Service recipient wins appeal as extended limitation requires proven intent to evade service tax under section 73(1)

The CESTAT NEW DELHI held that the extended period of limitation under section 73(1) of the Finance Act cannot be invoked without establishing wilful suppression of facts with intent to evade service tax payment. The appellant, a service recipient who failed to deposit service tax on imported services, successfully challenged the Commissioner's order. The Tribunal found that mere non-disclosure in service tax returns without proven intent to evade tax is insufficient to invoke extended limitation. Following precedent from Pushpam Pharmaceuticals, the Tribunal emphasized that deliberate evasion must be established beyond mere suppression of facts. The appeal was allowed and the Commissioner's order was set aside.

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Issues Involved:
1. Non-payment of service tax on input services under the reverse charge mechanism.
2. Invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994.

Summary:

Issue 1: Non-payment of service tax on input services under the reverse charge mechanism.

The appellant, M/s Digital Infusion Private Limited, provided Internet Telecommunication services and sold space for advertisements, which became taxable from 01.10.2014. The appellant was required to discharge the service tax liability under the reverse charge mechanism on the import of this service. The department conducted a verification of records for the period from April 2014 to June 2017 and issued a notice alleging that the appellant failed to deposit the service tax as a service recipient on the import of the service. The appellant contended that it was providing output services to Indian Institutes and paid service tax timely, thus did not discharge the service tax liability on a reverse charge basis for input services. From May 2017, the appellant started discharging service tax liability on a reverse charge basis and took credit while providing output services.

Issue 2: Invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994.

The department issued a show cause notice on 23.06.2020, invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, alleging suppression of facts with willful intent to evade payment of service tax. The appellant argued that the extended period could not be invoked as the facts were disclosed during the verification of records on 11.04.2017, and there was no intent to evade payment of service tax. The Adjudicating Authority and Commissioner (Appeals) confirmed the demand, stating that the appellant suppressed facts in the ST-3 returns.

The Tribunal examined whether the extended period of limitation could be invoked. It referred to the Supreme Court and Delhi High Court judgments, which held that suppression of facts must be willful and with intent to evade payment of service tax. The Tribunal found no evidence of intent to evade payment of service tax by the appellant. The department was aware of the non-payment of service tax on 11.04.2017, yet issued the show cause notice only on 23.06.2020. The Tribunal concluded that mere non-disclosure in the service tax returns does not imply intent to evade payment of service tax.

Conclusion:

The Tribunal set aside the impugned order dated 25.08.2021 passed by the Commissioner (Appeals) and allowed the appeal, stating that the extended period of limitation could not be invoked in the absence of intent to evade payment of service tax. The entire demand confirmed by the Commissioner (Appeals) fell within the extended period of limitation, which was not justified.

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