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Max Life Insurance Company Ltd. Petitioner v. Commissioner Of Central Excise & Service Tax

Delhi High Court

Jan 3, 2018

Judgment

CaseIQ

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Factual and Procedural Background

Max Life Insurance Company Limited challenged an order-in-original dated 29^th January 2015 passed by the Commissioner of Central Excise and Service Tax. The order confirmed a demand of service tax amounting to Rs. 100,05,78,705, allegedly deducted/recovered from individual and corporate agents but not deposited with the Government as required under Section 73A(2) of the Finance Act, 1994, for the period 2006-07 to June 2012. The order also imposed a penalty under Section 78 for suppression of material facts related to this demand.

The petitioner filed a writ petition before the Delhi High Court impugning these directions. The Court issued notice limited to the directions concerning the demand and penalty related to the service tax recovery. The petitioner concurrently filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) challenging other aspects of the order-in-original. The respondent opposed the writ petition on the ground of the availability of an alternative remedy by way of appeal.

Legal Issues Presented

Whether the petitioner can challenge part of the order-in-original before the High Court while simultaneously challenging other parts before the CESTAT.
Whether the petitioner’s payment of full service tax on reverse charge basis precludes the requirement to pay the additional amount demanded under Section 73A(2) of the Finance Act, 1994.
The maintainability of the writ petition despite the availability of an alternative remedy of appeal.
The applicability and requirement of pre-deposit for the challenge to the impugned order.
The permissibility of amendment of the appeal before CESTAT to include challenges to the directions initially excluded from the writ petition.

Arguments of the Parties

Petitioner’s Arguments

The petitioner has paid the full amount of service tax on a reverse charge basis at the applicable rate of 12% on commissions paid to agents.
According to agreements between the petitioner and agents, the petitioner was reimbursed or refunded 40% or 50% of the service tax component, which is a valid bilateral commercial obligation and does not affect the tax liability.
Reliance was placed on the Supreme Court decision in Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306, affirming the validity of mutual agreements without affecting tax liability.
Reference to Delhi High Court decision in Delhi Transport Corporation v. Commissioner Service Tax 2015 (38) STR 673 (Del.) and Gujarat High Court decision in General Manager Food Corporation of India v. Union of India 2016 (44) STR 211 (Guj.) supporting the petitioner’s position.
Tribunal decision in HDFC Standard Life Insurance Company Limited v. Commissioner of Central Excise, Mumbai-II 2017 (49) STR 301 (Tri-Mumbai) on the identical issue was also cited.
The petitioner contended that the writ petition should be maintainable despite the alternative remedy, relying on Supreme Court decisions including Aircel Limited v. The Commercial Tax Officer and others.

Respondent’s Arguments

The respondent opposed the writ petition on the ground that an alternative remedy by way of appeal before CESTAT is available.
Submission that the petitioner cannot challenge part of the order before the High Court and another part before CESTAT simultaneously.
Relied upon the Supreme Court decision in A.P. State Financial Corporation v. M/s Gar Re-Rolling Mills and Another (1994) 2 SCC 647 to support the position on maintainability.
Asserted that the petitioner must pay the additional amount received from agents under the mutual agreement in addition to the 12% service tax under Section 73A(2).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran (2012) 5 SCC 306	Validity of mutual agreements creating bilateral commercial obligations without affecting statutory tax liability.	Supported the petitioner’s contention that reimbursement agreements with agents do not alter the legal tax liability under the Finance Act.
Delhi Transport Corporation v. Commissioner Service Tax, 2015 (38) STR 673 (Del.)	Examination of service tax liability issues similar to the present case.	Relied upon to affirm that the petitioner’s position on service tax liability was consistent with judicial precedent.
General Manager Food Corporation of India v. Union of India, 2016 (44) STR 211 (Guj.)	Consideration of service tax liability in analogous circumstances.	Referred to in support of the petitioner’s legal position.
HDFC Standard Life Insurance Company Limited v. Commissioner of Central Excise, Mumbai-II, 2017 (49) STR 301 (Tri-Mumbai)	Tribunal ruling on the identical service tax issue.	Cited to reinforce the petitioner’s argument regarding service tax liability on reverse charge basis and reimbursement agreements.
Aircel Limited and Another v. The Commercial Tax Officer and Another, Writ Petition (Civil) No. 1055/2013 (Supreme Court, 22nd April 2016)	Maintainability of writ petitions despite availability of alternative remedies.	Invoked by the petitioner to argue for maintainability of the writ petition notwithstanding the appeal remedy.
Executive Engineer, Southern Electricity Supply Company of Orissa Limited (Southco) and Another v. Sri Seetaram Rice Mill (2012) 2 SCC 108	Principles governing maintainability of writ petitions and alternative remedies.	Referred to in support of the petitioner’s maintainability argument.
State of U.P. and Others v. M/s Indian Hume Pipe Company Limited (1977) 2 SCC 724	Legal standards for writ petition maintainability and alternative remedies.	Used to buttress the petitioner’s position on maintainability.
A.P. State Financial Corporation v. M/s Gar Re-Rolling Mills and Another (1994) 2 SCC 647	Opposing view on writ petition maintainability in presence of alternative remedy.	Relied upon by the respondent to argue against maintainability of the writ petition.

Court's Reasoning and Analysis

The Court recognized the complexity arising from the order-in-original deciding multiple issues, some of which were challenged before the CESTAT and others before the High Court. It observed that examining the impugned order piecemeal would be inappropriate since overlapping issues would arise before both forums.

The Court noted that the petitioner had admittedly paid the full service tax on reverse charge basis on commissions paid to agents, a fact accepted by the respondents and not contested in the order-in-original. The respondents’ contention that the petitioner must pay an additional amount corresponding to reimbursements received from agents under mutual agreements was acknowledged but not finally adjudicated by the Court.

Given the admitted payment of the full service tax, the Court directed that the CESTAT should not dismiss the petitioner’s appeal on the ground of non-payment of pre-deposit relating to the disputed direction (ii). The Court allowed the petitioner to amend its appeal before the CESTAT to include challenges to directions (ii) and (viii) related to direction (ii), permitting such amendments even if belated.

The Court emphasized that this direction was issued to address the anomalous situation of parallel challenges before two forums and was limited to the exceptional facts of the case, expressly stating that the order should not be treated as precedent.

The Court refrained from commenting on the merits of the case and left it open for the CESTAT to examine the issues independently.

Holding and Implications

The Court’s final ruling was to dispose of the writ petition with specific directions:

The CESTAT shall not dismiss the petitioner’s appeal on the ground of non-payment of pre-deposit concerning direction (ii) of the order-in-original, given that the petitioner has paid the full service tax on reverse charge basis.
The petitioner is permitted to file an amendment application before the CESTAT to include challenges to direction (ii) and direction (viii) related to direction (ii) within three weeks, which shall be considered on merits and not dismissed on procedural grounds.
The CESTAT is requested to take up the appeal expeditiously.
The Court clarified that no observations made in this order shall influence the CESTAT’s consideration of the merits.

No new legal precedent is established by this order as it was passed on exceptional facts to address the procedural anomaly of simultaneous challenges before different forums. The direct effect is to safeguard the petitioner’s right to have all aspects of the order-in-original adjudicated without dismissal on technical grounds related to pre-deposit or belated amendments.

Show all summary ...

$~6. * IN THE HIGH COURT OF DELHI AT NEW DELHI

+ WRIT PETITION (CIVIL) No. 4264/2015

Date of decision: 3^rdJanuary, 2018 MAX LIFE INSURANCE COMPANY LTD. ..... Petitioner Through Mr. Parag P. Tripathi, Sr. Advocate with Ms. Anuradha Dutt, Mr. Tushar Jarwal, Mr. Rahul Sateeja & Mr. Aarush Bhatia, Advocates. versus

COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX ..... Respondent

Through Mr. Harpreet Singh, Sr. Standing Counsel & Mr. Bhavya Dubey, Advocate.

CORAM:

HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE CHANDER SHEKHAR

SANJIV KHANNA, J. (ORAL):

Max Life Insurance Company Limited has invoked writ jurisdiction of this Court impugning the order-in-original dated 29^thJanuary, 2015 passed by the Commissioner of Central Excise and Service Tax to the extent the order records as under:-

"ii. I, hereby, confirm the demand of Service Tax amounting to Rs.100,05,78,705 (Rupees one hundred crore five lac seventy eight thousand seven hundred five only), as detailed in TABLE-2 to the Show Cause

Notice, which was so deducted/recovered from individual insurance agents/corporate agents as Service Tax and not deposited in the Government exchequer as required in terms of Section 73A(2) of the Finance Act, 1994 during the period 2006-07 to 2012-13 (upto June, 2012), and order for recovery of the same from them under the proviso to Section 73A (3) of the Finance Act, 1994;"

2. The petitioner has also challenged direction given in sub-para viii imposing penalty under Section 78 of the Finance Act, 1994 for suppressing material facts to the extent it relates to the direction given in paragraph ii above.

3. The afore-stated order-in-original, in fact, decides several other issues in sub-paras i, iii, iv in addition to question of interest, penalty, etc.

4. Upon the writ petition coming up for hearing, vide order dated 29^th April, 2015, the Court had issued notice relating to direction No. (ii) and direction No. (viii) to the extent it relates to direction No. (ii). The said order also granted to the petitioner right to file appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in respect of other aspects and findings in the order-in-original. The writ petition has remained pending since then before the Court. The petitioner, it is an accepted position has filed an appeal before CESTAT against the order-in-original on other aspects.

5. Counsel for the respondent has opposed the present writ petition in view of the alternative remedy by way of appeal. He submits that the petitioner cannot challenge one part of the order-in-original before the High Court and another portion before CESTAT.

6. Counsel for the petitioner, on the other hand, has submitted that the petitioner has paid full amount of service tax on reverse charge on the commission paid to the agents at the applicable rate of 12%. As per agreement(s) between the petitioner company and the agents, the petitioner was refunded or reimbursed 40% or 50% of the service tax component. This was as per the mutual understanding. Reliance is placed on decision of the Supreme Court in Rashtriya Ispat Nigam Limited versus Dewan Chand Ram Saran, (2012) 5 SCC 306, in support of the contention that mutual agreements are valid and create a bilateral commercial obligation, without affecting the tax liability imposed as per the charging section. Reference is made to the decision of the Delhi High Court in Delhi Transport Corporation versus Commissioner Service Tax, 2015 (38) STR 673 (Del.) where an identical issue with regard to service tax liability was examined and relying upon the decision in the case of Rashtriya Ispat Nigam Limited (supra), the appeal preferred by the Revenue was dismissed. Our attention is also drawn to the judgment of the Gujarat High Court in General Manager Food Corporation of India versus Union of India, 2016 (44) STR 211 (Guj.). Lastly, reference is made to decision of the Tribunal itself in HDFC Standard Life Insurance Company Limited versus Commissioner of Central Excise, Mumbai-II, 2017 (49) STR 301 (Tri-Mumbai) on the identical issue.

7. On the question of maintainability of the writ petition, in spite of alternative remedy, our attention is drawn to an order of the Supreme Court dated 22^ndApril, 2016 passed in Writ Petition (Civil) No. 1055/2013, Aircel Limited and Another versus The Commercial Tax Officer and Another

and other connected matters, Executive Engineer, Southern Electricity Supply Company of Orissa Limited (Southco) and Another versus Sri Seetaram Rice Mill, (2012) 2 SCC 108 and State of U.P. and Others versus M/s Indian Hume Pipe Company Limited, (1977) 2 SCC 724.

8. Counsel for the respondent, on the other hand, has relied upon decision of the Supreme Court in A.P. State Financial Corporation versus M/s Gar Re-Rolling Mills and Another, (1994) 2 SCC 647.

9. Rather peculiar and odd situation has arisen in the present case as the order-in-original decides several issues and aspects. This order-in-original dated 29^thJanuary, 2015 has been made subject matter of challenge before the CESTAT on several aspects in view of the liberty granted by this Court vide order dated 29^thApril, 2015, except for direction No. (ii) and direction No. (viii) which extend to the direction No. (ii).

10. Thus, we have a situation where the petitioner has invoked a statutory remedy of appeal before the CESTAT challenging the order-in-original dated 29^thJanuary, 2015 on all aspects, except direction No. (ii) and direction No. (viii) to the extent it relates to direction No. (ii). In these circumstances, we do not think it will be appropriate and proper for us to examine the impugned order in piecemeal. In fact, while deciding the writ petition, we would have to examine aspects and issues, which would also arise before CESTAT.

11. However, the issue arises on requirement and mandate of pre-deposit. The order-in-original holds and accepts that service tax amounting to Rs.100.5 crores has to be paid. Thus, entire service tax payable on reverse

charge basis on the commission paid to the agents, has been paid. The said position is admitted and accepted by the respondents and is also not challenged and contested in the order-in-original. The contention of the respondent is that the petitioner must also pay in addition and over and above 12% service tax, the amount received from the agents under the mutual agreement in view of Section 73A (2) notwithstanding the payment made. The petitioner, as noticed above, has referred to several decisions in which the aforesaid aspect has been considered, including the judgment of the Tribunal in the case of HDFC Standard Life Insurance Company Limited (supra).

12. Be that as it may, as the petitioner has paid full amount of service tax, which is an accepted and admitted position, on reverse charge basis on the commission payment, we would direct the Tribunal not to dismiss the appeal preferred by the petitioner on the ground of "pre-deposit" under direction (ii), provided the petitioner has made pre-deposit in accordance with law in respect of other adjudication subject matter of the order-in-original dated 29^thJanuary, 2015. We further permit the petitioner to file an amendment application before CESTAT and challenge the direction No. (ii) and direction No. (viii) to the extent it relates to direction No. (ii) in the impugned order dated 29^thJanuary, 2015 within a period of three weeks from today. In case such amendment application is moved, the same would be considered by the CESTAT in accordance with law and it would not be dismissed on the ground that the amendments sought are belated or beyond time.

13 We have been compelled to take recourse and issue the aforesaid direction to deal with the anomalous position wherein the same order is subject matter of challenge before the High Court and before the Tribunal. This writ petition was entertained and notice was issued limited to direction No. (ii). This order, therefore, has been passed in the particular facts of the present case, which are exceptional. This order cannot be treated as a precedent, which will apply to other cases. We would also request the CESTAT to take up the appeal for hearing as expeditiously as possible.

14. With the aforesaid observations and directions, the writ petition is disposed of. We clarify that we have not commented on the merits. It will be open to the CESTAT to examine the issue, without being influenced by any observation made in this order.

SANJIV KHANNA, J.

CHANDER SHEKHAR, J.

JANUARY 03, 2018

VKR