Air France Vs Commissioner of Service Tax (CESTAT Delhi)
CESTAT Delhi held that the collection of excess baggage charges would be leviable to service tax under the category of transport of passengers by air and not under transportation of cargo by air.
Facts- The appellant is a foreign airline operating in India as a branch office approved by the Reserve Bank of India. The appellant provides services under the category of “transport of passengers by air” made taxable u/s. 65(105)(zzzo) of the Finance Act,1994 w.e.f. 01.05.2006 and services of “transport of goods by aircraft” made taxable u/s. 65(105)(zzn) of the Finance Act, apart from other services.
In the process of rendering the service, the appellant also collects excess baggage charges when the weight of the baggage of the passenger is in excess of the permissible weight. The dispute that arises in the present appeal is with respect to the levy of service tax on such excess baggage charges collected by the appellant from the passengers.
Conclusion- Held that the collection of amount by the appellant towards excess baggage charges would be leviable to service tax under the category of transport of passengers by air and not under transportation of cargo by air.
Held that since the issue of classification of the service on the basis of various judicial pronouncement was debatable, the extended period of limitation could not have been invoked.
FULL TEXT OF THE CESTAT DELHI ORDER
This appeal has been filed by Air France1 to assail the order dated 26.07.2016 passed by the Principal Commissioner of Service Tax, Delhi2, by which the demand of service tax has been confirmed with interest and penalty.
2. The appellant is a foreign airline operating in India as a branch office approved by the Reserve Bank of India. The appellant provides services under the category of „transport of passengers by air‟ made taxable under section 65(105)(zzzo) of the Finance Act, 19943 w.e.f. 01.05.2006 and services of „transport of goods by aircraft‟ made taxable under section 65(105)(zzn) of the Finance Act, apart from other services.
3. In the process of rendering the service, the appellant also collects excess baggage charges when the weight of the baggage of the passenger is in excess of the permissible weight. The dispute that arises in the present appeal is with respect to the levy of service tax on such excess baggage charges collected by the appellant from the passengers.
4. The impugned order dated 26.07.2016 adjudicates two show cause notices dated 18.09.2012 and 06.05.2014. The show cause notice dated 18.09.2012 mentions that the appellant had collected excess baggage charges during the period 2007-08 to 2011-12 on which service tax amounting to Rs. 1,64,25,588/- was leviable but it was not paid. The service that was alleged to have been rendered by the appellant was mentioned as transport of passengers embarking in India for International journey by air service, made taxable under section 65(105)(zzzo) of the Finance Act. The show cause notice dated 06.05.2014 mentions that for the period 2012-13, the appellant would be required to pay service tax amounting to Rs. 23,12,067/-for the reasons stated in the earlier show cause notice dated 18.09.2012.
5. The appellant filed a reply to both the show cause notices. In response to the show cause notice dated 18.09.2012 the appellant pointed out that since the amount towards excess baggage charges is not paid by the passenger at the time of booking of the ticket and such amount is paid when the baggage is found to be in excess of the permissible weight, this service would have to be classified as transport of goods by air and not as transport of passengers by air. The appellant also pointed out that till 30.06.2010 only classes other than economy class were leviable to service tax and thereafter service tax was leviable on a fixed value on economy class. It was also pointed out that the appellant had not maintained records showing bifurcation of class for excess baggage charges and only an estimate could be worked out taking into consideration the fact that not all the business class travellers pay excess baggage charges. According to the appellant, the month wise figures for excess baggage charges collected for the period April 2007 to March 2012 is as under:
Year |
No. of pax. Travelled in Buss. Class |
No. of pax. travelled in Economy Class |
Totalpassenger travelled |
% Business class to total passenger |
Excess Baggage Chargers (in INR) |
Assuming 10% opts for Excess baggage |
Taxable Value (in INR) |
Cum duty benefit |
Rate of ST applicable |
ST payable (in INR) |
2007-08 |
4,394 |
20,640 |
25,034 |
17.55% |
1,64,14,253 |
1.76% |
2,88,105 |
2,56,413 |
12.36% |
31,693 |
2008-09 |
4,154 |
20,837 |
24,991 |
16.62% |
1,71,27,387 |
1.66% |
2,84,691 |
2,53,374 |
12.36% |
31,317 |
2009-10 |
3,251 |
16,445 |
19,696 |
16.51% |
4,70,72,011 |
1.65% |
7,76,965 |
6,91,496 |
10.30% |
71,224 |
2010-11 |
3,181 |
16,717 |
19,898 |
15.99% |
3,17,14,076 |
1.60% |
5,06,998 |
4,51,226 |
10.30% |
46,476 |
2011-12 |
4,625 |
16,807 |
21,432 |
21.58% |
4,07,99,156 |
2.16% |
8,80,441 |
7,83,589 |
10.30% |
80,710 |
Total |
19,605 |
91,446 |
1,11,051 |
15,31,26,883 |
27,37,201 |
24,36,099 |
2,61,420 |
6. The month wise figures for excess baggage charges collected for the period April 2012 to March 2013 was also mentioned by the appellant and is as follows:
Period | EBT | ST applicable @ 4.944% | Total ST paid |
Short deposited |
April 2012 | 25,38,665 | 1,25,215 | – | (1,25,512) |
May 2012 | 22,71,437 | 1,12,300 | – | (1,12,300) |
Jun 2012 | 18,70,595 | 92,482 | – | (92,482) |
July 2012 | 6,78,265 | 33,533 | 33,534 | 1 |
August 2012 | 35,78,456 | 1,76,919 | 1,76,910 | (9) |
September
2012 |
31,12,561 | 1,53,885 | 1,53,878 | (7) |
October 2012 | 16,16,692 | 79,929 | 79,932 | 3 |
November
2012 |
16,83,964 | 83,255 | 83,256 | 1 |
December
2012 |
25,50,449 | 1,26,094 | 1,26,090 | (4) |
January 2013 | 29,90,914 | 1,47,871 | 1,47,873 | 2 |
February 2013 | 20,64,130 | 1,02,044 | 1,02,051 | 7 |
March 2013 | 17,66,661 | 87,340 | 87,346 | 6 |
Total | 2,67,22,789 | 13,21,164 | 9,90,870 | (3,30,294) |
7. The adjudicating authority noticed that what had to be determined was whether the service provided by the appellant would fall under „transport of passenger by air service‟ or „transport of goods by air service‟ and after consideration of the factual position and the legal position observed that the service would fall under transport of passengers by air. The observations are as follows:-
“6.11.1 ***** All these explanations suggest that the additional charges collected by the noticee on account of excess baggage are not included in the airfare initially collected by the noticee, but are above the airfare collected by them. In view of the discussions, I do not agree with the contention of the noticee that the collection of charges on account of excess baggage are classifiable under “Transport of goods by Air” but are duly classifiable under „Transport of Passengers by Air‟ under Section 65(105)(zzzo) of the Finance Act, 1994 embarking for international travel.
*****
6.13 Since the noticee himself admitted that excess baggage charges must be classified under transport of passenger by air in post negative regime, the claim of the noticee that prior to 0107-2012, the same must be classified as Transport of goods by air. xxxxxxxx. The excess baggage charges were always collected by the noticee in relation to transport of passenger by air prior to 01.07.2012 also and there was no change in the nature of service provided by the noticee, thereafter, as well. The said fact having been admitted by the noticee, I hold that the excess baggage charges are appropriately classifiable under the category of transport of passenger by air service before and after 01-07-2012, as discussed supra.”
(emphasis supplied)
8. The benefit of the Notification No. 26/2010-ST dated 22.06.2010 which exempted the services referred to in section 65(105)(zzzo) of the Finance Act in excess of 10% of the gross value of the ticket or Rs. 500/- per journey, whichever is less, for passengers embarking in India for an International journey in economy class was rejected for the following reasons:-
6.14 ***** As can be seen from the notification itself, the exemption is applicable only to the gross value of ticket for passengers embarking in India for an international journey in economy class. Therefore it is seen that the benefit of the said notification is applicable to the charges leviable for transport of passenger by economy class and is not applicable to any other charges collected by the Airlines. The excess baggage charges collected by the noticee therefore cannot be attributed to the charges collected towards transport of passengers by economy class, as these charges are collected only at the time of check-up by the passengers and are never ever part of the gross amount charged by the airlines for travel of such passenger by economy class. ***** Accordingly, I observe that the noticee is not entitled to the benefit of abatement under the said notification and conclude that they are liable to pay service tax on the excess baggage charges collected from all class of the passengers at the rate prescribed under Section 66 of the Finance Act, 1994 for the period prior to 01.07.2012 and at the rate prescribed under Section 66B of the Act w.e.f. 01.07.2012.”
(emphasis supplied)
9. The Principal Commissioner also rejected the contention of the appellant that excess baggage charges collected from business class passengers were only leviable to service tax. The Principal Commissioner, therefore, held that the bifurcation chart of the appellant showing excess baggage charges attributable to the total number of economy and business class passengers would have no relevance.
10. The contention of the appellant that in any view of the matter the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act could not have been invoked was also rejected. The Principal Commissioner, after noticing that mere suppression of facts was not sufficient unless there was intent to evade payment of service tax, recorded the following findings:-
“8.3 I find that the extended time period of five years is invokable under the provisions contained in proviso to Section 73(1) of the Finance Act, 1994 as amended in specified cases. I find that the noticee did not disclose that true nature of the services provided by them and did not pay service tax on the excess baggage charges collected by them. However, without any prejudice to the following, even it is admitted that they failed to submit all the facts a mere failure or omission on their part to disclose some information to the Department will not amount to suppression of facts attracting the extended period of limitation. There must be a deliberate attempt on their part to suppress the facts from the Department with an intention to evade payment of service tax.
8.4 I also find that with effect from 16.07.2001, due to the changes brought in the Finance Act, 2001, self-assessment of the service tax payable under the provision of Section 70 of the Act was introduced, wherein the Superintendent of Central Excise is empowered only to verify the correctness of the Returns under the provisions of the Section 71 of the Act. Under self-assessment procedure, the party is required to assess on its own the tax due on the services provided by him and furnish the details in the form of a return under the provisions of the Section 70 of the Act. Thus, the onus is on the party that a correct Return be filed within the stipulated time which onus the party has filed to discharge. Accordingly I am of the view that the party has willfully and deliberately suppressed the facts regarding taxable value from the Department so as to avoid their liability towards payment of due amount of service tax and accordingly the extended period is liable to be invoked in this case.”
(emphasis supplied)
11. However, in the subsequent paragraphs the Principal Commissioner went on to observe that the extended period of limitation could be invoked even if there is no intent to evade payment of service tax and the observations are as follows:
“8.7 I am of the view that it is possible to invoke extended period in the case of Service Tax even in situation where there is no intent to evade payment of tax. Even if it is presumed that the noticee has not contravened any provisions with intent to evade payment of Service Tax, yet the noticee has filed to comply with the obligations cast upon it by the Legislature. There is no requirement that there should be suppression with intention to evade. Mere suppression is adequate for the purpose of the recovery of tax for the extended period as well as for imposing penalty. In any case, the noticee, in this case, has willfully contravened the provisions of the Service Tax Rules, 1994.
*****
8.9 All these facts narrated above go to show that the noticee suppressed the facts, by noncompliance of the obligations cast upon them by the statutory provisions. The suppression of the facts clearly gives the conclusion that the party had intention to evade the tax. It was imperative to mention here that suppression with intent to evade payment of tax need not require to be proved with mathematical precision in the regime of self-assessment, where assessment has to be made by the party himself without any control of the Department. Therefore, for the purpose of invoking the extended period, the intent to suppress material facts by the noticee clearly stands established.”
(emphasis supplied)
12. The Principal Commissioner ultimately held that the extended period of limitation was correctly invoked and the finding is:
“8.15 In view of the above discussions, I hold that the extended period as provided in proviso to Section 73(1) of the Act has rightly been invoked in the case of first SCN dated 18.09.2012 and due Service Tax is recoverable from the noticee by applying proviso to sub-section 73(3) of the Finance Act, 1994.”
13. The Principal Commissioner, however, granted the benefit of cum-tax benefit to the appellant.
14. Thus, with regard to the show cause notice dated 18.09.2012, the Principal Commissioner confirmed the demand to the extent of Rs. 1,48,56,722/- and for the show cause notice dated 06.05.2014 confirmed the demand to the extent of Rs. 7,34,900/-. The Principal Commissioner, therefore, ordered for recovery of the said amount with interest and penalty.
15. It is this order dated 27.07.2016 passed by the Principal Commissioner that has been assailed in this appeal.
16. What, therefore, transpires from the two show cause notices, the reply submitted by the appellant and the order of the Principal Commissioner is that the show cause notices proposed levy of service tax by treating the service provided by the appellant as transport of passengers by air; the appellant in reply contended that the services provided would fall under transport of cargo by air; and the Principal Commissioner confirmed the demand under transport of passengers by air.
17. Shri Anil Makhia, learned counsel appearing for the appellant assisted by Shri Sunil Anand, learned chartered accountant did not seriously dispute that the services provided by the appellant would fall under transport of passengers by air but what was contended was that the extended period of limitation for the period from April 2007 to June 2011 could not have been invoked in the facts and circumstances in the present case. Learned counsel also submitted that service tax for the period April 2007 to June 2010 was leviable on travel in classes other than economy class and, therefore, the computation of service tax could not have included the value of the excess baggage charges collected by the appellant for economy class passengers. Learned counsel also submitted that the benefit of the Notification dated 22.06.2010 was available to the appellant and the Principal Commissioner committed an error in denying the benefit of this Notification. For the period April 2011 to March 2012 learned counsel for the appellant submitted that appellant was also entitled to the benefit of Notification No. 4/2011, which amended the earlier Notification No. 26/2010 dated 22.06.2010. To support the aforesaid submissions learned counsel for the appellant relied upon the decision for the Tribunal in Jet Airways India Ltd., Kingfisher Training and Aviation Services Ltd. vs. CCE4 as also the decision of the Tribunal in M/s. Thai Airways International Public Company Ltd. vs. Commissioner of Service Tax New Delhi5. Learned counsel also pointed out that the Civil Appeal filed by the department to assail the decision of the Tribunal in Jet Airways was dismissed by the Supreme Court holding that there was no merit in the appeal. The decision is reported in 2016-TIOL-210-SC-ST 6.
18. Shri Harshvardhan, learned authorised representative appearing for the department also placed reliance upon the decision of the Tribunal in Jet Airways to contend that the Principal Commissioner committed no error in holding that the services rendered by the appellant would appropriately fall under transport of passengers by air services and not under transport of cargo by air services. Learned authorised representative also reiterated the findings recorded by the Principal Commissioner and submitted that the extended period of limitation had been correctly invoked in the facts and circumstances of the case.
19. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
20. The two learned Members constituting the Division Bench in Jet Airways had not agreed on the invocation of the extended period of limitation nor did they agree on the issue of the classification of the services rendered by the appellant.
21. The learned Member (Judicial) held that the services rendered by the appellant would fall under transport of passengers by air and the extended period of limitation could not have been invoked. The relevant portion of the decision is reproduced below:
“13. From the above provision, it is clear that when taxable service comprises of more than one services then such services shall be classifiable under the taxable head which gives its essential characteristic. In this case, we have seen that the question of excess baggage charges arises when passenger is transported by air, otherwise not. In that situation, the essential characteristic of the service of transportation of passenger by air. In these circumstances, we do agree with the contention of the learned counsel for the appellants that the excess baggage charges are nothing but an integral part of the service of transport of passenger by air.
14. We have also seen that the appellant is paying service tax under the category of transportation of passengers by air which are fixed per passenger during the impugned periods. Therefore, the appellants are not required to pay any service tax on excess baggage charges during the impugned periods as the excess baggage charges is an integral part of the main service provided by the appellants, namely transportation of passenger by air.
15. We have also seen that the issue in question is debatable issue for classification of the service on the basis of various judicial pronouncements. In these circumstances, the extended period of limitation is not invocable. Therefore, the appeals succeed on merits as well as on limitation.”
(emphasis supplied)
22. The learned Member (Technical), however, held that the services rendered by the appellant would fall under transport of goods by air and the extended period of limitation was correctly invoked. The relevant findings are as follows:
“19. It is seen that the service of goods transportation is defined under Section 65(105)(zzn) as “any service provided or to be provided to any person by aircraft Operator in relation to transport of goods by aircraft.” When the excess baggage charges are paid by passengers separately, they are being provided a service of transportation of goods by Air. This is what the statute clearly and unambiguously provides. This activity of carriage of excess baggage is distinct and separately identifiable and therefore no occasion arises for clubbing this service with the service of transportation of passengers. It is only the free baggage allowed with the passenger ticket that can be called as incidental to the transportation of passengers because no separate charges are levied for free baggage. It is incidental because the free baggage is apparently included in the cost of the ticket. But when the transportation of excess baggage is being charged separately and is being paid for distinctly and separately and is also specified as a service, the question of calling this activity as incidental does not arise. Merely because two services are being provided simultaneously but distinctly, it cannot lead to an over-simplistic conclusion that a single service is being provided. There are instances when unaccompanied baggage is transported in a passenger Aircraft. Will Service Tax not be leviable on transport of such baggage by Air? The obvious answer is it will be leviable. There are many instances when the passengers bring commercial quantities of goods along with them. In such cases, the passenger will be asked to file a Bill of Entry as in the case of Commercial Cargo. Thus the baggage becomes Commercial Cargo and its transportation will be leviable to Service Tax. A hotel may provide two services and charge for them separately. For example, it may provide room rent service and restaurant service. In such cases, service tax is leviable on the two services. But when free breakfast is part of room rent, only then it may be said that the breakfast service is incidental to room rent service. Therefore the service of excess baggage transportation cannot be considered as an integral part of the service of transportation of passenger when both the services are distinctly leviable to tax under Service Tax law.
*****
20. Being well aware of the requirement of law, the appellants collected excess baggage charges over a long period of time without declaring the same to the department. This shows suppression of facts and intention of the appellant to evade duty. Hence, the extended period under Section 73(1) of the Finance Act has been rightly invoked. Reliance is placed on Bharat Roll Industry (Pvt.) Ltd. v. CCE, Haldia – 2008 (229) E.L.T. 107 (Tri.-Cal.). The appellants have not been able to show any judgment of the Courts to support a view that the issue of classification of excess baggage and the liability of Service Tax on such excess baggage was a debatable issue. In the case of Jetlite India v. CCE – 2011 (21) S.T.R. 80 (Tri.-Delhi), it was held that excess baggage charges are leviable to Service Tax. The issue is very clear and the failure to pay Service Tax cannot be condoned.”
(emphasis supplied)
23. The learned Members, therefore, recorded the difference of opinion and it is as follows:
Difference of Opinion
“As there is a difference of opinion between the Members, therefore, following point is placed before the Hon‟ble President for reference to the Third Member:-
1. Whether Member (Judicial) is correct in holding that the excess baggage charges collected by the appellant is an integral part of the main service namely transportation of passenger by air therefore, the demand is to be set aside?
OR
Whether Member (Technical) is correct in holding that the excess baggage charges are required to be taxable under the category of transportation of goods by air craft?
2. Whether in the facts and circumstances of the case the Member (Judicial) is correct in holding that extended period of limitation is not invokable therefore the demand for the extended period of limitation is to be set aside?
Or
Whether Member (Technical) is correct in holding that in the facts and circumstances of the case extended period of limitation can be invoked consequently the demand confirmed by the impugned order is to be confirmed?
3. Whether in the facts and circumstances of the case penalties on the appellants can be imposed as held by Member (Technical)?
Or
Penalties cannot be imposed as held by Member (Judicial).”
24. The learned Third Member, to whom the matter was referred, agreed with views expressed by the learned Member (Judicial) on all the three issues and the relevant observations made in the order are as follows:
“3. Having considered the rival contentions, I find that the issue before the Tribunal is with respect to accompanied baggage of the passenger in the course of Air travel. I find that the carrying of baggage by the appellant Airlines is incidental to the service being „transport of passengers by Air‟ and the same is classifiable under Section 65(105)(zzn). There is no separate contract in the facts of the case for transport of goods (excess baggage). More particularly, in the case of agreement of transport of passengers by Air, there is no element of transport of unaccompanied goods. Thus, agreeing with the learned Member (Judicial), I hold that the excess baggage charges collected by the appellant Airlines is integral part of the service provided for „transport of passengers by Air‟.
3.1 So far the question of invocation of extended period is concerned, I find that there is no case of any suppression on the part of the appellant Airlines. The appellant Airlines have duly disclosed the receipts from passengers towards excess baggage in their books of account, maintained in the ordinary course of business. I find that the issue is one of interpretation of the taxing statute and as such being debatable, there is no element of any fraud or suppression. Accordingly, the extended period of limitation is held not invocable.
3.2 So far the imposition of penalties are concerned, in the facts and circumstances, there being no deliberate defiance of the provisions of law or non-compliance with the provisions of Service Tax, none of the penalties are held to be attracted. Accordingly, I agree with the learned Member (Judicial) on this point. Thus, the penalties are fit to be set aside.
4. To sum up, I agree with the learned Member (Judicial) on all the three questions o points of difference referred to me.”
(emphasis supplied)
25. Ultimately, the Division Bench, in view of the views expressed by the learned Third Member, passed the following order:
“In view of pronouncement of order by Ld. Third Member, the majority view is as under:
(1) The excess baggage charges collected by the appellants are an integral part of the main service namely transportation of passengers by air. Therefore, the demand of service tax is set aside.
(2) Extended period of limitation is not invokable.
(3) Penalties cannot be imposed on the appellants. In view of the majority opinion appeals are allowed.”
26. The Division Bench of the Tribunal in Thai Airways followed the decision rendered by the Tribunal in Jet Airways and observed as follows:-
“6. With regard to collection of Excess Baggage Charges by the appellant from the customers, we find that the said amount was collected from the passengers for carrying extra luggage above the normal level prescribed by the airlines. Such charges does not fall under any of the category of defined taxable service for the purpose of levy of service tax. Since, such charges collected by the appellant are in relation to or in connection with transport of passengers by air service, the service tax demand cannot be confirmed under any other category of service. Upon analysis of the scope of the taxable service vis-à-vis. the excess baggage charges collected by the assessee, the Tribunal in the case of Kingfisher Airlines Ltd / Jet Airways Ltd. (supra) has held that collection of such charges is an integral part of the main service and cannot be separately taxed under any other heads of service.
27. Thus, in view of the aforesaid decisions, it has to be held that the collection of amount by the appellant towards excess baggage charges would be leviable to service tax under the category of transport of passengers by air and not under transportation of cargo by air.
28. The next issue that needs to be decided is whether the extended period of limitation could have been invoked in the facts and circumstances of the case.
29. The show cause notice dated 18.09.2012, in connection with the invocation of the extended period of limitation, states as follows:
“6. Whereas, it appears that the assessee was collecting excess baggage charges from the passengers, however, the assessee has never depicted this fact correctly in their ST-3 returns. The fact has come to the notice of the department only after an inquiry was conducted by the department. Thus, by not disclosing the entire facts correctly to the department the said value escaped from the assessment for the purpose of service tax. Thus, it appears the assessee willfully suppressed the fact and has contravened various provisions of Finance Act, 1994 (as amended) with intent to evade payment of service tax. Thus, it appears the proviso to sub section (1) of 73 of the Act ibid cab be invoked and recovery of the service tax short paid/not paid can be made for five years from the relevant date.
30. The appellant filed a reply dated 16.11.2012 to the show cause notice dated 18.09.2012 and in connection with the invocation of the extended period of limitation stated as follows:
“In reply to Para 6, it is denied that the ST-3 returns furnished by us were incorrect, and that the fact that the Airlines collect excess baggage charges had come to light only because the department had issued a notice. It is submitted that Service Tax audits were conducted on various Airlines, and such charges were duly examined by the Service Tax Audit Team, and the question of willfully suppressing the facts is denied. It is submitted that the proviso to sub section (1) of 73 of the Act cannot be invoked, and the benefit of extended period of five years cannot be allowed. It is further denied that the Service Tax aggregating to Rs. 1,64,25,588/- is recoverable.”
31. The impugned order, as noticed above, after noticing that mere failure or omission on the part of the appellant to disclose some information to the department will not amount to suppression of facts attracting the extended period of limitation observed that under the self assessment procedure the party is required process on its own the tax due on the services provided, but as the appellant had failed to discharge this burden the appellant had willfully and deliberately suppressed facts so as to avoid liability towards payment of service tax. The extended period of limitation according to the Principal Commissioner was, therefore, correctly invoked. Surprisingly, in the subsequent paragraph no‟s. 8.7 and 8.9, the Principal Commissioner went on to observe that the extended period of limitation can be invoked even if there is no intent to evade payment of tax.
32. There is substance in the contention advanced by the learned counsel for the appellant that mere suppression of fact is not enough as it has also to be conclusively established that suppression was wilful with an intent to evade payment of service tax.
33. It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be “wilful‟ since “wilful‟ precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression “wilful” before “suppression of facts” under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be “wilful‟ and there should also be an intent to evade payment of service tax.
34. Before adverting to the decisions of the Supreme Court and the
Delhi High Court, it would be useful to reproduce the proviso to section 11A of Central Excise Act, 1944, as it stood when the Supreme Court explained “suppression of facts” in Pushpam Pharmaceutical Co. Commissioner of Central Excise, Bombay7. It is as follows:
“11A: Where any duty of excise has not been levied or paid or has been short-levied or short-pain or erroneously refunded, by the reason of-
(a) fraud; or
(b) collusion; or
(c) any wilful misstatement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Act of the rules made thereunder with intent to evade payment of duty by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant dated, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under Section 11AA and a penalty equivalent to the duty specified in the notice.”
35. In Pushpam Pharmaceuticals Company, the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since “suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows;
“4. Section 11A empowers the Department to reopen proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”
(emphasis supplied)
36. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise8 and the observations are as follows:
“26……. This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression “suppression of facts” in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:-
“In taxation, it (“suppression of facts”) can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression.”
27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that “suppression of facts” can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act.”
(emphasis supplied)
37. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited Commissioner of Central Excise, Raipur9 and the observation are:
“18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944.”
38. It will also be useful to refer to a recent decision of the Delhi High Court in Mahanagar Telephone Nigam Ltd. Union of India and ors.10 and the relevant observations are reproduce below:
“32. As noted above, the impugned show cause notice discloses that the respondents had faulted MTNL for not approaching the service tax authorities for clarification. The respondents have surmised that this would have been the normal course for any person acting with common prudence. However, it is apparent from the statements of various employees of MTNL that MTNL did not believe that the amount of compensation was chargeable to service tax and therefore, the was no requirement for seeking clarifications. Further, there is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious.
33. It is also important to note that MTNL had declared the receipt of compensation as income in its books of accounts. The final accounts of MTNL are in public domain. In the circumstances, the allegation that MTNL had suppressed any material facts from the Service Tax Department is wholly without any basis.
34. Harpreet Singh, learned counsel appearing for the respondents, submitted that the allegation that MTNL had suppressed material facts was based on non-disclosure of the receipt of compensation in its service tax returns. However, he did not contest the contention that there is no provision in the Act to disclose receipt of any funds in the service tax returns, which are not regarded as consideration for rendering services (whether taxable or exempt). In the circumstances, there is no basis for the allegation that MTNL had suppressed any material facts. Mere non-disclosure of a receipt, which a party believes is not chargeable to service tax, in the service tax returns, would not constitute suppression of facts within the proviso to Section 73(1) of the Act, unless it is, ex facie, clear that the receipt is on account of taxable services or it is unreasonable for any assessee to believe that the receipt does not fall in the net of service tax. In cases where there is a substantial dispute as to whether receipt of any amount is on account of taxable service – as in the present case – the nondisclosure of the same in the service tax return cannot, absent anything more, lead to the conclusion that the assessee is guilty of suppression of facts to evade tax.
*****
41. In the facts of this case, the impugned show cause notice does not disclose any material that could suggest that MTNL had knowingly and with a deliberate intent to evade the service tax, which it was aware would be leviable, suppressed the fact of receipt of consideration for rendering any taxable service. On the contrary, the statements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL‟s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return.
42. We agree with the contention that the impugned show cause notice was issued beyond the period of limitation and is, thus, liable to be set aside.”
(emphasis supplied)
39. The Principal Commissioner, therefore, fell in error in observing that the extended period of limitation could be invoked even if there was no intent to evade payment of service tax.
40. The Principal Commissioner also fell in error in holding that the extended period of limitation could be invoked in the present case because under the self-assessment procedure parties are required to process on their own tax dues on the services provided but since the appellant had failed to discharge this burden, the appellant had willfully and deliberately suppressed facts so as to avoid payment of service tax.
41. It needs to be noticed that the appellant had in reply to the show cause notice specifically asserted that nothing had been suppressed in the ST-3 returns and that service tax audits had been conducted and the factual position was also duly examined by the audit team. What weighed with the Principal Commissioner was the fact that under the self assessment scheme, the parties are required to process their service tax returns.
42. This issue was examined by a Division Bench of the Tribunal in M/s. HLS Asia Ltd. The Commissioner, Service Tax 11 and it was held that the extended period of limitation cannot be invoked merely because the parties have to self assess. The observations are as follows:
“13. As far as the limitation is concerned, the demand invoking extended period of limitation can be raised as per section 73 only if there is (a) fraud; or (b) collusion; or (c) wilful misstatement; or (d) suppression of facts; or (e) violation of Act, with an intent to evade payment of service tax. The SCN invoked extended period of limitation „As self-assessment provisions apply to Service tax, incorrect assessment and payment of service tax by the assessee amount to deliberate misdeclaration and suppression of facts with the intent to evade..‟. This proposition of the Commissioner in the SCN is alien to law. While Finance Act, 1994, provided for issuance of an SCN within the normal period in all cases and invoking extended period of limitation only if one of the five elements was present, the Commissioner imagined a deeming provision that „if an assessee is operating under self-assessment and incorrectly assesses and pays service tax, it will amount to deliberate mis-declaration and suppression of facts with the intent to evade‟.
14. The existing provisions do not support the observation made by the Commissioner. All assessees under the Service tax operate under self assessment provisions and the appellant is no exception. Section 69 of the Finance Act, 1994 requires a provider of taxable service to register, section 70 requires it to self-assess tax and file returns with the Superintendent of Central Excise and if the assessee either fails to file the returns or having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder, Section 72 requires the Central Excise officer to make „Best judgment assessment‟ and for this purpose, require documents, records, etc. to be produced.
15. Thus, the scheme in Finance Act, 1994 is that if the assessee does not self-assess tax correctly, the remedy against it is the „Best Judgment Assessment‟ under section 72. This provision is similar to the provision for reassessment under Section 17 (4) of the Customs Act, 1962. The Commissioner imagined that wrong self-assessment by an assessee would amount to deliberate mis-declaration and suppression of facts with intent to evade. As per the Finance Act, 1994, if the assessee wrongly self-assesses tax in its returns and none of the five elements required to invoke extended period of limitation is present and if the demand gets time-barred, the responsibility for it rest squarely on the officer who had the jurisdiction and the mandate to the Best Judgment assessment under section 72 but has not done so and NOT on the assessee. Therefore, the invocation of the extended period of limitation cannot be sustained.”
(emphasis supplied)
43. This apart, the learned Member (Judicial) in Jet Airways had observed that since the issue of classification of the service on the basis of various judicial pronouncement was debatable, the extended period of limitation could not have been invoked. Though the learned Member (Technical) did not agree with this view, but the learned Third Member (Judicial) to whom the matter was referred agreed with the views expressed by the learned Member (Judicial) on this issue.
44. In view of the aforesaid decisions of the Tribunal, it has to be held that the Principal Commissioner was not justified in holding that the extended period of limitation had been correctly invoked in the present case.
15. The Principal Commissioner also failed to appreciate that when the benefit of the Notification dated 22.06.2010 as well as the benefit of the Notification No. 4/2011 that amended the earlier notification dated 22.06.2010 was applicable to transport of passengers by economy class, it would also be applicable to the charges collected by the appellant towards excess baggage for passengers travelling by economy class since the services covered under the latter category fall under transport of passengers by air service.
46. The result of the aforesaid discussion is that the services provided by the appellant in connection with the collection of excess baggage charges would fall under the category of transport of passengers by air; the extended period of limitation could not have been invoked; and the benefit of Notification No. 26/2010 dated 22.06.2010 as also the benefit of the Notification No. 4/2011 that amended the notification dated 22.06.2010 would be available to the appellant.
47. The matter has, therefore, to be remitted to the Principal Commissioner to determine the service tax that would be payable by the appellant in the light of the aforesaid findings. For this purpose the Principal Commissioner would have to first exclude the service tax levied with regard to the extended period of limitation and after having determined so, bifurcate the amount collected by the appellant towards excess baggage charges from the economy class passengers and other class of passengers for the normal period and after giving the benefit of the Notification No. 26/2010 and Notification No. 4/2011 and the benefit of cum-tax, determine what amount would be payable by the appellant towards the service tax.
48. The order dated 26.07.2016 passed by the Principal Commissioner is, accordingly, set aside to the aforesaid extent and the appeal is allowed in part.
(Order pronounced on 18.07.2023)
Notes
1. the appellant
2. the Principal Commissioner
3. the Finance Act
4. 2015 (40) STR 1159 (Tri.Mum.)
5. 2018-TIOL-1472-CESTAT
6. Commissioner of Service Tax, Mumbai-I vs. Jet Airways India Ltd.
Etc.
7. 1995 (78) E.L.T. 401 (SC)
8. 2005 (188) E.L.T. 149 (SC)
9. 2013 (288) E.L.T. 161 (SC)
10. W.P. (C) 7542/2018 decided on 06.04.2023
11. Service Tax Appeal No. 5502 of 2013 decided on 06.03.2023