can allegation at appellate stage go beyond the Show cause Notice?

Case:-M/s BANK OF BARODA Vs COMMISSIONER OF CENTRAL EXCISE, JAIPUR-I

Citation:- 2014-TIOL-560-CESTAT-DEL

Brief facts:-The appeal was preferred against the order of the Commissioner (Appeals), Central Excise, Jaipur-I dated 8.7.2011. This order was rejected the appellant's appeal preferred against an adjudication order dated 1.11.2010 passed by the Additional Commissioner, Central Excise Commissionerate, Jaipur-I. The appellate Commissioner confirmed the demand of service tax, interest and penalties assessed by the primary authority. Proceedings were initiated by a Show Cause Notice dated 23.10.2009 clearly attributing/alleging that the appellant, a housing finance Company and a subsidiary of the Bank of Baroda had provided business auxiliary service, a taxable service defined in Section 65(19] of the Finance Act 1994 (the Act]; had received consideration from its customers towards fee for permitting pre-closure of loans; had failed to disclose the consideration so received in its ST-3 returns; failed to remit the service tax due thereon; and thereby wilfully suppressed the relevant facts and with a view to evade remittance of tax. The extended period of limitation was invoked, proposing levy of service tax, interest and penalties, for the period September 2004 to March 2009. In The Show Cause Notice the clear and unambiguous allegation is of having provided business auxiliary service. No other service is alleged to have been provided. In The Show Cause Notice, it was stated that the appellant is registered with the National Housing Bank to carry on the business of Housing Finance; that the National Housing Bank is remitting service tax on pre-payment charges collected from the appellant; and that the appellant is availing Cenvat credit on the service tax component remitted by it to the National Housing Bank. Pursuant to the Show Cause Notice and after a due process, proceedings culminated in the adjudication order. It requires to be recorded that in response to the Show Cause Notice dated 23.10.2009, the appellant had contended that its activities do not fall within the ambit of business auxiliary service; and alternatively that they fall outside the ambit of banking and financial services (defined in Section 65(105)(zzm), as well. The discussions and findings are set out in the order. The primary authority, contrary to the pleadings of the appellant, concludes that right from the stage of filing an application for obtaining registration and replying to the audit objection which is the basis for Show Cause Notice, it had maintained that it was rendering business auxiliary service. This is a clearly erroneous reproduction of the appellant's response to the Show Cause Notice. In its reply dated 23.11.2009 (to the Show Cause Notice), the appellant had clearly contended that pre-closure charges collected by it from customers does not amount to the taxable business auxiliary service. Additionally the appellant had contended that the service would not fall within the ambit of Banking and other Financial Services either. In its response dated 8.5.2009 to Revenue's letter dated 1.4.2009, the appellant asserted that it had provided no taxable service and clearly not business auxiliary service or even Banking or other Financial Services to any other person and therefore was not liable to service tax. That the appellant had not provided Banking or other Financial Services and the fees charged by it was for pre-closure of loans which would not be a taxable service. This was a contention that was reiterated in the appellant's letter dated 18.8.2009 addressed to the Supdt. Service Tax, Range-II, Jaipur, as well. The primary authority however, confirmed the proposed levy of service tax, interest and penalty without any finding as to what taxable service the levy is confirmed for.

Aggrieved by the order, the appellant preferred an appeal which was disposed of by the appellate Commissioner on 8.7.2011. Discussions and findings of the appellate Commissioner are set out in the appellate order. The appellate authority records the consistent plea of the appellant, that it had not provided the taxable business auxiliary service. The Commissioner (Appeals) however held that the appellant was registered for providing business auxiliary service; that in the circumstances contesting the classification of the service (alleged by Revenue) at the adjudication stage is not proper; that the appellate authority is inclined to accept the findings of the adjudicating authority, that appellant's decision to obtain registration under a particular category of service must be treated as conclusive of the classification of the activity; that the appellate authority agrees with the findings of the primary authority that after the introduction of self assessment system under the Act, the responsibility of classification is on the assessee; and that whether it be business auxiliary service or Banking and other Financial Services, since both were in operation during the material time and the rate of service tax is also identical, the correct classification of the service was of no consequence. According to the appellate Commissioner there is therefore no error in the primary order, warranting appellate interference. On these generic premises, the appeal was rejected. From the material on record, it was clear that neither the primary nor the appellate authority chose to specify under what taxable service category the appellant was liable to remit service tax, interest and penalty, on the consideration received by way of fees from its customers for pre-closure of loans.

It was perhaps arguable that the service provided by the petitioner viz. the facility of preclosure of a loan may fall within the ambit of Banking and Financial Services as defined in Section 65(105)(zm] read with Section 65(12]. By the Finance Act, 2004 clause (viii) was introduced in Section 65(12) of the Act incorporating other financial services viz. lending etc.,also within the ambit of Banking and other Financial Services. As the consideration received by the appellant from its customers towards fee is for providing the facility of pre-closure of loans this activity may fall within the generic ambit of lending, as defined Banking and other Financial Services. The consideration received therefore may therefore constitute the consideration received for providing a taxable service.

Appellant’s contentions:- Counsel for the appellant however contended that the fee charged by the appellant for foreclosure of loans would not fall within the ambit of lending, since fee was charged not for lending/loan but for fore-closure of a loan.

Respondent’s contentions:-. The ld. DR contested that the National Housing Bank with which the appellant is associated collects pre-closure charges from the appellant along with the service tax component and the National Housing Bank remits service tax (for an unspecified taxable service) and the appellant avails Cenvat credit on the service tax component remitted to the National Housing Bank, together with the pre-closure fee charged by National Housing Bank. In the circumstances, the appellant must be presumed to be aware of its liability to service tax on the consideration/charges received by it from its customers, i.e. on pre-closure of loans.

Reasoning of judgment:-it was held by the commissioner that it were not required in this appeal to record a conclusion as to whether the transaction under issue falls within the ambit of lending and therefore within the scope of Banking and other Financial Services. This was so since neither the Show Cause Notice, the primary adjudication order nor even the appellate adjudication order had either alleged or recorded a conclusion that the services provided by the appellant/customer fall within the ambit of Banking and other Financial Services. At any rate, the Show Cause Notice clearly specified that the appellant had provided only business auxiliary service. There was not even a whisper of an allegation that alternatively the services provided by the appellant may be classifiable as Banking and other Financial Services. Since confirmation of the demand of service tax was unsustainable on the ground of classification itself the bench were not inclined to undertake a detailed analysis of the other contention of the appellant, that the proceedings are unsustainable for unwarranted invocation of the extended period of limitation.

Principles of law are too well established to warrant an idle parade of familiar authority, that a Show Cause Notice must set out succinct statement of the relevant facts and circumstances; a clear attribution of the charge and the appropriate provision of law under which the alleged liability of an assessee, is alleged to have arisen. These are fundamental attributes and non-derogable indicia of a valid Show Cause Notice. The law is also well settled that failure of natural justice at the primary level cannot be cured by affording due process at the appellate stage. Since the Show Cause Notice dated 23.10.2009 has clearly and unambiguously alleged the appellant provided only business auxiliary service, no conclusion could be recorded either at the primary or the appellate proceedings, that the transactions in issue are classifiable as Banking or other Financial Services. In fact neither the primary nor the appellate Commissioner have concluded that the appellant had provided the other classified service. In fact both the authorities have failed to record a finding as to the taxable service provided. The service provided by the appellant to its customers by way of facilitating fore-closure of loans clearly falls outside the ambit of business auxiliary service defined in Section 65(19] of the Act. The ld. DR does not contest this position. There is however a contention on behalf of Revenue which we have not comprehended but do record. The contention is that the National Housing Bank with which the appellant is associated collects pre-closure charges from the appellant along with the service tax component and the National Housing Bank remits service tax (for an unspecified taxable service) and the appellant avails Cenvat credit on the service tax component remitted to the National Housing Bank, together with the pre-closure fee charged by National Housing Bank. In the circumstances, the appellant must be presumed to be aware of its liability to service tax on the consideration/charges received by it from its customers, i.e. on pre-closure of loans. Since Revenue concedes the position that the transactions in issue do not amount to business auxiliary service and since there is no allegation of the appellant having provided any other taxable service, we fail to comprehend this contention and as to how the appellant's presumed knowledge of its tax liability on fore-closure charges received, would render it liable to service tax, for being provided Business Auxiliary Service, which is admittedly inapplicable.

Decision:- The appeal is allowed.

Comment:- the gist of this case is that that a Show Cause Notice must carry all the concise and relevant facts and circumstances; a clear attribution of the charge and the appropriate provision of law under which the alleged liability of an assessee, is alleged to have arisen. These are fundamental attributes and non-derogable indicia of a valid Show Cause Notice. The law is well settled that failure of natural justice at the primary level cannot be cured by affording due process at the appellate stage. As the allegations on assessee above was just for provision of service in the ambit of business auxiliary service therefore he cannot be made to pay at the appellate stage in other category of service. As service provided did not qualify for business auxiliary service, the appeal was allowed.

Prepared By:- Monika Tak

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PJ/Case law/2014-15/2224

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