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State Bank of India v. Deputy Commissioner

Madras HC8 Apr 2026CMA/1925/2019

Case brief

AI extract

What is this about?

Service tax refund; foreign exchange transactions; share of profit not taxable service; audit-forced payment; refund claim rejected on limitation; suo motu adjustment/credit permissible; unjust enrichment of department; technical error without mala fide; penalty Section 76 Finance Act 1994; demand Section 73(1); interest Section 75; Rule 6(3) STR 1994; Section 11B Central Excise Act; Section 35G Central Excise Act with Section 83 Finance Act; CESTAT Final Order 43138/2017 set aside; SBI Commercial Branch Coimbatore; CMA 1925/2019; Madras High Court 08-04-2026.

What did the court decide?

Order in original set aside; CESTAT Final Order No.43138 of 2017 dated 18.12.2017 set aside; Civil Miscellaneous Appeal allowed with no costs. ¶53

State Bank of India Vs Deputy Commissioner — Madras HC (2026) — LawSathi Research

What the court decided

AI extract

Outcome

Order in original set aside; CESTAT Final Order No.43138 of 2017 dated 18.12.2017 set aside; Civil Miscellaneous Appeal allowed with no costs.

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Issue for consideration

Whether the share of profit earned by the appellant on foreign exchange transactions/remuneration constitutes a taxable service liable to service tax. +1 more

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Court's answer

The share of profit earned by the appellant in foreign exchange transactions is not liable to be taxed under Service Tax; since the payment was made solely on the instructions of the audit team of the Central Excise Department, the respondent ought to have refunded the amount at the first instance.

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Ratio / Principle

The assessee's suo motu adjustment of the amount cannot be termed an improper or impermissible process warranting imposition of penalty; the unjust enrichment of the department cannot be given a seal of approval on the ground of limitation or the failure to prefer an appeal against the order rejecting the refund request; it was a technical error or mistake made without any mala fide intention.

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Key takeaways

The order in original has to be set aside; consequently, the Final Order No.43138 of 2017 dated 18.12.2017 passed by the CESTAT is set aside and the Civil Miscellaneous Appeal stands allowed with no costs.ratio¶53

Detailed headnote1 paragraphs

Madras HC (CMA No. 1925 of 2019, decided 08-04-2026, Dr G. Jayachandran J. authoring for the two-member bench): State Bank of India Commercial Branch, Coimbatore v. Deputy Commissioner, Service Tax Cell, Central Excise & Service Tax, Coimbatore. During a departmental audit the appellant bank was instructed to pay service tax of Rs.20,23,916/- on the premise that its share of profit in foreign exchange transactions was a taxable service; it paid on 22.12.2006, later filed a refund claim calling the remittance an error, which was rejected as barred by limitation. The bank then suo motu adjusted the amount in a subsequent return, triggering an order in original confirming a demand of Rs.19,87,688/- (service tax Rs.19,48,713/- + edn cess Rs.38,975/-) under S.73(1) Finance Act 1994, interest under S.75, and a penalty of Rs.1,00,000/- under S.76. The Commissioner (Appeals) and then CESTAT (Final Order No.43138 of 2017 dated 18.12.2017) upheld the orders, holding the taxability adjudication conclusive and Rule 6(3) STR 1994 irrelevant to taxability disputes. This Court found the share of profit is not liable to service tax and, as the payment was made solely on the audit team's instructions, the department ought to have refunded it at the first instance; the bank's suo motu adjustment is not an improper or impermissible process warranting penalty, and the department's unjust enrichment cannot be approved on grounds of limitation or failure to appeal the refund rejection, the episode being a technical error without mala fide intent. Accordingly the order in original and the CESTAT Final Order were set aside and the appeal allowed, no costs.

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2026:MHC:1421

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CMA No. 1925 of 2019

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IN THE HIGH COURT OF JUDICATURE AT MADRAS

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DATED: 08-04-2026

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CORAM

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THE HON'BLE DR JUSTICE G. JAYACHANDRAN AND

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THE HON'BLE MR.JUSTICE SHAMIM AHMED

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CMA No. 1925 of 2019

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State Bank of India Commercial Branch, Represented by Mr.A.Ganesh, Assistant General Manager and COO, No.1087/A-F, Krishna Towers, Avinashi Road, PN Palayam, Coimbatore – 641 037.

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..Appellant(s)

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Deputy Commissioner Service Tax Cell, Office of the Commissioner of Central Excise And Service Tax, 6/7, ATD Street, Race Course Road, Coimbatore – 641 018.

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..Respondent(s)

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Civil Miscellaneous Appeal has been filed under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, to set aside the Final Order No.43138 of 2017 dated 18.12.2017 passed by the Tribunal.

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For Appellant(s): Mr.Joseph Prabakar For Respondent(s): Mr.B.Satish Sundar

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https://www.mhc.tn.gov.in/judis

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CMA No. 1925 of 2019

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JUDGMENT

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[ Judgment was delivered by Dr.G.Jayachandran J.]

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The Civil Miscellaneous Appeal is preferred by the Assessee, being aggrieved by the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, dismissing the appeal.

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The facts of case is as below:

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2.1. The appellant is a Nationalised Bank. During an audit conducted by

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the Central Excise and Service Tax Department, the audit team has instructed the appellant to pay service tax to the tune of Rs.20,23,916/-, on the premise that the share of profit in transactions related to foreign exchange was tantamount to a taxable service. However, based on their advice and instructions, the appellant paid the said amount on 22.12.2006. Subsequently, on verification, it was found that the said share of profit cannot be levied with service tax and therefore, claim for refund was filed, stating that the remittance of Rs.20,23,916/- had been made in error. The said request was rejected on the ground that the claim was barred by limitation. Meanwhile, the appellant suo motu adjusted the said amount in the subsequent return. This was found fault, leading to passing the order in original, which reads as below:

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“ I confirm the demand of Service Tax of Rs.19,87,688/(Service Tax Rs.19,48,713/- and Edn, cess Rs.38,975/-) (Rupees

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Page2 of 6

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https://www.mhc.tn.gov.in/judis

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CMA No. 1925 of 2019

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Nineteen Lakhs Eighty Severn Thousand Six Hundred and Eighty Eight Only) proposed in the show cause notice dated 27.02.2008, under Section 73(1) of the Finance Act, 1994.

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I demand appropriate interest under Section 75 of the Finance Act, 1994 and

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I impose a penalty of Rs.1,00,000/- (Rupees One Lakh Only) for non-payment of Service Tax under Sections 76 of the Finance Act, 1994.”

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This was challenged by the appellant before the Commissioner (Appeals), but same was rejected. Being aggrieved, an appeal before the CESTAT was preferred. However, the tribunal rejected the appeal for the following reasons:

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“4.2. The dispute in the present appeal relates to the legal issue as to whether the profit earned by the appellant on Foreign Exchange remuneration is a taxable service or not. The taxability of the same stands considered by the adjudicating authority in the adjudication, relatable to the refund claim filed by the appellant and the same stands upheld by the adjudicating authority and having not been appealed against holds the field. In as much as the taxability has already been held against the assessee and the refund claim filed on the said ground of non-taxability stands rejected, the action of the assessee taking suo motu credit of the tax paid cannot be appreciated and held in accordance with law. It may not be out of place once again to mention that the provision of Rule 6(3) of STR, 1994, do not relate to dispute on the taxability and simplicitor allow the credit of the service tax already paid in

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CMA No. 1925 of 2019

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respect of the services which are subsequently not provided by an assessee.

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4.3. In a nutshell, the assessee's refund claim filed under

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Section 11 B of Central Excise Act, 1944, having been rejected and not challenged the appellant's claim of suo motu credit involved in the present appeal cannot be accepted. The impugned orders are upheld. Appeal is rejected.”

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The learned counsel appearing on behalf of the appellant would submit

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that, in a case involving the very same appellant, another Bench of the CESTAT held that the share of profit earned by a branch in foreign exchange transactions does not fall within the purview of the service tax. While so, the finding of the CESTAT holding that the appellant ought to have challenged the rejection of the refund claim is not legally sustainable.

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We find that the payment of service tax been made by the appellant solely on the instructions of the audit team of the Central Excise Department. While so, having now found that the share of profit is not liable to be taxed under Service Tax, the respondent ought to have refunded the amount at the first instance.

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Having failed, when the assessee himself has suo motu adjusted the

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amount, it cannot be termed as an improper or impermissible process for

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CMA No. 1925 of 2019

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imposing penalty. Therefore, the unjust enrichment of the department cannot be

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given a seal of approval on the ground of limitation or the failure to prefer an

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appeal against the order rejecting the refund request. This was a technical error

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or mistake made without any mala fide intention.

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In our view the order in original has to be set aside. Consequently, the

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Final Order No.43138 of 2017 dated 18.12.2017 passed by the CESTAT, is hereby set aside and Civil Miscellaneous Appeal stands allowed. No costs.

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[G.J.,J.] [S.S.A.,J.] 08-04-2026

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Index: Yes/No Speaking/Non-speaking order Neutral Citation: Yes/No

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Jeni

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1.The Customs, Excise and Service Tax Appellate Tribunal, Chennai.

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2.The Deputy Commissioner, Service Tax Cell, Office of the Commissioner of Central Excise and Service Tax, 6/7, ATD Street, Race Course Road, Coimbatore – 641 018.

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CMA No. 1925 of 2019

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DR.G.JAYACHANDRAN, J. AND SHAMIM AHMED, J.

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Jeni

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CMA No. 1925 of 2019