Principal Commissioner, Cgstprincipal Commissioner, CGST vs. M/S. Federal Mogul Goetze INDIA Limited & Anr.

Facts

The Revenue (Principal Commissioner, CGST) appealed an order by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which allowed an appeal filed by M/s. Federal Mogul Goetze India Limited (the tax payer). The tax payer had applied under the Voluntary Compliance Encouragement Scheme (VCES), 2013. An audit in 2010 identified wrongful CENVAT credit of ₹1,34,18,976/- from 2007-08 to 2011-12. A show cause notice (SCN) was issued on 19.10.2012 regarding service tax paid on "medical insurance services" for employees during the same period. The tax payer declared service tax dues of ₹7,22,89,051/- under VCES and deposited 50%. The Designated Authority proposed to reject the VCES application, citing the audit report and the pending SCN as grounds for ineligibility under Section 106 of the 2013 Act. The application was partly rejected, deeming ₹3,14,73,211/- ineligible due to issues related to intellectual property service and import of services, which were part of the audit report. The Commissioner (Appeals) dismissed the tax payer's appeal, but CESTAT allowed it.

Held

The Court held that an audit report, by itself, does not constitute an "order of determination" under Section 106(1) of the Finance Act, 2013. The Court reasoned that Section 106(1) explicitly refers to "notice or an order of determination under section 72 or section 73 or section 73A" of the 1994 Act, and an audit report does not fall within these categories. The Court also noted that if an audit report were considered an order of determination, it would render Section 106(2)(b) of the Act, which deals with pending audits, infructuous. Regarding the SCN, the Court found that it was limited to "medical insurance services" and did not cover the tax dues declared by the tax payer under VCES. Therefore, the tax payer was not ineligible to make the declaration for the dues not covered by the SCN. The Court found no infirmity in CESTAT's decision to allow the tax payer's appeal. No substantial question of law arose for consideration.

Key Issues

1. Whether an audit report constitutes an "order of determination" under Section 106(1) of the Finance Act, 2013, thereby rendering a tax payer ineligible to make a declaration under the Voluntary Compliance Encouragement Scheme (VCES) if such a report was issued before March 1, 2013? The Revenue argued that the audit report contained a determination of service tax liability, making the tax payer ineligible for VCES. The tax payer contended that an audit report is not an "order of determination" as contemplated by Section 106(1) and that the scheme's benefits should not be defeated by prior audit objections. 2. Whether the show cause notice (SCN) issued for "medical insurance services" rendered the tax payer ineligible to declare tax dues for other services under VCES, given that the SCN was pending on the cut-off date of March 1, 2013? The Revenue argued that the SCN covered the period and issues for which the declaration was made. The tax payer argued that the SCN was limited to medical insurance services and did not cover the dues declared under VCES.