M/s. Punjab And Sind Bank vs Commissioner Of G.S.T. And Central Excise

The only issue that was urged on behalf of the appellant, was the levy of penalty under Section 78 of the Finance Act, 1994.

A Show Cause Notice dated 26.04.2018 was issued covering the following periods:

(i) 01.07.2012 to 31.05.2015;

(ii) 01.06.2015 to 31.10.2015;

(iii) 01.11.2015 to 31.05.2016; and

(iv) 01.06.2016 to 30.06.2017

alleging that the appellant was not correctly paying Service Tax under Reverse Charge Mechanism ('RCM' for short) on the 'Legal Opinion' received from their empanelled advocates. A draft Order-in-Original, without number, dated 31.12.2018 was issued to the appellant confirming the demands proposed in the Show Cause Notice, apart from applicable interest and penalty. On first appeal, the appellant-bank having not met with success, has assailed the same in appeal before this forum.

When the matter was taken up for hearing, Shri S.M. Khaja Muyeenuddeen, Learned Chartered Accountant, appeared and argued for the assesseeappellant and Shri M. Jagan Babu, Learned Authorized Representative, appeared for the Revenue and relied on the findings of lower authorities.

Heard the rival contentions, gone through the documents placed on record and have also gone through the decisions relied upon during the course of arguments.

5.1 Penalty under Section 78 of the Finance Act, 1994 is imposed when there is non-levy, short levy, short payment or erroneous refund by reason of fraud, collusion, wilful mis-statement, etc., on the part of an assessee with an intention to evade the payment of Service Tax. It is apparent that Section 78 can be invoked in case where there is non-levy, short-levy, short payment or erroneous refund of Service Tax by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of Chapter V of the Act or the rules made thereunder with the intention to evade payment of Service Tax. A perusal of the draft Order-in-Original points out that initially, the assessee-appellant itself had raised a fundamental doubt as to the very applicability of Service Tax, on the bona fide belief that they had not made any accounting entry as the payment or receipt in question was neither income nor expense for the bank. They had also explained that payments made to advocates on behalf of customers was debited to the concerned customer account and accordingly, details of such payment was neither captured in the system of the bank nor was there any regulatory requirement for the same. The draft Order-in-Original, however, has ignored the very taxability without clearing the above doubts. This is sufficient to hold that the appellant has only acted in good faith being a public sector undertaking.

5.2 Moreover, the alleged liability captured in the form of tables in the draft Order-in-Original apparently were all picked up from the appellant's Books available with the Revenue.

Thus, under the above circumstances, the condition precedent for invoking Section 78 ibid. viz. that there should be non-levy, short levy, short payment or erroneous refund of Service Tax by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the rules made thereunder with the intention to evade payment of Service Tax, is not satisfied and accordingly, Section 78 ibid. would not be attracted in the present case.

In addition to the above, the assessee being a public sector undertaking of the Government of India is also an additional factor to hold that any mala fide intention to evade payment of Service Tax would not be attributed, to levy penalty under Section 78 ibid. This view finds support in :

(i) M/s. Karnataka State Tourism Development Corporation v. Commissioner of Central Tax, Bangalore North [Service Tax Appeal No. 224 of 2009 in Final Order No. 21289 of 2018 dated 04.12.2018 - CESTAT, Bangalore];

(ii) M/s. Karnataka State Tourism Dev. Corpn. Ltd. v. C.S.T., Bangalore [2011 (21) S.T.R. 518 (Tri. - Bang.)];

(iii) B.S.N.L. v. Commissioner of Central Excise, Ahmedabad [2009 (14) S.T.R. 359 (Tri. - Ahmd.)]

In view of the above, I am of the view that the penalty levied under Section 78 ibid. is not justified and hence, the impugned order cannot be sustained. The same is therefore set aside and the appeal is allowed.

(Order pronounced in the open court on 12.04.2021)