only with the noticee's banker in India to whom they remit the payment on behalf of noticee's buyer. They remit the payment to the noticee's banker on behalf of their clients in those foreign countries and hence they act for and on behalf of their clients i.e. noticee's buyers in foreign country.

11.30 What is chargeable to Service Tax is only the amount charged as bank charges by noticee's bank is evident only from the fact that noticee's bank in India collects bank charges and applicable Service Tax from them. If there is a case of any applicability of Service Tax, it would have been the duty of noticee's bank in India to pay Service Tax on whatever value of Services provided by them.

11.31 They submitted that the impugned SCN in the instant case while proposing to demand Service Tax on foreign bank charges have failed to provide any logic establishing any relationship whatsoever between the noticee and the foreign bank i.e. the relationship of Service Receiver and Service Provider.

11.32 They submitted that without prejudice to whatever is discussed hereinabove and in the earlier reply filed with the department on 24.11.2011, they would like to drew attention to the fact that this is the case of revenue neutrality.

11.33 They submitted that without accepting but assuming the contention of the department i.e. as alleged by the department that they are liable to service tax on the alleged foreign bank charges, then also the noticee would have claimed the credit of service tax paid on the said charges by them and thus there by making the whole transaction as revenue neutral since noticee would have paid service tax on such alleged foreign bank charges and again would have claimed the credit of the service tax paid on the alleged foreign bank charges.

11.34 Without prejudice to whatever is discussed hereinabove and in the earlier reply filed with the department on 24.11.2011, they submitted that as regards the proposal to impose the penalty u/s 76,77 & 78 of the Finance Act, 1994 they would like to submit that

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in a situation where the noticee was not liable to pay service tax as argued in the foregoing Paras and the earlier replied submitted by the noticee on 24.11.2011 the questions of penalty does not arise.

11.35 They submitted that they were under bonafide belief that they are not liable to pay service tax for the reasons stated hereinabove. The question involved in the present case is purely of interpretation. This is a reasonable cause for non payment of service tax. Therefore, no penalty can be imposed on the noticee in view of section 80 of the Finance act, 1994.

11.36 Hence, in this view of the matter, the proposal to impose the penalty u/s 76 and late fee u/s 70 does not sound legal and hence does not hold water. As regards the proposal to pay interest as proposed in the SCN under section 75 of the Finance Act, 1994 the same is also not sustainable on the similar grounds.

11.37 They further submitted that argument of the noticee also holds good in view of the decisions cited hereunder:PJ/Case Laws/2010-11/1049Commissioner of Central Excise, Pune-I Versus L'oreal India Pvt LtdCitation: 2011-TIOL-95-CESTAT-MUM

11.38 They further submitted that penalties under section 76 and 78 of the Act cannot be simultaneously imposed. Penalties under section 76 and 78 are mutually exclusive. Section 78 is applicable if the non-payment of service tax is due to reasons specified therein with an intention to evade payment of service tax. Section 76 is applicable in cases other than those covered under section 78 of the Act. Noticee refers and relies on the following judgments:i. The Financers v. CCE, Jaipur - 2007 (8) STR 7 (Tri. Del)ii. Commissioner of Central Excise, Ludhiana v. Pannu Property Dealer,Ludhiana- 2011 (24) S.T.R. 173 (P & H.). iii. COMMISSIONER OF C. EX., CHANDIGARH Vs CITY MOTORS2010 (19) S.T.R. 486 (P&H)iv. CCEC, Chandigarh Vs M/s Cool Tech. Corporation (Service T axAppeal No 47 of 2010) (P & H) v. C C E, Commissionerate Vs M/s FIRST FLIGHT COURIER LTD2011 (22) STR 622 (P & H)

11.39 They further submitted that above view is reinforced by the proviso to Section 78 as is extracted below:"Provided also that if the penalty is payable under this section, the provisions of section 76 shall not apply. [Inserted vide Finance Bill 2008, w.e.f. 16th May 2008'

12. Records of personal hearing: PH in the matter was held on 27.02.2012. Shri Ajay D Karia CA appeared for PH on 27.02.2012 on behalf of the said noticee and he reiterated the arguments in his letters dated 24.11.2011 and 21.02.2012.

13. Discussion and findings:13.1 I have carefully gone through the subject SCN, their defence reply dated 24.11.2011 and 21.02.2012 and records of personal hearing held on 27.02.2012.

13.2 I find that the case of the department was that as per the provision of Rule 2(1)(d)(iv) of Service Tax Rules, 1994(hereinafter referred to as the Rules) and as per Section 66A of the Finance Act 1994 (hereinafter referred to as the Act), "in relation to taxable Service provided by any person from a country other than India and received by any person in India, then recipient of such service shall pay the Service Tax. During the course of audit conducted at the premises of said noticee by the officers of Central Excise, Ahmedabad-ll during February 2009 it was noticed that in the process of realization of export proceeds from buyer two banks viz. exporter's bank in India and nodal bank in foreign country render their services and both of them recovered "Bank Charges" for services rendered by these banks. Whereas exporter's bank in India is found to be paying Service Tax in all the cases, it appears that "Bank Charges" charged by foreign bank escapes Service Tax

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liabilities. The service rendered by Bank is taxable under the category of "Banking and other Financial Services" as per Section 65(105)(zm) of Act. In the above case since the service provided from outside India, the exporter, being a recipient of service is liable discharge Service Tax liabilities as per the provision of Rule 2(1) (d)(iv) of Rules and as per Section 66A of Act . Thus it was alleged that the said noticee had shown Bank charges of Rs. 12.67 Lakhs , Rs 3.19 Lakhs, Rs 3.10 Lakhs ,Rs 0.49 Lakhs and Rs 11.99 Lakhs for the period 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10 respectively totally amounting to Rs. 31.44 Lakhs paid in foreign currency. Such charges are taxable under the category of “Banking and other financial services”, as per section 65 (105) (zm) of Act read with rule 2(i)(d)(iv) of service tax rules 1994 and had not paid service tax amounting to Rs 337798/-. It was alleged that the said noticee had contravened the provisions of section 66, 67 and 68 of FA 1994 read with rule 6 & 7 of service tax rules 1994 and it was proposed to demand service tax of Rs 337798/- under proviso to section 73(1) of FA 1994, to charge interest under section 75 of the Act and to impose penalties u/s 76 , 77 and 78 of FA 1994.

13.3 Banking and other financial services is definded under section 65 (105)(zm) of FA 1994 as under:“Any service provided or to be provided to any person by a Banking company or a financial institution including a non-banking financial company or anybody corporate or (commercial concern) in relation to Banking and other financial services”.

13.4 The said noticee vide their letter dated 21.02.2012 contended that looking to the provisions of chargeability of service tax, it is clear that first of all there should be a provision of service. Provision of service can take place only when there exist a relationship of Service Provider and Service Receiver between the parties to the transaction involved. But in fact they have no such relation or locus-Standie with such banks who actually act and work exclusively for and on behalf of their buyer. They deal only with Noticee banker in India to whom they remit the payment on behalf of noticee buyer. Since they receive the instructions or act upon the instructions of noticee's buyers in foreign country, the noticee does not exercise any control or authority over such banks. In this way, the noticee has no any control over or relation with those banks and hence the question of providing of service or existence of a relationship of Service Receiver and Service Provider does not arise.

13.5 They further contested that not only this but even if there is a chance of existence of relationship between service receiver and service provider, it can be between their bank in India and such foreign banks or between noticee's buyers and such foreign banks. These foreign banks are exclusively acting on behalf of their clients in the foreign country and they act exclusively for and under the instructions of noticee's buyers which also is suggestive of the facts that there is a relationship between noticee's buyer and such foreign bankers and the noticee has no any such relation with or does not have any control on such foreign banks. In addition to this, such banks have neither provided any service to the noticee nor has the noticee availed or used such services here in India. Hence alleging chargeability of Service Tax in this case is too much stretching of the provisions of Service Tax, which are applicable only within the framework of the chargeability of the Service Tax under Finance Act, 1994.

13.6 They further contested that Provisions of rule 2(l) (d)(iv) of Service Tax Rules, 1994 as well as Section 66A requires that consideration for the services received should have been made in foreign currency. But here in the instant case the bank charges deducted are nothing but in the nature of short payment of export realization at the time of remittance of export proceeds and the same have been wrongly considered as consideration for services allegedly provided by such foreign banks. The contention of the noticee that this transaction cannot be termed as providing of service by any person to any other person chargeable to Service Tax U/s 66 A of the Finance Act, 1994 is true in view of the fact that, what is collected by the foreign bank is not something which the noticee has either paid or was willing to pay in exchange of or in consideration of any service or value addition provided or to be provided by such foreign banks. And hence when the bank charges deducted by such foreign banks is without provision of any kind of service or value addition actually received or in anticipation of provision of service

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chargeable to Service Tax U/s 66A, there arises no question either of provision of service or payment of Service Tax.

13.7 They further contested that such foreign banks deal only with the noticee's banker in India to whom they remit the payment on behalf of noticee's buyer. They remit the payment to the noticee's banker on behalf of their clients in those foreign countries and hence they act for and on behalf of their clients i.e. noticee's buyers in foreign country.

13.8 They further contested that what is chargeable to Service Tax is only the amount charged as bank charges by noticee's bank is evident only from the fact that noticee's bank in India collects bank charges and applicable Service Tax from them. If there is a case of any applicability of Service Tax, it would have been the duty of noticee's bank in India to pay Service Tax on whatever value of Services provided by them.

13.9 Noticee submitted that the impugned SCN in the instant case while proposing to demand Service Tax on foreign bank charges have failed to provide any logic establishing any relationship whatsoever between the noticee and the foreign bank i.e. the relationship of Service Receiver and Service Provider.

13.10 Noticee further contested that that without accepting but assuming the contention of the department i.e. as alleged by the department that noticee is liable to service tax on the alleged foreign bank charges, then also the noticee would have claimed the credit of service tax paid on the said charges by them and thus there by making the whole transaction as revenue neutral since noticee would have paid service tax on such alleged foreign bank charges and again would have claimed the credit of the service tax paid on the alleged foreign bank charges.

13.11 The above contention of the said noticee is not tenable on the following grounds:

a. The noticee is not reply satisfactorily that why they bear the burden of the deduction amount by the foreign banks when they raised the invoice of certain amount and their importer paid the same amount.

b. In question to whether they showed short payment against their client in books of account? They replied no. Then they also not ask their local banker for balance payment amount which deducted by the foreign banks.

c. From the above it is clear that the services provided by the Foreign bank is availed by the noticee and for which they made payment by the way of deduction. The argument of the noticee in reply to the SCN is not correct and tenable.

13.11.1 As per the rule 2(1)(d)(iv) of the Service Tax Rules, 1994 (amended vide Notification No. 12/2002-ST dated 01.08.2002 w.e.f. 16.08.2002), the “ person liable for paying service tax “ means- ‘ in relation to any taxable service provided by a person who is a non-resident or is from out side India, does not have any office in India, the person receiving taxable service in India'.

13.11.2 As per Rule 2, in sub-rule (1), in clause (d)(iv) read with Section66of the Finance Act, 1994, in relation to any taxable service provided by a person who is a non-resident or is from outside India does not have any office in India, the person receiving taxable service in India". Services provided from out side India and received in India are taxable if they are covered by any taxable category under clause (105) of Section 65 of the Act.

13.11.3 As per the above said Rules, in respect of Banking and other Financial Services if the services provided by a person from out side India are received by a recipient in India, for use in relation to business or commerce, then such services are liable for Service Tax by the recipient in India. In this case, since the services rendered abroad are used to promote the business of the Indian company, the recipient is liable to pay Service Tax under above mentioned service.

13.12 The said noticee vide their letter dated 21.02.2012 contended that the relevant date for issue of the SCN covering the period of 01.04.2005 to 31.03.2010 shall be

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reckoned from the said relevant date i.e the due date of filing the return for the period 01.04.2005 to 31.03.2010. The impugned SCN was recived on 08.10.2011 and hence time limit of issue of SCN u/s 73(1) for the period 01.04.2005 to 31.03.2009 has already expired. Thus demand was barred by limitation of time and without any evidence to be suppression of facts invoking of section 78 of FA 1994 is unlawful and demand deserves to be set-aside.

13.14 As regards the allegation of suppression of facts for invoking the extended period for demand under proviso of section 73 of the Finance Act 1994, I observe that, had the service tax audit not been done, the service tax authorities would never had known the details of Banking and other Financial service charges recovered by the said noticee . The said noticee had not declared the correct taxable value of service provided in ST-3 returns resulting in suppression of necessary information to the department. Therefore, this is a case of deliberate non-declaration and suppression of vital information with a willful intention to evade payment of service tax. Accordingly, the extended period for demand of the Service Tax under proviso of Section 73(1) of the Act in the case before me is fully justified.

13.15 I find that the present demand has been issued on 23.09.2011 for demanding service tax for the period 2005-06 to 2009-10. Thus demand for the period 2005-06 should be issued within five years i.e extended period. Thus due date of filing ST-3 returns for the period April 05 to Sep 05 is 25.10.2005 and thus demand for the above period should be issued i.e before 25.10.2010 of extended period. Thus demand for FY 2005-10 issued on 23.09.2011 is time barred. I find that the demands for the period 2006-07 to 2009-10 is within time limit as the said noticee had suppressed the facts to the department and thus extended period is rightly invoked by me. Thus contention of the said noticee that whole demand is time barred, is not correct and tenable but only demand of Rs 129234/- for FY 2005-06 is time barred and hence liable to be dropped.

13.16 I find that Board vide circular F.No. 276/8/2009-CX8A dated 26.09.2011 have clarified above matter and stated that service tax liability on any taxable service provided by a non-resident or a person located outside India, to a recipient in India would arise wef 18.04.2006 and accordingly Board had rescinded its earlier circular F.No. 275/7/2010-CX8A dated 30.06.2010. In above circular dated 26.09.2011 it was stated that review petition no. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon’ble Supreme Court vide its order dated 18.08.2011. The present demand pertains for the period 2005-06 to 2009-10. Thus demands of Rs 130750/- for the period April 05 to 17.04.2006 is liable to be dropped in view of above Board’s circular. I find that for the FY 2005-06 the taxable value has been shown as Rs 1267000/- on which service tax @ 10.20% works out to Rs 129234/-. For the period 01.04.2006 to 17.04.2006 for the taxable value of Rs 14858/- (Worked out on proportionate basis) service tax @10.20% works out to Rs 1516/- . Thus for the period April 2005 to 17.04.2006 service tax works out to Rs 130750/- (Rs 129234/-+ Rs 1516/-) Also demands for the period 2005-06 is time barred. On this ground also it is liable to be dropped. Thus I find that out of total demand of Rs 337798/-, demand of Rs 130750/- for the period 01.04.2005 to 17.04.2006 is liable to be dropped and demand of Rs 207048/- for the period 18.04.2006 to 31.03.2010 is liable to be confirmed. Thus I confirm demand of Rs 207048/- for the period 18.04.2006 to 31.03.2010 under proviso to section 73(1) of FA 1994 for extended period of five years.

13.17 As regards charging of interest, I find that Section 75 of the Finance Act, 1994 provides that every person, liable to pay the tax in accordance with the provisions of section 68 or rules made there under, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, shall pay simple interest at such rate not below ten per cent and not exceeding thirty-six per cent per annum, as is for the time being fixed by the Central Government, by notification in the Official Gazette for the period by which such crediting of tax or any part thereof is delayed.

13.18 I find that the CESTAT in the case of Sree Vadivambigai Textile Mills Ltd Vs. CCE [2005] 1 STT 72 (Chennai- CESTAT) held that levy of interest under section 75 is mandatory and no leniency can be shown merely because appellant has been declared as

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sick company. I also find that CESTAT in the case of Ballarpur Industries Ltd V/s. Commissioner of C.Ex. Nagpur-2007(5) STR-197 (Tri. Mumbai) held that the provisions of section 75 prescribing interest on service tax paid belatedly are mandatory and therefore the appellants are liable to pay interest. I also find that CESTAT in the case INMA International Security Academy (P) Ltd. V/s. CCE-[2005] 1 STT 31 (Chennai-CESTAT) held that the liability to pay interest at prescribed rate, for delayed payment of dues, was inescapable as the law did not confer any discretion in the matter of levying interest.

13.19 In the instant case the said noticee had not paid service tax within the prescribe time limit. Thus interest at appropriate rate is chargeable from the said noticee in terms of Section 75 of the Finance Act, 1994.

13.20 As regards, imposition of penalties it would be appropriate to reproduce the relevant provisions and the same are reproduced as under:-Section 76 of the Finance Act, 1994 [as it stood after 18.04.2006]“Penalty for failure to pay service tax.-76. Any person, liable to pay service tax in accordance with the provisions of section 68 or the rules made there under, who fails to pay such tax shall pay in addition to paying such tax, and interest on that tax in accordance with the provisions of section 75. a penalty which shall not be less than two hundred rupees for every day during which such failure continues, or at the rate of two per cent of such tax, per month, whichever is higher, starting with the first day after the due date ti ll the date of actual payment of the outstanding amount of service tax:Provided that the total amount of penalty in terms of this section shall not exceed the service tax payable.”

13.21 The penalty u/s 76 is worked out as under:Sl No. Period ST payable (Rs.)1 18.04.06 to 31.03.07 (Worked out on

proportionate basis)37227/-

2 2007-08 38275/-3 2008-09 (Upto 09.05.08) Worked on

proportionate basis647/-

Total 76149/-

13.22 Section 77 of the Finance Act. 1994 (as it stood up to 10.5.08) provided as under:-"77. Penalty for contravention of any provision for which no penalty is provided- Whoever contravenes any of the provisions of this Chapter or any rule made there-under for which no penalty is separately provided in this Chapter shall be liable to a penalty which may extended to an amount not exceeding one thousand rupees.”

13.23 Section 77(2) of the Finance Act. 1994 (as it stood from 10.5.08) provided as under:-“(2) Any person, who contravenes any of the provisions this Chapter or any rule made hereunder for which no penalty is separately provided in this Chapter shall be liable to a penalty which may extend to five thousand rupees.

13.24 Section 78 of the Finance Act, 1994 [as it stood from 10.9.04] provides as under:-SECTION 78. Penalty for suppressing value of taxable service -Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by reason of - (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e)contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, the person, liable to pay such service tax or erroneous refund, as determined under sub-section (2) of section 73, shall also be liable to pay a penalty, in addition to such service tax and interest thereon, if any, payable by him, which shall not be less than, but which shall not exceed twice, the amount of service tax so not levied or paid or short-levied or short-paid or erroneously refunded.

13.25 I find that the larger Benchof Hon'ble Supreme Court in the case of Union of India V/s. Dharamendra Textile Processors-2008(231) ELT-3(SC) observed as under:-"12. The stand of learned counsel for the assessee is that the absence of specific reference to mens rea is a case of casus omissus. If the contention of learned counsel for the assessee is accepted that the use of the expression "assessee shall be liable” proves the

16

existence of discretion, it would lead to a very absurd result. In fact in the same provision there is an expression used i.e. ''liability to pay duty ". It can by no stretch of imagination be said that the adjudicating authority has even discretion to levy duty less than what is legally and statutorily leviable. Most of cases relied by learned counsel for the assessee had their foundation on Bharat Heavy Electirical's case (supra). As noted above, the same is based on concession and in any event did not indicate the correct position of law.13.26 It is well settled principle in law that the court cannot read any thing into a statutory provision or a stipulated condition which is plain and unambiguous. A statue is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Similar is the position for conditions stipulated in advertisements. "

13.27 I also find that the Hon'ble Tribunal in the case of M/s. Amirsh Enterprises V/s. Commissioner of Central Excise, Rajkot [2010 (17) STR-491 (Tri.-Ahmd.)] in Para 5 held as under-"5. As regards penalty under Section 76 of the Act, I find that the same is to the effect that an assessee who fails to pay such tax, shall pay, in addition to such tax and interest, the penalty which shall be not less than Rs. 200/-for every day, during which such failure is continues. In terms of the lion 'ble Supreme Court Judgment in the case of Dharmendra Textile Processors, -which lays down the maxium penalty to be imposed for contravention of the provisions of that law, authorities have no discretion to reduce such penalty. As such, I am of the view that appellants have not been able to make out a good prima facie case in their favour. Accordingly, I direct them to deposit penalty amount within a period of 8 weeks from today and report compliance on 25.9.2009, when their appeal would be taken up for final disposal, after ascertaining compliance with the above order. "

13.28 The ratio of above decision would apply to present case and the said service provider thus liable for penalty under Section 76 & 77 of the Finance Act, 1994.

13.29 As regards the allegation of suppression of facts for invoking penalty under section 78 of the Finance Act 1994, I observe that, had the service tax audit not been done, the service tax authorities would never had known the details of Banking and other financial service charges recovered by the said noticee . The said noticee had not declared the correct taxable value of service provided in ST-3 returns resulting in suppression of necessary information to the department. Therefore, this is a case of deliberate non-declaration and suppression of vital information with a willful intention to evade payment of service tax. Accordingly, the imposition of penalty under section 78 of the Act in the case before me is fully justified. Further the penalty under Section 76 is for failure to pay service tax by the person liable to pay the same, whereas Section 78 relates to penalty for suppression of the value of taxable service. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act, the penalty is imposable for ingredients of both offences, this aspect is also considered by the Hon'ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. V/s. Krishna Poduval-2006 (I)STR 185 (Ker) and CEGAT, Northern Bench, New Delhi in the case of Mett Macdonald Ltd. Vs.Commr.-2001 (134) ELT 799 (Tri.Del.). However, with effect from 10.05.2008 a proviso in the section 78 of the Finance Act, 1994 had been inserted to the effect that if any penalty is payable under this section, the provisions of sections 76 shall not apply. Thus, penalty under section 76 could be imposed for the irregularities committed up to 09.05.2008. 13.30 In view of the foregoing discussion I hold that service tax amounting to Rs. 207048/- is liable to demanded and recovered from the said noticee under proviso to Section 73(1) of the Finance Act, 1994. Further I hold that the demand for service tax amounting to Rs 130750/- for the period 01.04.2005 to 17.04.2006 is liable to be dropped. I further hold that interest at the appropriate rate is chargeable from the said noticee under Section 75 of the Finance Act, 1994. I also hold that the said noticee is liable for penalties under Sections 76, 77 and 78 of the Finance Act, 1994.

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14. Accordingly I pass order as under:-ORDER

(i) I confirm a demand of Rs.207048/- (Rupees two lakhs seven thousand and forty eight only) against M/s Schutz Dishman Bio-tech, (EOU) Village Lodariyal, Taluka Sanand District Ahmedabad. under proviso to Section 73(1) of the Finance Act, 1994. I drop the demand of service tax for Rs 130750/- for the period 01.04.2005 to 17.04.20006.

(ii) Interest at appropriate rate would be charged from M/s Schutz Dishman Bio-tech, (EOU), Ahmedabad. under Section 75 of the Finance Act, 1994.

(iii) I impose a penalty of Rs. 200/-(Rs. Two Hundred only) only per day for the period during which failure to pay the tax continued or at the rate of 2 % of such tax per month which ever is higher, starting with first day after the due date till the date of actual payment of the outstanding amount of service tax upon M/s Schutz Dishman Bio-tech, (EOU) Ahmedabad under section 76 of the Finance Act,1994 for the period from 18.04.2006 to 09.05.2008.

Provided the total amount of penalty payable in terms of this section shall not exceed Rs.76149/-(Rs. Seventy six thousands one hundred and forty nine only) i.e. the amount of service tax recoverable from M/s Schutz Dishman Bio-tech, (EOU) Ahmedabad for the period from 18.04.2006 to 09.05.2008.

(iv) I impose a penalty of Rs. 1,000.00 (Rupees One Thousand only) upon M/s Schutz Dishman Bio-tech, (EOU) Ahmedabad, under Section 77 of the Finance Act 1994 for their each failure to file ST-3 returns properly incorporating the correct value realized by them. (Total penalty Rs. 8000/- for eight failures)

(v) I also impose a penalty of Rs.207048/- (Rupees two lakhs seven thousand and forty eight only) against M/s Schutz Dishman Bio-tech, (EOU) Ahmedabad under Section 78 of the Finance Act, 1994 for suppressing the value of taxable service with intent to evade payment of service tax. However the said M/s Schutz Dishman Bio-tech, (EOU) Ahmedabad shall have option to avail the benefit of reduced penalty provided under first proviso to section 78 on fulfillment of conditions laid down under first and second proviso to Section 78 of the FA, 1994.

(Vaibhav Bajaj)Assistant Commissioner of Service Tax,

Division-II, Ahmedabad

F. No.SD-02/SCZ/Dishman Bio Tech/ SCN-21/Audit/11-12 Dated:-14.03.2012Registered ADToM/s Schutz Dishman Bio-tech, (EOU)Village Lodariyal, Taluka Sanand District Ahmedabad. Copy to:-1. The Assistant Commissioner (RRA), Service Tax Commissionerate, Ahmedabad.2. The Assistant Commissioner (Audit), Service Tax Commissionerate, Ahmedabad3. The Superintendent of Service Tax Range-IX, Div.II, Ahmedabad.4. Guard File.

Assistant Commissioner of Service Tax, Division-II, Ahmedabad

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