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TMI Blog2014 (3) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... ,59,94,021/- for the period 2007-08 to 2011-12, under Section 68 read with proviso to Section 73(1) of the Act, read with Rule 6 of the Service Tax Rules, alone with applicable interest thereon under Section 75 of the Finance Act, 1994. The same has been registered as SA (E) 250/2013. Brief facts of the case as per SCN 2.1 The applicant, having registered office located at Plot No. 92, Road No. 16, MIDC, Marol, Andheri (E), Mumbai-400 093 are holders of Service Tax Registration No. AACCA0535FST001 and are engaged in providing global software solutions and SAP services; they have a skilled pool of employees comprising of IT engineers who provide development, study, analysis, design and programming, upgradation, enhancement and Implementation of Information Technology, software; they also provide the services of their staff to other outsourcing companies, for which they charge Service Tax under the taxable service "Manpower Recruitment Agency" and "Management Consultancy". 2.2 The officers of the Commissioner of Service Tax-I, conducted investigation during the month of August, 2012 and observed that the Service Tax leviability on Information Technology Software services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 :- (1) Undertaking Manpower supply services. (2) providing SAP implementation services. (3) providing software development services. (4) providing advice, consultancy and assistance on matters related to IT Software. (5) providing the right to use information technology software for commercial exploitation. 2.6 The officers recorded statement of Shri Anish R. Goenka, Managing Director of the applicant firm on 26-9-2012, under Section 14 of the Act, read with Section 83 of Chapter V of the Finance Act, 1994 wherein he deposed, inter alia : (i) that the applicant are engaged in providing global software solutions and SAP services. (ii) that their skilled employees comprising IT engineers provide development, study, analysis, design and programming, upgradation, enhancement and implementation of Information Technology Software. (iii) that they have provided export of software development services, wherein their skilled employees h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed for not furnishing the returns in the prescribed form with such late fee, as prescribed under the provisions of Section 70 of the act read with Rule 7C of the Service Tax Rules, 1994, as the applicant failed to file any returns from the period 2007-08 onwards. (vii) Penalty should not be imposed upon them under Section 77 of the act, for contravention of the provisions of the act and rules made there under. Disclosure of the applicant 3. The applicant in their settlement application have submitted that : (i) the Show Cause Notice demanded duty of Rs. 3,59,94,021/- which has been paid along with interest of Rs. 34,23,854/- and penalty of Rs. 30,000/- for late filing of [returns] paid vide Challan No. 00220, dated 8-10-12. (ii) the applicant's interest was not to evade duty, but it was due to financial crunch and wrong interpretation of definition of service. Moreover, the appellants have fully co-operated with the department during investigation and paid the Service Tax by not contesting the levy of tax. There is a reasonable ground for the failure on their part for non-payment of tax i.e. financial crunch an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to delays in payment is not correct, as it appears that such Service Tax, collected by them was used by them in their business activity instead of depositing in the Government Treasury on due dates. (b) During the course of the investigation, the contracts entered into by the applicant with M/s. TCS, M/s. Microsoft and M/s. Infosys were called for, wherein it was noticed that for the period April, 2007 to May, 2008, they had provided on sub-contract or on hire basis, their personnel/employees to these companies for the particular project. Such services rendered by the applicant fall within the ambit of Manpower Supply Agency and leviable to Service Tax. (c) The submission of the applicant that there was no willful mis-statement or suppression of facts on their part did not appear to be correct. In fact, they had not filed any ST-3 returns for the period from 2007-2008 onwards up to the issuance of Show Cause Notice with sole intention of suppressing the payment of Service Tax due to the Government. As such the provision to Sub-Section (3) of Section 73 of the Finance Act, 1944 are not applicable in their case and they are liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant whereas S/Shri S.R. Naik. Superintendent & N.K. Thakur, Inspector Commissioner of Service Tax-I, Mumbai appeared on behalf of Revenue. 6.2 The Ld. Consultant, Shri Rajan Mashelkar at the outset reiterated the contention of his settlement application. 6.3 On a query from the Bench as to whether they had filed the requisite ST-3 returns during the relevant period to which demand relates, the Ld. Consultant submitted that they had not filed the returns during the relevant period but had filed the returns together for the periods 2007-2008 to 2011-2012 on 9th October, 2012, and thereafter filed the present application in March, 2013. He was, therefore, of the view that since the returns had been eventually filed for the relevant period, though belatedly, there was no legal bar in their filing the instant application or the Bench in dealing with the same. However, the Ld. Consultant was given seven days time to file written submissions on this legal point. 6.4 The Ld. Consultant further submitted that prior to 16th May, 2008 they were registered with S. Tax and paying the S. Tax on their service of "Repairs and Maintenance Services" given to their customers. The I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1), clause (a) provides that no such application shall be made unless, the applicants has filed returns showing production, clearance and central excise duty paid in the prescribed manner. Since the provisions of the sections of settlement relating to Central Excise, have been made applicable to Service Tax, the aforesaid provisions have to be read with the relevant provisions of Service Tax. (ii) Applicants submit that though the aforesaid provision does place a specific bar from filing applications for settlement where no returns are filed, the issue of whether there will be due compliance with the requirement of filing returns where the filing of returns are only delayed but filed before the filing of the application for settlement, is to be considered. (iii) The aforesaid clause of sub-section 32(E)(1) mentions that the returns should be filed in the manner prescribed. Section 70 of the Finance Act, 1944, provides for filing of returns as under : "Section 70 : Furnishing of returns - (1) Every person liable to pay the Service Tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss amount of Service Tax payable is nil, the Central Excise Officer may, on being satisfied that there is sufficient reason for not filing the return, reduce or waive the penalty. Explanation : It is hereby declared that any pending proceedings under Section 77 for delayed submission or non-submission of return that has been initiated before the date on which the Finance Bill, 2007 receives the assent of the President, shall also be deemed to be concluded if the amount specified for delay in furnishing the return is paid by the assessee within sixty days from the date of assent to the said Finance Bill." Reading the provisions of the aforesaid rules and section harmoniously, it may be seen that in case of delayed filing of Service Tax returns, a late fee of a prescribed amount, subject to the ceiling mentioned in Section 70, is attracted. Therefore, on payment of the said late fees, the provisions of the rules for filing returns stand fully complied and therefore in such case, even though there is delay in filing returns, it will necessarily have to be construed that the returns have been filed in the manner prescribed and hence there is full compliance with the requirement of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19-11-2013. The Applicants submitted that they were going through a period of financial constraint and therefore requested the Settlement Commission to grant Applicant a week's time to make the balance payment towards interest. Further submissions of the revenue dated 19-11-2013 8. As per the direction of the Bench Revenue has filed a corrected copy of Annexure-A regarding calculation of interest for Rs. 44,32,744/- vide their letter F. No. V/ST/HQ/AE/F/260/09, dated 19-11-2013, which is reproduced below :- 2007-08 Payable Due date of payment Amount paid and date of payment Balance after deducting amount payable No. of days delayed Interest @ 13% April 93375 5-5-2007 244479 (7-10-2008) 151104 520 17294 May 87196 5-6-2007 (7-10-2008) 63908 489 15186 June 75795 5-7-2007 1100000 (10-12-2009) 1088113 888 23972 July 97119 5-8-2007 (10-12-2009) 990994 857 29644 August 97500 5-9-2007 (10-12-2009) 893494 826 28684 September 103189 5-10-2007 (10-12-2009) 790305 796 29255 October 98563 5-11-2007 (10-12-2009) 691742 765 26855 November 12580.3 5-12-2007 (10-12-2009) 565939 735 32932 December 107044 5-1-2008 (10-12- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest @ 18% April 483026 5-5-2011 (28-4-2011) 3858928 357 61417 May 443240 5-6-2011 (28-4-2011) 3415688 326 51464 June 509207 5-7-2011 (28-4-2011) 2906481 296 53683 July 532608 5-8-2011 (28-4-2011) 2373873 265 50269 August 536702 5-9-2011 (28-4-2011) 1837171 234 44730 September 303547 5-10-2011 (28-4-2011) 1533624 204 22055 October 584314 5-11-2011 (28-4-2011) 949310 173 36003 November 605787 5-12-2011 (28-4-2011) 343523 143 30854 December 632121 5-1-2012 2200000 (16-5-2012) 1911402 85 19137 632121 (16-5-2012) 411 128121 Jan. 638491 5-2-2012 (16-5-2012) 1272911 54 12280 638491 (16-5-2012) 411 129413 Feb. 646519 5-3-2012 (16-5-2012) 626392 26 5987 646519 (16-5-2012) 411 131040 Mar. 3339396 31-3-2012 11065732 (9-6-2012) 8352728 0 00 3339396 (9-6-2012) 524 862936 Total 387879 1251510 2011-12 Payable Due date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be payable by him and such other particulars as may be prescribed including the particulars of such excisable goods in respect of which he admits short levy on account of misclassification, under-valuation, inapplicability of exemption notification or Cenvat credit [or otherwise] and any such application shall be disposed of in the manner hereinafter provided : Provided that no such application shall be made unless, - (a) the applicant has filed returns showing production, clearance and Central Excise duty paid in the prescribed manner; (b) a show cause notice for recovery of duty issued by the Central Excise Officer has been received by the applicant; (c) the additional amount of duty accepted by the applicant in his application exceeds three lakh rupees; and (d) the applicant has paid the additional amount of excise duty accepted by him along with interest due under Section 11AB : ..............................." 10.3 In the instant case, as per the report dated 31-5-2013 of the revenue (refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner. Rule 7C is merely a mechanism of regularizing a situation where the prescribed procedure has not been followed. Rule 7C cannot be interpreted to mean that filing of late returns is the same thing as filing returns in the prescribed manner. Filing of late returns is an exception and not the rule. An exception cannot be considered as the rule. Not filing returns in time is a contravention of Rule 7. When returns are filed late there is a contravention of law and in such a situation it would be against all canons of justice and fair play to consider such returns as having been filed in the prescribed manner. 10.6 The applicants have also relied on the decisions of the Delhi High Court in the case of Icon Industries (supra) to contend that filing of late returns would not be hit by clause (a) of the first proviso of the Section 32E(1) of the Central Excise Act, 1944. A reading of the said judgement reveals that it nowhere brings out the conclusion or ratio sought to be presented by the applicant. Further the issue in the case of Icon Industries was whether "consolidated returns", i.e. filing common returns covering more than one period could be considered as "returns" as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rescribed manner in the return, the Bench observes that if the applicant is to file a consolidated return belatedly without ECC Number, and covering more than one month, such return cannot, naturally, contain the details of any duty paid in the prescribed manner, as no duty would have been paid at nil till then. Further, if the assesses is to file a consolidated return before filing an application or along with the application, there would be questions even on the details of production and clearances shown therein. If the applicant is to furnish the quantum, which is to be reflected in the application for settlement, there will be no additional duty liability disclosure in the said settlement application over and above that in the consolidated return. He cannot also show at the belated stage any ad hoc quantum of production and clearances merely to be able to show extra disclosure in the application form, as the said ad hoc disclosure would not be truthful at that stage. As a result, a consolidated return filed just before filing the application or along with the application by a person, not registered with Central Excise and not having ECC Code Number, cannot be considered as sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s. Rohit Bal Designers P. Ltd. v. Customs & Central Excise Settlement Commission (AIT-2007-133-HC) = Writ Petition No. 1297 of 2006 wherein the Settlement Commission rejected the Settlement application of M/s. Rohit Bal Designers on the ground that the Central Excise returns had not been filed during the relevant period. The matter was challenged before the Delhi High Court through a Writ petition and vide its order dated 22-1-2007 the Delhi High Court, exercising its writ jurisdiction, allowed the petitioner namely M/s. Rohit Bal Designers, to file the returns within a period of six weeks and it was directed that the Settlement Commission would then consider the application on merits. While issuing these directions the Delhi High Court relied on its earlier Writ Order dated 30th July, 2004 in Writ Petition No. 5091 of 2003 in the case of M/s. Bharat Industrial Work v. Customs & Central Excise Settlement Commission. These two orders of the Delhi High Court were cited in a similar situation before the Principal Bench of the Settlement Commission at New Delhi in the case of Italia Die Moulds reported in 2007 (216) E.L.T. 480 (Sett. Comm.). In this case the Settlement Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Emerson Electric Co. is reproduced below : "11. On a perusal of the Section 32E(1)(a), it is noticeable that certain riders have been added for entertaining applications for settlement. Clause (a) clearly lays down that unless the applicant has filed returns, showing production, clearance and Central Excise duty paid in the prescribed manner, no such application shall be entertained. Rule 12 of the Central Excise Rules, 2002 provides for filing of monthly return in the form specified by every assessee about their production and removal of goods and other relevant particulars, within ten days after the close of the month to which the return relates. In the case of small scale manufacturers, the return has to be filed quarterly. The concept of return has to be understood in that context and that is what exactly the Special Bench has stated. The submission of Mr. Jain that they had accepted all the allegations and had paid the entire duty liability in the spirit of settling the matter does not stand to reasons. This does not satisfy mandatory requirement of clause (a) to Section 32E(1) of the Act." 10.12 The applicant in the present case have attempted to draw a distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also serve the purpose of disclosing to the department the duty actually paid. But if the return is filed late, after a case of evasion has been detected by the department, filing of such return for the past period becomes meaningless as the assesse can always indicate the correct duty liability in the said returns including the duty evasion detected by the department and then, technically, there would be no case of any "... full and true disclosure of his duty liability which has not been disclosed before the Central Excise Officer", and the Settlement application would become infructuous. This is why the Courts have held that any return filed, for the previous period, after the detection of the evasion by the department, cannot be allowed and would be contrary to not only the letter but also the spirit of clause (a) of the first proviso to Section 32E(1) of the Central Excise Act, 1944. In the present case the applicant had been collecting, in most part, the Service Tax from their clients but were illegally retaining the same with them and using it as their working capital, and remitting the same to the Govt. very late. They deliberately did not file any returns during this peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d return on payment of prescribed fee and when requirements of Rule 7C are complied with the assessee is free of penal proceedings under the Finance Act, for non-filing of return. The issue is whether filing the prescribed return late with the prescribed fee in terms of Rules 7C will make an applicant eligible for settlement in terms Section 32E(1)(a) of the Central Excise Act, as far as Service Tax cases are concerned. 13. Section 32E(1)(a) stipulates that to be eligible for settlement, the applicant should have filed returns showing production, clearance and Central Excise Duty paid in the prescribed manner. This provision has been made applicable to Service Tax for settlement Service Tax Cases. Section 70 of the Finance Act, 1994, deals with furnishing of Returns in Service Tax. Section 70, furnishing returns (1) Every person liable to pay the Service Tax shall himself assess the tax due on the services provided by him and shall furnish to the superintendent of Central Excise, a return in such form and in such manner and at such frequency, and with such, late fee not exceeding (Twenty Thousand Rupees) for delayed furnishing of return, as may be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Rule 7C. No time limit has also been prescribed for filing returns late in terms of Rule 7C. 17. Even in Service Tax cases, the other required conditions for approaching the Settlement Commission, for settlement, on merits in terms of Section 32E(1)(a) are issue of SCN in the case and payment of the accepted duty along with interest. In such a scenario even if returns are filed belatedly i.e. even after issue of SCN, it is not in conflict with the charges in the SCN so long as the belated filing of returns are permitted under law. When it is filed before approaching the Commission, it will serve only the purpose of satisfying the requirement of 32E(1)(a) for eligibility for settlement of the case by the Commission. In the instant case SCN has been issued for nonpayment of tax for a particular period and also non-filing of returns. Rule 7C permitted them to regularize the lapse of not filing returns with late fee after paying the taxes due. While the delayed correct return will not save them from the charges against them in the SCN, it should satisfy requirement of 32E(1)(a) to become eligible for settlement. When all the other conditions of 32E are complied with and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Rules cannot be said to have contravened the provisions of the Act, or Rules regarding filing of returns in Service Tax. An assessee who has evaded taxes for which a SCN has been issued to him may wish to came forward to accept the charges against him and make honest disclosures to seek settlement of the case. He may also file Returns in the prescribed manner belatedly since, It is a qualifying condition for settlement of Service Tax cases. The process of settlement itself is on account of honest disclosures by the applicant, payment of duty evaded along with interest, and the co-operation rendered to the due process of settlement. Reading Section 70 of the Finance Act, and Rule 7C of the Service Tax Rules harmoniously, it should be in the interest of justice to allow late returns filed before filing settlement application for eligibility under Section 32E(1)(a) so that the honest intention and effort of an applicant to settle his case in the spirit of settlement not frustrated at the threshold on one of the qualifying conditions, especially when the offence is for the first time and all other conditions required to settlement under Section 32(E)(1) are satisfied. In conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X
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