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KOLKATA NORTH COMMISSIONERATE v. ASIAN HOTEL EAST LTD
Tribunal Opinion — Service Tax Appeal No.75077 of 2019 (East Regional Bench : Kolkata)
Factual and Procedural Background
The appeal arises from an Order-in-Appeal No.488/ST-II/2018 dated 26.07.2018 passed by the Commissioner (Appeals) of CGST & Excise, Kolkata. The Commissioner of CGST & Excise, Kolkata North (Revenue) filed the departmental appeal against the first appellate authority's order which had allowed the Respondent (M/s Asian Hotel (East) Limited, Hyatt Regency Kolkata) in part: the first appellate authority dropped a demand of Rs.65,82,774/- under Rule 6 of the Cenvat Credit Rules, 2004 (CCR, 2004) and confirmed a demand of Rs.10,61,419/- along with interest and penalty, while offering an option to the Respondent to pay a reduced penalty at 25% as per the proviso to Section 78 of the Finance Act, 1994.
The Revenue appealed to challenge (a) the dropping of the demand under Rule 6 of CCR, 2004, and (b) the option of reduced penalty allowed by the Commissioner (Appeals). The Respondent filed a cross-objection limited to the penalty confirmed by the first appellate authority; the Service Tax and interest had already been paid by the Respondent during the service tax audit and were not being disputed further.
Legal Issues Presented
- Whether the demand of Rs.65,82,774/- for reversal under Rule 6 of the Cenvat Credit Rules, 2004 (as applied on abated/exempt value of restaurant services) was correctly dropped by the first appellate authority, or whether the Revenue's challenge to that deletion should succeed.
- Whether imposition of penalty under Section 78 of the Finance Act, 1994 on amounts of service tax already paid by the Respondent before issuance of a show cause notice (SCN) is sustainable, and whether the Commissioner (Appeals) erred in allowing a reduced penalty option.
Arguments of the Parties
Appellant's (Revenue) Arguments
- The Revenue contested the first appellate authority's deletion of the demand under Rule 6 of the CCR, 2004 and challenged the allowance of reduced penalty by the Commissioner (Appeals).
- The Department filed a departmental appeal reiterating the grounds of appeal. (The record notes that the Departmental Representative reiterated the grounds of appeal and, as recorded in the opinion, agreed to the submission made by the Respondent's counsel regarding the Rule 6 issue.)
Respondent's Arguments
- The Respondent (through counsel) argued that the departmental appeal against deletion of demand under Rule 6 had become infructuous because CBIC Circular No.213/3/2019-Service Tax (dated July 05, 2019) clarified that reversal under Rule 6(3) of the CCR, 2004 is not required for restaurant services.
- The Respondent relied on the decision in M/s POPULAR CATERERS Vs COMMISSIONER OF CGST, MUMBAI WEST (2019-TIOL-1417-CESTAT-MUM) where a demand under Rule 6 of CCR, 2004 was quashed in similar circumstances.
- As to penalty, the Respondent's counsel submitted that it is a settled principle that where tax (with interest) is paid before issuance of an SCN, the Department should not issue an SCN under Section 73 of the Finance Act, 1994, except in cases of suppression or willful mis-statement. The Respondent relied on several authorities (listed in the opinion) supporting this principle and argued that imposition of penalty on amounts paid during the audit was not justified.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| M/s POPULAR CATERERS Vs COMMISSIONER OF CGST, MUMBAI WEST (2019-TIOL-1417-CESTAT-MUM) | Cited for quashing a demand under Rule 6 of the CCR, 2004 in similar circumstances (restaurant services). | The Tribunal noted that this decision was relied upon by the Respondent to support quashing of the Rule 6 demand; it formed part of the material showing that demand under Rule 6 in such circumstances had been quashed elsewhere. |
| M/s FAIRFEST MEDIA LTD vs. CGST AND EXCISE KOLKATA SOUTH (2020-TIOL-1113-CESTAT-KOL) | Cited for the principle that where service tax and interest are paid before issuance of an SCN (absent suppression/willful mis-statement), issuance of SCN/penalty under Section 78 is not sustainable. | The Tribunal relied on this decision as supporting authority that the facts of the present case fell within the same principle and that penalty should be dropped. |
| DLF PROJECT LIMITED Versus C.C.E. & S.T., GURGAON-I | Cited in support of the proposition regarding penalty and payment prior to SCN (as relied upon by the Respondent). | The opinion lists this decision among authorities relied upon by the Respondent to support the principle that payment before SCN bars issuance of SCN/penalty; the Tribunal treated the body of authorities as persuasive for that principle. |
| ARCGATE Versus COMMISSIONER OF C. EX., JAIPUR-II (2017 (5) G.S.T.L. 281 (Tri. - Del.)) | Cited in support of the settled principle concerning payment before SCN and penalty. | Used by the Tribunal as part of the cited jurisprudence upholding the same principle; considered in assessing whether penalty was sustainable. |
| Santhi Casting Works v. CCE [2009 (15) STR 2019 (Tri. - Chennai)] | Cited among earlier authorities on the point of penalty/SCN where tax has been paid prior to SCN. | The Tribunal recorded this as one of the authorities relied upon by the Respondent and considered it part of the jurisprudential background for rejecting penalty in the present facts. |
| Commissioner of CGST, Howrah Vs. M/s. Kolkata West International City Pvt. Ltd. (FO No. 75640/2018) | Cited by the Respondent among authorities on the penalty/payment-before-SCN issue. | Referenced by the Tribunal as one of the decisions relied upon by the Respondent in support of the contention that penalty cannot be imposed where tax and interest were paid before SCN. |
| Bhoruka Aluminium Limited versus Commissioner of C. Ex. & S.T., Mysore (2017 (51) STR 418 (Tri. - Bangalore)) | Quoted for the proposition that imposition of penalty under Section 78 may be contrary to Section 73(3) where tax is paid before issuance of SCN; used to hold that issuance of SCN is not permissible for amounts already paid under Section 73(3). | The Tribunal expressly relied on this decision (and reproduced its relevant paras) to support the conclusion that penalty should not be imposed where tax and interest were paid before SCN; the Tribunal found present facts squarely covered by it. |
| Sen brothers Versus Commissioner of Central Excise, Bolpur (2014 (33) STR 704 (Tri. - Kolkata)) | Cited among authorities on penalty and payment before SCN. | Recorded as one of the decisions relied upon by the Respondent and considered by the Tribunal in forming the conclusion on penalty. |
| South India Paper Mills Ltd. v. C.C.E. & S.T. (2016-TIOL-2294-CESTAT-BANG) | Cited as a decision where penalty under Section 78 was dropped in similar circumstances. | Referenced in the Tribunal's reasoning (through the FAIRFEST decision that itself relied on South India Paper Mills) to support the view that Section 73(3) precludes issuance of SCN for amounts already paid, and that penalty is not justified. |
| Intercontinental Consultants & Technocrats Pvt. Ltd. v. U.O.I. [2013 (29) S.T.R. 9 (Del.)] | Cited in the opinion as supporting authority regarding payment before SCN and non-issuance of SCN/penalty. | Included by the Tribunal among the authorities relied upon to conclude that penalty was not sustainable in the present facts. |
| Amit Sales v. C.C.E. [2009 (13) S.T.R. 165 (Tri.-Del.)] | Cited as a precedent on the penalty/payment-before-SCN issue. | Considered by the Tribunal as part of the body of decisions supporting the Respondent's position on penalty. |
| Jindal Saw Ltd. (IPU) v. C.C.E. [2013 (30) S.T.R. 490 (Tri.-Ahmedabad)] | Cited among authorities on non-imposition of penalty where tax paid before SCN. | Referred to in the opinion as one of the supportive authorities; the Tribunal regarded the combined weight of these authorities in reaching its decision on penalty. |
| C.S.T., Bangalore v. Motor World [2012 (27) S.T.R. 225 (Kar.)] | Cited among earlier decisions relevant to Section 73(3) and related penalty questions. | Listed as part of the jurisprudence relied upon; the Tribunal took it into account in concluding penalty could not be sustained. |
| Hindustan Petroleum Corporation Ltd. v. C.C.E., Mumbai-II [2012 (25) S.T.R. 161 (Tri.-Mumbai)] | Cited in the opinion as one of the authorities on the issue of penalty and SCN issuance. | Included among the precedents considered by the Tribunal in reaching the conclusion that penalty should be deleted where tax and interest were paid before SCN. |
| C.C.E. & S.T., LTU, Bangalore v. Adeco Flexione Workforce Solutions Ltd. [2012 (26) S.T.R. 3 (Kar.)] | Cited as part of the body of authorities on payment prior to SCN and the consequences for penalty. | Recorded by the Tribunal as one of several supportive decisions informing its conclusion that imposition of penalty was erroneous in the present case. |
| Reliance Industries Ltd. v. Commissioner of Customs, Rajkot [2013 (287) E.L.T. 433 (Tri.-Ahmedabad)] | Cited among authorities in support of the position on SCN/penalty where tax-related amounts were paid prior to SCN. | Referenced by the Tribunal as one of the decisions relied upon by the Respondent and considered in the Tribunal's assessment of penalty. |
Court's Reasoning and Analysis
The Tribunal considered two principal aspects: (A) the departmental appeal against deletion of the Rule 6 demand relating to restaurant services; and (B) the departmental appeal against imposition of penalty where service tax and interest had been paid by the Respondent during audit prior to issuance of SCN.
A. Reversal under Rule 6 of the CCR, 2004 (Restaurant Services)
The Tribunal observed that the issue of reversal under Rule 6(3) of the CCR, 2004 in relation to services specified in Notification 26/2012-Service Tax (restaurant services) was addressed by the Board in CBIC Circular No.213/3/2019-Service Tax dated July 05, 2019, which clarified that there is no requirement of reversal under Rule 6 for provision of restaurant services. The Tribunal concluded that, in view of the Board's clarification, the issue is no longer res-integra. On this basis the Tribunal found that the Revenue's appeal against the deletion of the Rule 6 demand was liable to be dismissed, and the Tribunal ordered accordingly.
B. Imposition of Penalty where Tax/Interest were Paid before SCN
The Tribunal next examined whether penalty was correctly imposed by the lower authorities on the amounts of service tax already paid by the Respondent during the audit before issuance of SCN. The Tribunal recited Section 73(3) of the Finance Act, 1994, noting that it provides that if any service tax has been paid (either on assessee's own ascertainment or on the basis of officer's ascertainment) and the officer is informed of such payment in writing, the officer shall not serve any notice under subsection (1) in respect of the amount so paid.
The Tribunal found that in the present case the Department had "mechanically issued" an SCN alleging suppression of facts without providing reasons for such an allegation. The Tribunal relied on the line of authorities (including M/s FAIRFEST MEDIA LTD and Bhoruka Aluminium Limited) establishing the principle that where service tax along with interest has been paid prior to issuance of an SCN, issuance of an SCN and imposition of penalty under Section 78 is not sustainable except where suppression or willful mis-statement is established with supporting material.
The Tribunal noted that the Department had not placed material on record to substantiate suppression or concealment with intent to evade tax. It found that the facts of the present case were squarely covered by the cited decisions. Consequently, the Tribunal concluded that both lower authorities had erred in confirming the penalty, and that the penalty should be deleted.
Holding and Implications
Holding: The Tribunal's operative conclusion was as follows:
DISMISSED (the departmental appeal is dismissed in entirety).
The Tribunal specifically held that:
- The Revenue's appeal against the dropping of the demand under Rule 6 of the CCR, 2004 in relation to restaurant services is dismissed (the Rule 6 demand remains deleted), relying on CBIC Circular No.213/3/2019-Service Tax which clarifies that reversal under Rule 6 is not required for restaurant services.
- The Revenue's appeal against imposition of penalty is dismissed; the Tribunal deleted the penalty that had been confirmed by the Commissioner (Appeals), finding that the tax and interest had been paid before issuance of SCN and that the Department had not produced material to prove suppression or willful mis-statement.
- The first appellate authority's order is modified to the extent of deleting the imposition of penalty; the cross-objection filed by the Respondent is disposed of in accordance with these directions.
Implications: The direct effects of the decision are (a) the Rule 6 demand (Rs.65,82,774/-) remains dropped for the Respondent in respect of restaurant services as per the Board's circular and the Tribunal's order; and (b) the penalty confirmed earlier has been deleted following the Tribunal's application of Section 73(3) and the cited precedents. The Tribunal recorded that the issue of reversal under Rule 6 is no longer res-integra in view of the CBIC Circular. The opinion does not purport to lay down a new principle of law beyond applying the Board circular and the previously decided authorities to the facts of this case.
(Operative part of the order was pronounced in open Court. Members: P.K. Choudhary, Judicial Member; Raju, Technical Member.)
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL,
EAST REGIONAL BENCH : KOLKATA
Service Tax Appeal No.75077 of 2019 & Cross Objection No.75726 of 2019
(Arising out of Order-in-Appeal No.488/ST-II/2018 dated 26.07.2018 passed by Commissioner (Appeals) of CGST & Excise, Kolkata)
Commissioner of CGST & Excise, Kolkata North
180,Shantipally, Rajdanga Main Road, Kolkata-700107
Appellant
VERSUS
M/s Asian Hotel (East) Limited
Hyatt Regency Kolkata, Plot-JA-I,Sector III, Salt Lake City, Kolkata-700098
Respondent
Appearance:
Shri J.Chattopadhyay, Authorized Representative for the Appellant Shri Ankit Kanodia, Advocate for the Respondent
CORAM:
HON'BLE SHRI P. K. CHOUDHARY, JUDICIAL MEMBER HON'BLE SHRI RAJU, TECHNICAL MEMBER
FINAL ORDER NO.75799/2021
DATE OF E-HEARING : 27.08.2021
DATE OF DECISION : 27.08.2021
Per P.K.Choudhary :
The demand was confirmed by the lower authority as proposed in the SCN. The Respondent filed an appeal before the first appellate authority who allowed the appeal of the Respondent to the extent of dropping the demand of Rs.65,82,774/- under Rule 6 of the CCR, 2004 and confirmed the demand of Rs.10,61,419/- along with interest and penalty with an option to pay reduced penalty @ 25% as laid down in proviso to Section 78 of the Finance Act, 1994.
2. The Revenue is in appeal against the above order of the first appellate authority to the extent of dropping of demand under Rule 6 of the CCR, 2004. The Revenue is also in appeal against the option of reduced penalty of 25% given by the Ld.Commissioner (Appeals). The Respondent has filed cross objection only for the penalty confirmed by the first appellate authority though Service Tax and interest have already been paid by the Respondent during service tax audit and they are not disputing it any more.
1
3. The Ld. Advocate appearing on behalf of the Respondent states that the departmental appeal to the extent of dropping of demand of Rs.65,82,774/- has become infructuous as the CBIC (vide CIRCULAR NO.213/3/2019-Service Tax, dated: July 05, 2019) has clarified that there is no requirement of reversal in case of Restaurant Services as below:
"Subject: Provisions in the Cenvat Credit Rules 2004 regarding reversal of credit-
I am directed to draw your attention to the legal provisions regarding reversal of Cenvat credit in the case of services and to analyse some issues which have arisen in this context.
2.0 Issue: Is reversal under rule 6(3) of the Cenvat Credit Rules 2004 additionally required for all the services specified in notification 26/2012-Service Tax dated 20- 6- 2012."
He further relies on the judgment of the M/s POPULAR CATERERS Vs COMMISSIONER OF CGST, MUMBAI WEST 2019-TIOL-1417-CESTAT- MUM whereby in similar circumstances, the demand under Rule 6 of CCR, 2004 has been quashed.
Further as regards imposition of penalty on amounts already paid by the Respondent during the spot memo stage before issuance of SCN, the Ld. Advocate states that it is a settled principle that in case of payment before issuance of SCN, the SCN should not be issued in terms of Section 73 of the Finance Act, 1994. He relied upon the following decisions in support of his submissions :
(a) M/s FAIRFEST MEDIA LTD vs. CGST AND EXCISE KOLKATA SOUTH, 2020-TIOL-1113-CESTAT-KOL
(b) DLF PROJECT LIMITED Versus C.C.E. & S.T., GURGAON-I
2 02 0 (38) G.S.T.L. 56 (Tri. - Chan.) (c) ARCGATE Versus COMMISSIONER OF C. EX., JAIPUR-II (2017 (5) G.S.T.L. 281 (Tri. - Del.) (d) Santhi Casting Works v. CCE [2009 (15) STR 2019 (Tri - Chennai)]
(e) Commissioner of CGST, Howrah Vs. M/s. Kolkata West International City Pvt. Ltd. In FO No. 75640/2018
(f) Bhoruka Aluminium Limited versus Commissioner of C. Ex. &ST. ,Mysore 2017 (51) STR.418 (TRI. - Bang.)
(g) Sen brothers Versus Commissioner of Central Excise, Bolpur 2014 (33) STR 704 (Tri. - Kolkata)
4. The ld.D.R. appearing on behalf of the Revenue, reiterates the grounds of appeal and agrees to the submission made by the Ld. Advocate as regards demand under Rule 6 of the CCR, 2004 is concerned.
5. Heard both sides through video conferencing and perused the appeal records.
6. As regards the departmental appeal on the issue of reversal of Rule 6 of CCR, 2004 on the abated value of Restaurant Services by taking the same as exempted services and applying 6% on the value of exempted services so determined to raise the demand of recovery of common Cenvat credit, we find that the issue is no more res-integra in view of CBIC's CIRCULAR NO 213/3/2019-Service Tax, dated July 05, 2019 (supra) wherein it has been clarified by the board that there is no requirement of reversal under Rule 6 of the CCR, 2004 for provision of restaurant services. Thus, the Revenue's appeal to that extent is liable to be dismissed and we order to do so.
7. Next, as regards imposition of penalty on the amounts of Service Tax already paid by the Respondent during the course of audit before issuance of SCN, we find that both the lower authorities have erred in confirming the penalty as it is a settled principle that when tax is paid along with interest before issuance of SCN (other than cases of suppression or willful mis-statement), the Department cannot issue SCN in terms of section 73(3) of the Finance Act, 1994 which states as-
"(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax
refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the [Central Excise Officer] of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid…….."
In the instant case of the Respondent, the Department has mechanically issued SCN alleging suppression of facts without according any reasons for such allegation. We find that the Tribunal in the case of M/s FAIRFEST MEDIA LTD vs. CGST AND EXCISE KOLKATA SOUTH, 2020-TIOL-1113-CESTAT-KOL, held as-
"5. I find that the present issue involved in this appeal is no more res-integra in view of the decision of the Tribunal in the case of Bhoruka Aluminium Limited Vs. CCEx. & S.Tax, Mysore reported in 2017 (51) STR 418 (Tri.Bangalore) = 2016-TIOL- 3060-CESTAT-BANG. The relevant paras of the said decision are reproduced below :
"4. The learned counsel for the appellant submitted that imposition of penalty under Section 78 of the Finance Act is contravention to the provisions of Section 73(3) of the Finance Act, 1994. He further submitted that service tax along with interest has already been paid by the appellant before issuance of show cause notice. He also submitted that Section 73(3) of the Finance Act, in unambiguous terms states that when an assessee has paid service tax either on his own or on the basis of the officer's ascertainment and informs the officer of such payment, then the said Section does not give any power to such officer to issue a show cause notice in respect of the tax so paid and such issuance of show cause
notice is sans force of law and accordingly, not sustainable and tenable. The learned counsel relied upon the decision of this Tribunal in the case of South India Paper Mills Ltd. v. C.C.E. & S.T. reported in - 2016-TIOL-2294-CESTAT- BANG wherein in the similar circumstances, the penalty under Section 78 of the Finance Act was dropped in toto. He also relied upon the following case laws :
(i) Intercontinental Consultants & Technocrats Pvt. Ltd. v. U.O.I. [2013 (29) S.T.R. 9 (Del.)] = 2012-TIOL-966-HC-DEL-ST
(ii) Amit Sales v. C.C.E. [2009 (13) S.T.R. 165 (Tri.-Del.)] = 2008-TIOL-1749-CESTAT-DEL
(iii) Jindal Saw Ltd. (IPU) v. C.C.E. [2013 (30) S.T.R. 490 (Tri.- Ahmd.)]
(iv) C.S.T., Bangalore v. Motor World [2012 (27) S.T.R. 225 (Kar.)] = 2012-TIOL-418-HC-KAR-ST
(v) Hindustan Petroleum Corporation Ltd. v. C.C.E., Mumbai-II [2012 (25) S.T.R. 161 (Tri.-Mumbai)]
(vi) C.C.E. & S.T., LTU, Bangalore v. Adeco Flexione Workforce Solutions Ltd. [2012 (26) S.T.R. 3 (Kar.)] = 2011-TIOL-635- HC-KAR-ST
(vii) Reliance Industries Ltd. v. Commissioner of Customs, Rajkot [2013 (287) E.L.T. 433 (Tri.-Ahmd.)].
6. On the other hand, the learned AR submitted that the appellant is guilty of suppression of facts as he failed to inform the Department regarding availment of irregular Cenvat credit and, therefore, the lower authority has rightly imposed the penalty under Section 78 of the Finance Act, 1994.
7. After considering the submissions by both the parties and perusal of the provisions of Sections 73, 76 and 78 of the Finance Act, 1994 and the judgments relied upon by the appellant cited supra, I find that Section 73(3) is very clear as
informed him that he is liable to pay service tax, then he immediately paid the entire service tax along with interest. Except mere allegation of suppression, the Department did not bring any material on record to prove that there was suppression and concealment of facts to evade payment of tax. Consequently, in my opinion, the imposition of penalty under Section 78 of the Act is not justified and bad in law. Moreover, in the impugned order, the learned Commissioner (Appeals) has not recorded any finding on suppression of facts by the appellant with an intention to evade tax. In view of the above discussion, I set aside the impugned order by allowing the appeal of the appellant."
6. I find that the facts of the present case are squarely covered by the aforesaid decision of the Tribunal.
7. In view of the above, the impugned orders are set aside and the appeal filed by the appellant is allowed with consequential benefit."
8. We find that the facts of the present case are squarely covered by the aforesaid decision of the Tribunal. Thus, the appeal of the Revenue to the extent of imposition of penalty on the Respondent is also dismissed.
9. In view of the above, the Departmental appeal is dismissed in entirety and the order of the first appellate authority is modified to the extent of deleting the imposition of penalty. Cross objection is also disposed of in terms with the above directions.
(Operative part of the order was pronounced in the open Court) Sd/
(P. K. Choudhary) Member (Judicial)
Sd/
(Raju)
mm Member (Technical)
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