Muthoot Finance Limited v Union of India and others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR** **MONDAY, THE 2ND DAY OF MARCH 2015/11TH PHALGUNA, 1936** ## **WP(C).No. 6173 of 2015 (V)** **---------------------------** **PETITIONER:** **--------------------** **M/S.MUTHOOT FINANCE LIMITED, MUTHOOT CHAMBERS, BANERJI ROAD, COCHIN - 682 018, REPRESENTED BY ITS AUTHORIZED SIGNATORY, K.R.BIJIMON.** **BYSRI.V.V.ASOKAN (SENIOR ADVOCATE) ADVS. SRI.K.I.MAYANKUTTY MATHER SRI.R.JAIKRISHNA SRI.JOSE JACOB** ## **RESPONDENT(S):** **--------------------------** **1. UNION OF INDIA, REPRESENTED BY SECRETARY, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NORTH BLOCK, NEW DELHI - 110 001.** **2. COMMISSIONER OF CENTRAL EXCISE, CUSTOMS & SERVICE TAX, OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, C.R.BUILDING, I.S.PRESS ROAD, KOCHI - 682 018.** **BY SRI.SAIBY JOSE KIDANGOOR, SC BY SRI.THOMAS MATHEW NELLIMOOTTIL, SC** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 02-03-2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **mbr/** ## **WP(C).No. 6173 of 2015 (V)** ## **-------------------------------------** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **-----------------------------------** - **EXHIBIT P1 : TRUE COPY OF SERVICE TAX RETURN FILED BY THE PETITIONER FOR THE PERIOD 2007 DATED NIL** - **EXT. P1(A) : TRUE COPY OF SERVICE TAX RETURN FILED BY THE PETITIONER FOR THE PERIOD OF 2008 DATED NIL.** - **EXT. P1(B) : TRUE COPY OF SERVICE TAX RETURN FILED BY THE PETITIONER FOR THE PERIOD OF 2009 DATED NIL.** - **EXT. P1(C) : TRUE COPY OF SERVICE TAX RETURN FILED BY THE PETITIONER FOR THE PERIOD OF 2010 DATED NIL.** - **EXT. P1(D) : TRUE COPY OF SERVICE TAX RETURN FILED BY THE PETITIONER FOR THE PERIOD OF 2011 DATED NIL.** - **EXHIBIT P2 : TRUE COPY OF SAMPLE AGREEMENT ENTERED INTO BETWEEN THE PETITIONER AND BANK IN THE CASE OF PREMIUM TRANSACTION DATED 19.3.2009.** - **EXHIBIT P3 : TRUE COPY OF SAMPLE AGREEMENT ENTERED INTO BETWEEN THE PETITIONER AND BANK IN THE CASE OF PAR TRANSACTION DATED 14.6.2010.** - **EXHIBIT P4 : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 9.9.2010.** **EXT. P4(A) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 26.10.2010.** **EXT. P4(B) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 29.10.2010.** **EXT. P4(C) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 9.5.2012.** **EXT. P4(D) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 26.6.2012.** **EXT. P4(E) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 21.8.2012.** **EXT. P4(F) : TRUE COPY OF THE COMMUNICATION BETWEEN THE DEPARTMENT AND PETITIONER DATED 13.9.2012.** **--2--** **--2--** ## **WP(C).No. 6173 of 2015 (V)** ## **-------------------------------------** **EXHIBIT P5 : TRUE COPY OF THE SHOW CAUSE NOTICE ISSUED TO THE PETITIONER DATED 22.10.2012.** **EXHIBIT P6 : TRUE COPY OF THE REPLY FILED BY THE PETITIONER DATED 19.2.2013.** **EXHIBIT P7 : TRUE COPY OF THE WRITTEN SUBMISSION FILED BY THE PETITIONER DATED 7.7.2014.** **EXHIBIT P8 : TRUE COPY OF THE ORDER PASSED BY 2ND RESPONDENT DATED 19.12.2014.** **RESPONDENT'S EXHIBITS: -** ## **NIL** **--------------------------------------** ## **/TRUE COPY/** **P.S.TO JUDGE** **mbr/** ## **A.K.JAYASANKARAN NAMBIAR, J.** **.............................................................** W.P.(C).No.6173 of 2015 **.............................................................** Dated this the 2[nd] day of March, 2015 ## **J U D G M E N T** The challenge in the writ petition is against Ext.P8 order passed by the 2[nd] respondent, confirming a demand of service tax and penalty on the petitioner. The demand of service tax has been confirmed against the petitioner under the head of business auxiliary services. The facts in the impugned order would reveal that the petitioner was engaged in the business of lending money to customers, against gold that was pledged by the said customers with the petitioner. It would appear that the loan amounts were then assigned by the petitioner to reputed banks who would pay the petitioner the purchase consideration for the loan amounts assigned to them, the consideration being worked out as the total of the principal amount, interest and other charges. This was as against the book value of the receivables which was admittedly lower. The respondent authorities computed the difference between the purchase price and the book value of the receivables and treated this as consideration received by the petitioner for services that they were required to perform under agreements 2 W.P.(C).No.6173 of 2015 entered into with the assignee banks in connection with the loans that were assigned to them. It is the service tax on the said amounts that was thus arrived at and demanded from the petitioner by Ext.P8 order, which is impugned in the writ petition. 2. I have heard Sri.K.I.Mayankutty Mather, the learned counsel for the petitioner and Sri.Saiby Jose,Kidangoor, the learned Standing counsel for the respondents. On behalf of the petitioner, it is contended that, in Ext.P8 order, the 2[nd] respondent, other than making a reference to the obligation of the petitioner to disclose the value of taxable services rendered by him to the assignee banks, does not actually enter any finding with regard to the manner in which the said amounts could be said to have been suppressed by the petitioner. It is pointed out that the petitioner bank has been filing returns on a regular basis, and further, the amounts received by it pursuant to business transactions were all recorded in the audited balance sheet and profit and loss accounts which were regularly filed the statutory authorities from time to time. It is contended, therefore, that in as much as there was adequate disclosure of the receipt of the consideration amounts pointed out by the department, there was no justification 3 W.P.(C).No.6173 of 2015 whatsoever for invoking the larger period of limitation under the statute, while confirming the demand of service tax against the petitioner. It is also pointed out that the 2[nd] respondent, in Ext.P8 order, grossly erred in treating the amounts received by the petitioner as consideration for services rendered whereas in actual fact, the said amounts only represented the interest that the petitioner was entitled to in respect of loans advanced to various customers. It is also the case of the petitioner that while issuing the show cause notice in terms of Section 73 of the Finance Act, 1994, as amended, the respondents have not first resorted to the provisions of Section 72 to complete a best judgment assessment against the petitioner, and therefore, to that extent, the issuance of the show cause notice even prior to the completion of that exercise was bad in law. It is further pointed out that the computation of the demand in the impugned order is erroneous in that it does not take into account the fact that there were amounts that were paid by the petitioner to the assignee banks, by way of interest on a discounting arrangement that was in vogue between the petitioner and the assignee bank and, to this extent, the demand in Ext.P8 order is grossly exaggerated. It is also the contention of the petitioner that, as regards the period from 2010-2011, 2011-2012, 4 W.P.(C).No.6173 of 2015 the confirmation of the demand against the petitioner has been based on an estimation for which there is no authority under the statutory provisions. 3. Per contra, it is the submission of the learned Standing counsel of the respondents that the petitioner has an effective alternative remedy against Ext.P8 order of the 2[nd] respondent, in that they can prefer an appeal before the Customs, Excise and Service Tax Appellate Tribunal against the said order. It is pointed out that by virtue of the amendment that was introduced into the Finance Act, 1994, with effect from 16.08.2014, the petitioner is required to deposit only 7.5% of the tax amount confirmed against it, as a condition for preferring an appeal before the Appellate Tribunal. It is also the contention of the respondents that the issue of limitation being a mixed question of fact and law, it was not open to the petitioner to contend that there was no suppression found against the petitioner by the order impugned in the writ petition and, at any rate, this is not a contention that was available to the petitioner in proceedings under Article 226 of the Constitution of India. On the issue of invoking the provisions of Sections 72 and 73 of the Finance Act, 1994, as amended, it is pointed out that the 5 W.P.(C).No.6173 of 2015 show cause notices are issued by invoking the power under Section 73 of the Finance Act, 1994, and Section 72 only provides for the manner in which assessment is done for the purposes of recovering the amount due as per Section 73. In that view of the matter, there is no illegality in invoking the provisions of both Sections 72 and 73 while issuing the notices to the petitioner. 4. I have considered the submissions of counsel on either side. I find that Ext.P8 is an order passed by the 2[nd] respondent, against which the petitioner has an alternate remedy under the provisions of the Finance Act, 1994, as amended to prefer an appeal before the Customs, Excise and Service Tax Appellate Tribunal. The only point that arises for consideration is whether the petitioner would have to deposit the amount of 7.5% of the tax confirmed against him, as a condition for pursuing the appellate remedy before the Tribunal. I note in this connection that recently, a Division Bench of the High Court of Telengana & Andhra Pradesh has taken a prima facie view that, in as much as the lis in question had commenced prior to the introduction of the amendment to the Finance Act, 1994, with effect from August 2014, the petitioner's right of appeal as per the erstwhile provisions of law would not be 6 W.P.(C).No.6173 of 2015 affected by the provisions introduced by the amendment of 2014. Although not expressly referred to in the interim order dated 19.02.2015 passed by the High Court of Telengana & Andhra Pradesh in WP 3393/2015, the view seems to be consistent with the settled law that the institution of a suit carries with it an implication that all rights of appeal then in force are preserved to the parties thereto till the rest of the career of the suit and, further, that the right of appeal that is vested is to be governed by the law prevailing at the date of institution of the suit or proceeding, and not by the law that prevails at the date of its decision or at the date of filing of the appeal. ( **See: Garikapati Veeraya v. N.Subbiah Choudhry and Other (AIR 1957 SC 540); Messrs Hoosein Kasam Dada (India) Ltd v. The State of Madhya Pradesh and Others, (AIR 1953 SC 221; Vitthalbhai Naranbhai Patel V. Commissioner of Sales Tax M P Nagpur (AIR 1967 SC 344) and Ramesh Singh and Another v. Cinta Devi and Others (1996 (3) SCC 142** ). In that view of the matter, I find that the petitioner, in whose case also the lis commenced in 2012, would not be required to deposit the amount of 7.5%, as required pursuant to the 2014 amendment, and in that respect, he would have an efficacious alternate remedy before the Tribunal where he 7 W.P.(C).No.6173 of 2015 can file an appeal, together with an application for waiver of predeposit and stay of recovery of the amounts confirmed against him by Ext.P8 order. At the time of filing the appeal, he will not be required to make any payment as a pre-condition for the hearing of the waiver application by the Tribunal. I, therefore, relegate the petitioner to the alternate remedy available under the Finance Act, 1994, as amended, of approaching the Appellate Tribunal by way of an appeal against Ext.P8 order. It is made clear that the appeal to be filed by the petitioner would be governed by the statutory provisions, as they stood prior to the amendment introduced with effect from 16.08.2014. Thus, without making any observations on the merits of the case, and without prejudice to all the contentions that the petitioner can take against Ext.P8 order of the 2[nd] respondent, I dismiss the writ petition in its challenge against Ext.P8 order. I make it clear that, if the petitioner prefers a duly constituted appeal under the provisions of the Finance Act, 1994, as they stood prior to 16.08.2014, then the Appellate Tribunal shall number the Appeal, and consider the application filed by the petitioner for waiver of pre-deposit and stay of recovery of the amounts confirmed against him by Ext.P8 order, on merits, and thereafter, proceed to hear the appeal itself in due course. The 8 W.P.(C).No.6173 of 2015 petitioner shall file the appeal, together with the application for waiver of pre-deposit and stay, before the Appellate Tribunal on or before 31.03.2015. I record the submission made by the learned Standing counsel for the respondents that, till 31.03.2015, no steps for recovery of the amounts confirmed against the petitioner by Ext.P8 order will be either initiated or pursued by the respondents. The writ petition is disposed as above. **A.K.JAYASANKARAN NAMBIAR JUDGE** mns W.P.(C).No.6173 of 2015 9