Bona fide belief and absence of suppression barred extended limitation for service tax demand

The extended period of limitation for service tax could not be invoked where the assessee had a bona fide belief, supported by departmental circulars, trade notices, ministry instructions and exemption notifications, that reimbursed out-of-pocket expenses and foreign currency receipts were not taxable. On the recorded facts, the authority invoking the longer limitation period failed to establish legally sustainable suppression of facts or to give stronger reasons for departing from the normal period. The demand was therefore time-barred and set aside on limitation, without examination of the merits.

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Issues: Whether the demand of service tax could be sustained by invoking the extended period of limitation despite the assessee's plea of bona fide belief based on departmental circulars and exemption notifications.

Analysis: The demand was raised for a past period on the basis of an audit note. The assessee relied on departmental trade notices, circulars, ministry instructions and exemption notifications to contend that reimbursed out-of-pocket expenses and the foreign currency receipt were not liable to service tax. The record also contained a finding that the assessee had entertained bona fide doubts regarding tax liability. In that situation, the authority invoking the extended period was required to give stronger reasons, and the material did not justify a conclusion that the assessee had suppressed facts so as to attract the larger limitation period.

Conclusion: The extended period of limitation was not invocable and the demand was liable to be set aside on limitation; the decision is in favour of the assessee.

Final Conclusion: The tax demand could not survive because the case was time-barred, and the appeal succeeded on that ground without examination of the merits.

Ratio Decidendi: Where an assessee acts under a bona fide belief supported by departmental circulars, instructions or notifications, the extended period cannot be invoked in the absence of legally sustainable suppression of facts.

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