Service tax demand on goods transport operator services failed where retrospective provisions did not support recovery and limitation applied.

Service tax demand on goods transport operator services for the period 16.11.1997 to 02.06.1998, raised only in 2006, was treated as unsustainable because the statutory framework inserted by Rule 7A of the Service Tax Rules, 1994 and Section 158 of the Finance Act, 2003 did not authorise recovery in the manner attempted. The Gujarat High Court followed its earlier view that Section 73 of the Finance Act, 1994, as it then stood, could not be invoked to sustain the demand despite retrospective changes to the service tax scheme, and that no liability could be fastened merely for non-filing of return after registration where the statutory language was unclear. The Tribunal's finding of time bar was upheld.

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Issues: Whether the demand of service tax on goods transport operator service for the period 16.11.1997 to 02.06.1998, raised by notice issued in 2006, was legally sustainable and whether the Tribunal was right in treating the demand as time barred.

Analysis: The issue turned on the effect of the statutory scheme introduced by Rule 7A of the Service Tax Rules, 1994, inserted by Notification No. 4/2003-ST dated 14.05.2003, read with Section 158 of the Finance Act, 2003. The Court followed its earlier view that, until Section 73 of the Finance Act, 1994 was substituted with effect from 10.09.2004, the department could not invoke that provision to sustain the demand despite the retrospective changes in the scheme governing service tax on goods transport operator services. The Court also applied the earlier reasoning that, in the circumstances, no default could be fastened merely for non-filing of return after registration where the statutory language did not clearly authorise the demand.

Conclusion: The Tribunal's view that the demand was not sustainable and was time barred was upheld, and no substantial question of law arose.

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