[Order per : Akil Kureshi, J. (Oral)]. - This petition is filed by the Food Corporation of India (‘FCI’ for short), in which the petitioner has challenged various letters issued by the respondent authorities starting from letter dated 1-1-2015, the last in line being one dated 28-1-2016. Through such letters, the service tax authorities are seeking to recover service tax of Rs. 5.37 crores (rounded off) from the petitioner.

2. Brief facts are as under.

3. The petitioner as Food Corporation of India engages agencies for handling food cargo for transportation and other related activities. FCI had engaged one Kailash Enterprise for handling of wheat cargo during the year 2006-07. Case of the petitioner is that such service provided by Kailash Enterprise was exempt from payment of service tax, despite which, under mistaken belief, FCI was made to pay service tax of Rs. 5.37 crores which Kailash Enterprise recovered from FCI. However, Kailash Enterprise had not deposited such service tax with the service tax authorities. Proceedings were therefore, instituted against Kailash Enterprise for recovery of such service tax so collected. The Commissioner of Service Tax, Vadodara by his order dated 31-3-2013 confirmed such demand against Kailash Enterprise. In such order, the competent authority accepted that no service tax was payable since under exemption Notification No. 10/2002, dated 1-8-2002 service provided in relation to agricultural produce was exempt from payment of service tax. However, referring to Section 73A of the Finance Act, 1994 he held that now that Kailash Enterprise had recovered the tax from FCI, it must deposit with the service tax authorities. Relevant portion of the order of the Commissioner reads as under :

“(b) Service provided to FCI. - (i) The Notice has contended that the service provided to FCI were in respect of imported wheat consignments and hence, they were eligible for the benefit to exemption under Notifin. No. 10/2002-S.T., dated 1-8-2002, which provided for exemption from payment of Service Tax in respect of Cargo Handling Agency services provided in respect of “agricultural produce or goods intended for cold storage” and thus, they contested the demand of Rs. 5,36,90,043/-. However, in the SCN the Revenue has sought to interpret this expression as meaning that the exemption is available only in respect of such agricultural produce as is intended for cold storage. I have gone through Notification No. 10/2002-S.T., dated 1-8-2002 and I find that the phrase “agricultural produce or goods intended for cold storage” was meant to cover two categories of items. (I) “agricultural produce”, (ii) “goods intended for cold storage”. Therefore, I find the demand of Service Tax is not sustainable on the said cargo in view of the exemption Notification No. 10/2002-S.T., dated 1-8-2002. However, the fact that an amount of Rs. 5,36,90,043/- was recovered from FCI in the guise of Service Tax, same is liable to be recovered from them under Section 73A of the Act. Para 12(iii) of the SCN reads as under.

“Notwithstanding the demand of Service Tax made herein at Sl. No. (i) above, why the amount of Rs. 7,69,65,589/- collected by the assessee from the clients towards Service Tax during the relevant period (viz. Oct. 2006 to Sept - 2010) should not be paid by the assessee along with applicable interest under Sections 73A and 73B of the Act.”

(ii) Out of the said amount of Rs. 7,69,65,589/- only Rs. 5,36,90,043/- pertains to FCI which is ordered to be recovered from M/s. Kailash under Section 73A of the Finance Act, 1994, rest of the amount of Rs. 2,32,75,546/- pertains to M/s. GPPL, demand for which is already confirmed under Section 73(2) of the said Act as per Para 6(a) above.

(iii) Regarding issue of two credit notes said to have been issued by M/s. Kailash to FCI, and encashment of Bank Guarantee, I find that no relief is admissible to the Notices in terms of Section 73A of Finance Act, 1994. The said Section 73A of the Act stipulates that where any person who has collected any amount representing Service. Tax such person shall forthwith pay the amount so collected to the credit of the Central Government. The amount so deposited is either credited to Consumer Welfare Fund or refunded by the Government to the person who had borne the incidence of such amount. Liability under Section 73A of the Act is not extinguished by subsequent suo motu adjustments or refunds of any amount by M/s. Kailash to FCI. In view of the above, I hold that the amount of Rs. 5,36,90,043/- eligible.

7. M/s. Kailash are liable for appropriate penalty under Section 77 of the Finance Act, 1994 for having failed to file the Service Tax returns failed to declare that correct amount of taxable value received by them and failed to declare the correct amount of taxable value received by them and failed to deposit the Service Tax charged and collected in the manner and within the time limit prescribed I, therefore, impose a penalty of Rs. 5,000/- on the Notices under in terms of sub-section (2) of Section 77 of the said Act. Applicable late fee in terms of Rule 7C of the Service Tax Rules, 1994 is required to be separately collected for late - filing of each of the periodical returns pertaining to the half yearly periods of April-2007-Oct-2007 to March-2008. April-2008 - Spt.-2008 to March-2009. I, therefore, order for the recovery of the amount payable for delay in furnishing return at the rate specified in Rule 7C of Service Tax Rules, 1994.”

4. It appears that between FCI and Kailash Enterprise there were multiple disputes of deficiency in service provided by the service provider. The FCI by the year 2011-12 had also realized that the service tax collected by Kailash Enterprise was not deposited in the Government revenue. Inter alia, on such grounds, some time in the year 2011, FCI utilized the performance bank guarantees issued by Kailash Enterprise to FCI and recovered a sum of Rs. 3,52,45,420/-.

5. In this background, the Government of India now seeks to recover from FCI said sum of Rs. 3,52,45,420/- under Section 87 of the Finance Act, 1994.

6. Having heard learned Counsel for the parties and having perused documents on record, it emerges that the FCI had no service tax liability on the cargo handling service received by it from Kailash Enterprise for handling of wheat cargo. This much has been held by the Commissioner in his order dated 31-1-2013. He negated the Revenue’s contention that the exemption applied only to agriculture produce which were meant for cold storage and interpreted the exemption as to include both items, i.e., agriculture produce and produce meant for cold storage separately. We, therefore, have to proceed on such basis. What therefore, emerges is that though FCI was not required to pay service tax on the cargo handling service, i.e., service rendered by the Kailash Enterprise, the agency recovered a hefty sum of Rs. 5.37 crores (rounded off) under such heading. It is also an undisputed position and Kailash Enterprise never deposited such sum with the Revenue. In terms of Section 73A of the Finance Act, 1994 therefore, Kailash Enterprise was required to deposit such sum with the service tax department. Section 73A reads as under :

73A. Service Tax collected from any person to be deposited with Central Government. - (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.

(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.

(3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.

(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.

(5) The amount paid to the credit of the Central Government under sub-section (1) or sub-section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1).

(6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in Section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of Section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.

7. Under sub-section (1) of Section 73A, any person liable to pay service tax and who has collected any amount in excess of such service tax has to forthwith pay the amount to the credit of Central Government. Under sub-section (2) of Section 73A where any person has collected service tax which is not required to be collected, he has to forthwith pay the amount to the credit of the Central Government. Under sub-section (3) of Section 73A when the person liable to deposit such sum to the credit of the Central Government fails to do, the competent authority would serve upon him a notice why such sum should not be credited to the Central Government and thereafter, proceed to recover the same.

8. The order passed by the Commissioner directing Kailash Enterprise to deposit his service tax with the Central Government was therefore, in tune with provisions contained in Section 73A of the Act. However, FCI already having paid such sum to Kailash Enterprise, had no further liability to deposit any part thereof with the Government, particularly, when no service tax was ever payable by it on such service. It is true that later on FCI also adjusted some of these payments through the aid of bank guarantee provided by Kailash Enterprise. However, the entire recovery was not relatable only to service tax, but also had element of deficiency in service by the service provider as alleged by FCI. We are informed, that civil suits have been instituted by FCI for further recoveries from Kailash Enterprise.

9. Be that as it may, question is, can the Central Government seek direct recovery from FCI with the aid of the Section 87 of the Finance Act of 1994?

10. Perusal of this provision would show that the powers vested with the Central Government are in the nature of garnishee enabling Central Government to recover unpaid dues of a person liable to pay the sum to the Government from any other person or requiring any other person from whom money is due or may become due to such defaulting person. The fundamental question is when the Government of India wrote letters to the FCI in the year 2015 and onwards, did FCI was there any due of Kailash Enterprise from FCI? The answer is obviously in the negative. Section 87 of the Finance Act, 1994 was therefore, wrongly invoked.

11. Impugned notices for recovery issued by the Government of India to the FCI are therefore, quashed. Petition is disposed of.