Demand issued on basis of circular subsequently quashed by the High Court.

PJ/CASE LAW/2015-16/2926

Case:-COMMISSIONER OF SERVICE TAX, DELHI VERSUS ABN AMRO BANK

Citation:-2015 (40) S.T.R. 187 (Tri. - Del.)

Brief Facts:-Appeal No. 201/2008 is by the Department against the order of the Commissioner No. 66/VKG/CST/2007, dated 2-1-2008. Cross-objection No. 244/2008 is connected to this appeal basically supporting the order of the Commissioner. The respondent is engaged in the mobilising, selling, recommending mutual fund units of various mutual fund houses and also in selling, mobilising recommending investments in bonds issued by banking and non-banking companies. These activities were clarified to be falling under the category of ‘Business Auxiliary Services by Board’s Circular No. 66/15/2003-S.T., dated 5-11-2003. Relying on the same, Show Cause Notice was issued to the respondent proposing demand of Service Tax and proposing imposition of penalties. Commissioner dropped the proceedings relying on the decision of the Hon’ble High Court of Andhra Pradesh in the case of KARVY SECURITIES LTD. V. UNION OF INDIA reported in 2006 (2) S.T.R. 481 by which the circular dated 5-11-2003 was set aside.

Appellants Contention:-Ld. SDR, drawing our attention in the grounds of appeal submits that the said decision of the Hon’ble High Court stands appealed against before the Hon’ble Supreme Court. Fairly, he concedes that he is not aware that any order has been passed by Hon’ble Supreme Court setting aside the judgment or any stay has been granted.

Respondents Contention:- Ld. Advocate submits that though appeal has been admitted no order has been passed by the Hon’ble Supreme Court so far. Ld. Advocate for the respondent also relies on the decision in the case of COMMISSIONER OF S.T. DELHI V. P.N. VIJAY FINANCIAL SERVICES PVT. LTD. reported in 2008 (12) S.T.R. 628 (Tri.-Del.) holding similar view.

Reasoning of Judgment:-The tribunal find that the Commissioner has dropped the proceedings on the ground that the Circular dated 5-11-2003 of the Board which was the basis for issue of Show Cause Notice stands set aside by the Hon’ble High Court of Andhra Pradesh. The said judgment of the Hon’ble High Court has not been set aside or stayed. Under these circumstances, they do not find any infirmity in the order of the Commissioner. Appeal by the department is, therefore, rejected. Cross-objection is also disposed of.

Decision:- Appeal dismissed.

Comment:-The crux of the case is that the demand solely raised on the basis of circular which was declared as invalid by the High Court is not at all tenable. The judgment of Andhra Pradesh High Court in case of Karvy Securities Ltd. held that the Circular No. 66/15/2003-S.T. dt 5-11-2003 which clarified that the selling, mobilising or recommending investments in bonds issued by banking and non-banking companies is classifiable under the category of ‘Business Auxiliary Services’ was invalid and not tenable. Consequently, when the circular on the basis of which demand was raised was quashed by the High Court, the question of confirmation of service tax demand along with interest and penalties does not arise.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2015-16/2926

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