The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has quashed multiple service tax demands raised against Indian Bank, holding that the Revenue was not justified in invoking the extended period of limitation in the absence of any suppression of facts or intent to evade tax.
The Bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that once the demands themselves failed on limitation, there was no need to examine the merits of the remaining issues relating to turnover commission, arrangement fees, handling charges, BSNL credits, or Rule 6(3A) reversals.
The dispute arose from a series of show cause notices issued to Indian Bank alleging short payment and non-payment of service tax, improper availment of CENVAT credit, and short reversal of credit for various financial years. The adjudicating authority had confirmed demands running into several crores of rupees along with interest and penalties.
Among the key allegations were: non-payment of service tax on foreign exchange income earned through inter-bank transactions; short payment of service tax on turnover commission; non-payment of service tax on arrangement fees; short payment of tax due to non-inclusion of TDS in imported services; short reversal of CENVAT credit under Rule 6(3A); wrong availment of CENVAT credit on handling services; and excess availment of credit relating to BSNL services.
The total demand under one of the major show cause notices alone exceeded ₹27.82 crore, while another involved demands exceeding ₹9.09 crore.
The Tribunal identified the following issues for consideration: Whether the extended period of limitation was correctly invoked; alleged short payment of service tax on turnover commission; service tax liability on arrangement charges and fees; eligibility of CENVAT credit on handling charges; and denial of proportionate credit on BSNL invoices.
Indian Bank contended that all transactions were duly recorded in its statutory books and were available for departmental scrutiny during audits. Being a public sector bank operating under continuous supervision of the Government and the Reserve Bank of India (RBI), it argued that there was no concealment or suppression of facts.
The bank further submitted that several issues involved interpretation of law and therefore could not justify invocation of the extended limitation period under Section 73 of the Finance Act, 1994.
On the issue of turnover commission, Indian Bank argued that the commission received from RBI for undertaking government business as RBI’s agent was exempt from service tax under Notification No. 22/2006-ST. The bank also relied upon the Supreme Court’s judgment in CST Bangalore v. Canara Bank.
Regarding arrangement charges, the bank maintained that the amounts represented interest intended to compensate for the negative spread in export credit transactions and therefore fell outside the taxable value of services.
The Tribunal accepted the bank’s contention on limitation and observed that Indian Bank is a PSU and scheduled bank functioning under continuous governmental and RBI supervision. It noted that all relevant transactions had been duly reflected in statutory records and there was no allegation of fraud, misrepresentation, or deliberate concealment.
The Bench held that the issues involved interpretation of law and that mere omission or a different understanding of taxability could not be equated with suppression of facts intended to evade tax.
Relying on several Supreme Court precedents, including Cosmic Dye Chemical, Padmini Products, and Chemphar Drugs & Liniments, the Tribunal concluded that the essential ingredients necessary for invoking the extended limitation period were absent.
The Tribunal held that the entire service tax demand could not survive because the demands had been raised solely by relying upon the larger limitation period. Consequently, the impugned order was set aside.
The department had separately challenged the adjudicating authority’s findings regarding non-reversal of CENVAT credit under Rule 6(3A) by treating interest income as exempt services. However, in view of its findings on limitation, the Tribunal dismissed all departmental appeals as well. The cross-objections filed by Indian Bank were also disposed of.
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