CBEC informs appellant that they are not liable to tax - Board then reverses its decision - Demands raised - since CBEC had conveyed in Feb 2009 that appellant is not liable to ST, prima facie, applicant has strong case in favour: CESTAT
By TIOL News Service
MUMBAI, NOV 13, 2013: 
THE CCE & ST (LTU), Mumbai confirmed two humongous Service Tax demands of Rs.2075.64 Crores and Rs.283.15 Crores respectively and imposed penalties and interest.
The demand is confirmed on the ground that the applicants are providing General Insurance Business service as provided under Section 65(49) of the Finance Act, 1994. The demand for the period 1.5.2006 to 31.03.2011 is made vide show-cause notice dated 24.10.2011 and for the period 01.04.2011 to 30.09.2011 by SCN dated 7.3.2012.
Before the CESTAT with a Stay application, the applicant submitted that they are a wholly owned subsidiary of the RBI and in case waiver is granted, the interest of revenue is secured; that the applicants had not provided any General Insurance Business services; that in the business conducted under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, there is no profit motive.
It is further submitted that the applicants had approached the CBEC for exemption from service tax and that the Board denied the exemption. However, on subsequent representation, vide letter dated 24.02.2009, the Board conveyed that the applicants are not performing the taxable service of General Insurance but is performing the function of a watchdog and guarantor of banking activities by any bank operating in India. It is also conveyed that the charges collected by the applicants are not taxable under the taxable service of General Insurance Business. That,subsequently vide letter dated 20.09.2011, the Board reviewed its earlier decision and decided that the activity undertaken by the applicants fall within the ambit of Sec.65(105) of the Finance Act, 1994 and the applicants are liable to pay service tax as provider of General Insurance Business Service.
The applicant also submitted that the demand is up to 30.09.2011 and the show cause notices were issued in view of letter dated 20.09.2011. It is also informed that the applicants started paying tax with effect from October, 2011. Inasmuch as since the Board letter is dated 20.09.2011, the same is prospective in nature and, therefore, the demand for the earlier period is not sustainable.
The Revenue representative reiterated the findings of the adjudicating authority and also submitted that the applicants had not furnished the full and complete information when the letter dated 24.02.2009 was issued by the Board; that subsequently, when full information was collected, the Board reviewed its earlier decision and vide letter dated 20.09.2011, the applicants were held to be liable for service tax. It is also submitted that vide letter dated 5.1.2009 it had been conveyed to the applicants that their request for exemption was declined and, therefore, it cannot be said that the applicants were under the impression that the applicants are not liable to pay service tax under the category of General Insurance Business Service.
The CESTAT observed -
"7. The applicants were held liable for service tax under the category of General Insurance Business services as provided under Sec. 65(49) read with Sec. 65(105)(d) of the Finance Act, 1994. The applicants were corresponding with the Board of Customs & Central Excise. Earlier the applicants were asking for exemption from service tax which was declined vide letter dated 05.01.2009. The matter was again taken up with the Board and the Board vide letter dated 24.02.2009 conveyed to the applicants that the applicants are not performing taxable service of General Insurance Business and not liable under the taxable service of General Insurance Business service. The Board has reviewed its earlier decision which was conveyed to the applicants vide letter dated 20.09.2011 whereby it has been decided that the applicants are providing taxable service. Show Cause Notices were issued in view of the letter dated 20.09.2011. In view of the earlier letter dated 24.02.2009, whereby it was conveyed that the applicants are not liable for service tax under the category of General Insurance Business, prima facie, the applicants have a strong case for waiver of pre-deposit of dues. Pre-deposit of the dues is waived and recovery thereof is stayed during the pendency of the appeal."
In passing : One thing is guaranteed - we have many more miles to go before the demands are put to sleep!
(See 2013-TIOL-1695-CESTAT-MUM)
