CESTAT Chandigarh Sets Aside ₹2.39 Crore Service Tax Demand Against SBI Card

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chandigarh, has set aside a ₹2.39 crore service tax demand against SBI Card and Payment Services Ltd., holding that a show cause notice (SCN) that fails to identify the taxable service, the service recipient or the consideration cannot sustain such a demand.

The tribunal observed, "We find that the SCN does not specify as to what was the service rendered by the appellants and to whom and what was the consideration thereon."

A bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar allowed the appeal filed by SBI Card and Payment Services Ltd. (formerly GE Capital Business Process Management Services Pvt. Ltd.).

Having found the SCN itself to be legally unsustainable, the tribunal held that there was no need to examine the remaining issues raised in the appeal.

The appellant is engaged in the sale of embossed cards and provides back-end services to associated and non-associated entities.

The dispute arose after a departmental audit. The Department alleged that the company had short-paid service tax on unbilled revenue and on differences between figures disclosed in its ST-3 returns and income tax returns.

A show cause notice dated October 16, 2012 demanded service tax of ₹2.39 crore for the period from 2007-08 to 2011-12, along with interest and penalties. The Commissioner confirmed the demand, leading to the present appeal.

Before the tribunal, the appellant argued that the demand was based on unbilled revenue reflected in its balance sheet and differences between its ST-3 returns and income tax returns. It contended that the SCN did not identify the category of taxable service, the recipients of those services, or the consideration allegedly received.

The company also argued that service tax could not be demanded merely because of unbilled revenue or differences between ST-3 returns and income tax returns. According to it, the Department first had to establish that those amounts represented consideration for taxable services.

The Revenue argued that the appellant had obtained registration under multiple taxable service categories and that the proceedings concerned only the short payment of service tax. It contended that the absence of an express classification in the SCN did not invalidate the proceedings because the notice sufficiently conveyed the basis of the demand.

Rejecting that contention, the tribunal observed that the Department was required to identify the services allegedly rendered, the recipients of those services, and the consideration before determining any service tax liability.

The tribunal noted that the show cause notice did not identify either the service allegedly provided by the appellant or the recipients of those services. It also did not explain how the Department concluded that service tax was payable.

"It is incumbent upon the Department to identify the services rendered by the appellants and the services recipients thereof and thereafter to fix the tax liability after arriving at the consideration," the tribunal ruled.

The tribunal also found the Revenue's argument that the appellant's registration under multiple taxable service categories was sufficient to sustain the demand to be unacceptable. It observed that such registration did not relieve the Department of its obligation to identify the specific service on which the demand was based.

The tribunal further observed that the SCN had been issued after a gap of two to three years from the audit. It held that the Department ought to have ascertained the nature of the services before raising the demand.

Addressing the Department's allegation of non-cooperation, the tribunal observed that even if that allegation were accepted, the correspondence on record showed that the Department's queries focused on discrepancies in figures rather than on the nature of the services. It therefore held that the allegation could not justify the Department's failure to identify the taxable service or its recipient.

The tribunal also observed that it was difficult to believe that a public sector company like SBI had withheld information with the intention of evading service tax. It noted that the Department's correspondence never sought details regarding the nature of the services, making its allegation of non-cooperation an insufficient explanation for the failure to identify the taxable service.

Relying on its earlier decision in Shubham Electricals, the tribunal held that a vague, non-committal and unclear show cause notice cannot be sustained in law.

Since the impugned order was founded on such an SCN, it too was set aside. The appeal was accordingly allowed.

For Appellant: Advocates Krati Singh and Ms. Samiksha Uniyal, 

For Revenue: Narinder Singh, Authorized Representative