South Indian Bank Ltd. v. Principal Commissioner of Central Tax & Central Excise, Cochin Commissionerate

``` IN THE HIGH COURT OF KERALA AT ERNAKULAM ``` ``` PRESENT ``` ``` THE HONOURABLE MR.JUSTICE S.V.BHATTI ``` ``` & ``` ``` THE HONOURABLE MR.JUSTICE BASANT BALAJI ``` ``` TUESDAY, THE 31[ST] DAY OF JANUARY 2023 / 11TH MAGHA, 1944 ``` ``` R.P. NO.954 OF 2022 ``` ``` OF HIGH COURT OF KERALA) ``` ## **`REVIEW PETITIONER/RESPONDENT IN THE APPEAL:`** ``` THE SOUTH INDIAN BANK LTD., HEAD OFFICE, MISSION QUARTERS, THRISSUR-680 001, REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, SMT.CHITHRA HARIHARAN. BY ADVS. KURYAN THOMAS M.GOPIKRISHNAN NAMBIAR K.JOHN MATHAI JOSON MANAVALAN PAULOSE C. ABRAHAM RAJA KANNAN ``` ## **`RESPONDENT/APPELLANT IN THE APPEAL:`** ``` THE PRINCIPAL COMMISSIONER OF CENTRAL TAX & CENTRAL EXCISE, COCHIN COMMISSIONERATE, C.R.BUILDING, I.S. PRESS ROAD, ERNAKULAM, KOCHI-682 018. BY SMT.PREETHA S. NAIR, SC, CENTRAL BOARD OF EXCISE AND CUSTOMS ``` ``` THIS REVIEW PETITION HAVING COME UP FOR ADMISSION ON 13.O1.2023, THE COURT ON 31.01.2023 DELIVERED THE FOLLOWING: ``` R.P. No.954/2022 2 ## JUDGMENT (Dated: 31[st] January, 2023) Basant Balaji, J. The respondent in C.E. Appeal No.3 of 2020 has filed this Review Petition, to review the judgment dated 29.07.2022 on the ground that there is an error apparent on the face on record. 2. The extended period of limitation invoked by the Department was set aside by the final order in Service Tax Appeal No.486 of 2009 of SES Act and was challenged in C.E. Appeal No.3 of 2020 before this court. The penalty under Section 78 of the Finance Act, 1994 was waived by the Commissioner under Section 80 of the Finance Act, for the reason that there was reasonable cause for the failure to pay Service Tax. The Tribunal accepted the contention raised by the review petitioner and held that, since there was no intention to evade payment of service tax the invocation of the extended period of limitation is unavailable. Through the judgment under review, we have held that, merely because the review petitioner was exonerated from R.P. No.954/2022 3 payment of the penalty for reasonable cause, the same yardstick cannot be applied to contend that extended period of limitation as prescribed under proviso to Section 73 of the Act is available. 3. To review the judgment, one of the grounds raised is that the Commissioner has found that the bank was not aware of the short payment and confirms that there was no wilful suppression with intent to evade payment of Service Tax and therefore the Tribunal was right in setting aside the invocation of the extended period of limitation. Intending to evade is a necessary ingredient for invocation of any of the five situations envisaged in the proviso to Section 73. There is no intention to evade the duty of the bank in the present case. Therefore, the invocation of the extended period of limitation is unavailable and this court ought not to have upset the finding of the Tribunal. 4. Section 73 of the Finance Act gives the power to show cause, why the assessee has not paid the Service Tax due. It is not in dispute that the bank was paying Service Tax. An R.P. No.954/2022 4 intelligence report on 02.08.2007, and verification by the Divisional Preventive Unit at the head office of the bank on 02.08.2007 revealed that there was a short levy and collection of Service Tax for the period from 10.09.2004 to 31.07.2007. Summons was issued on 21.11.2007, to the Chief Financial Officer and the statement was recorded. It was admitted that there was non-payment of Service Tax on the full value received by the branches but stated that the non-payment of Service Tax was not intentional, due to system failure. On receipt of the reference on short payment by the department, the entire differential amount of Service Tax was remitted from 22.08.2007 to 12.12.2007. This statement was recorded on 04.01.2008. 5. The primary question to be answered in the review petition is whether there is any error apparent on the face of the record to review the judgment. Admittedly, Service Tax was paid by the individual branches till 31.03.2007 and from 01.04.2007, centralised registration was taken. It is an admitted fact that the R.P. No.954/2022 5 assessee has not fully disclosed the value of taxable service for the period from 10.09.2004 to 31.07.2007 in the ST 3 Returns. 6. The counsel for the review petitioner submitted that the judgment relied on in paragraph 16 has not been properly considered. It is contended that the Rajasthan High Court in _CCE v. Rajasthan Renewable Energy (2018 (15) GSTL 661 (Raj.)_ , has held that there should be wilful misstatement or suppression of fact for invocation of the extended period of limitation and in the present case there is no wilful suppression with an intention to evade tax and therefore the judgment has not been correctly applied. In paragraph 16 of the judgment, we have taken note of the facts of the said case and held that, in the facts and circumstances of that case, there was no wilful misstatement or suppression of facts. 7. The counsel for the review petitioner also relied on the judgment of the Apex Court in _C.C., CE & ST, Bangalore v. Northern Operating Systems Pvt. Ltd., [2022 (61) GSTL 129 (SC)] ,_ R.P. No.954/2022 6 to contend that suppression or misstatement should be wilful and with the intent to evade payment of duty as held in the preceding paragraph, the non-payment of Service Tax for a period of three years on the ground of system failure can only be taken as wilful. Therefore, the invocation of the extended period of limitation can be invoked in this case. 8. The case of the assessee is that it is due to system failure that the entire amount was not paid. The intelligence report points out that the short levy was from 10.09.2004 to 31.07.2007, and only on a reference by the department after the intelligence report on 02.08.2007, the bank had remitted the differential amounts. The period from 2004 to 2007, around three years, the bank cannot contend that due to system failure, they were not able to remit the Service Tax. The Commissioner in the order in original paragraphs 15 and 16 has categorically found that there had been a suppression and directed imposition of penalty under Section 76 of the Act and refrained from imposing a penalty under Section 78. Therefore, the argument of R.P. No.954/2022 7 the review petitioner that, there is no finding that there has been suppression of any information and not intended to evade payment of Service Tax does not hold good. 9. Another ground raised by the review petitioner is that there has been a mistake in paragraph 19 of the judgment, only when the department issued a show cause notice, the bank remitted the amount of tax. The said contention is valid for the fact that going by the order in the original as well as the show cause notice, it can be seen that the intelligence report was on 02.08.2007 and the amounts were paid on 22.08.2007, 16.11.2007, 07.12.2007, and 12.12.2007 and the show cause notice was issued on 03.09.2008. Therefore, the statement that the remittance was only after the show cause notice is an error of fact in the narration and needs to be reviewed and it is held that the payment was before the show cause notice, however after the intelligence report on 02.08.2007. The payment of service tax even if before the show cause notice it is not within the time prescribed by law. The said fact will not improve the R.P. No.954/2022 8 case of the petitioner to review the judgment as there is nonpayment of Service Tax and which will quantify the word ‘wilful’ for the fact that the bank was aware that they are under the obligation to pay Service Tax and to disclose the value of taxable service in the ST 3 Returns filed before the department. When service tax has to be paid within the time prescribed and if it is not paid for reasonable cause, the non-payment can be brought under Section 73(1)(d). When the correct figures are not brought to the notice of the department and when the suppression is unearthed through an intelligence report, the failure of the bank in remitting the amounts thereafter i.e., nearly three years can be brought under the words ‘wilful suppression’. The time for which default occasioned is equally important. Therefore, we are of the considered opinion that there is no error apparent on the face of the R.P. No.954/2022 9 record, and also there are no grounds to review the judgment, therefore the review petition stands disposed of as indicated in paragraph 9. _Sd/-_ S.V.BHATTI, JUDGE _Sd/-_ BASANT BALAJI, JUDGE ss