Bona fide tax dispute bars extended limitation and penalty, so service tax demand was confined to the normal period.

Where service tax taxability was debatable and the assessee acted under a bona fide dispute, the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994 was unavailable and the demand could be confined to the normal period. On that basis, the Tribunal held that the demand had to be recomputed within the normal limitation period, and penalty was also not sustainable because it followed the curtailed demand and no basis remained for penal action. The order was set aside and the matter remanded for recomputation accordingly.

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Issues: (i) Whether the demand of service tax could be confined to the normal period of limitation and the extended period invoked; (ii) Whether penalty was sustainable.

Issue (i): Whether the demand of service tax could be confined to the normal period of limitation and the extended period invoked.

Analysis: The dispute was treated as covered by the Tribunal's earlier view that commission received by a distributor for purchases made by the sales group falls within the taxable service, but the longer limitation period cannot be invoked where there was scope for doubt on taxability. The decision relied on the principle that, in such circumstances, the extended period under the proviso to Section 73(1) of the Finance Act, 1994 is unavailable and demand can be sustained only for the normal period.

Conclusion: The extended period was not sustainable and the demand had to be restricted to the normal limitation period.

Issue (ii): Whether penalty was sustainable.

Analysis: Once the demand was required to be restricted in accordance with the limitation finding, there was no justification for imposing penalty on the appellant.

Conclusion: Penalty was not sustainable.

Final Conclusion: The order was set aside and the matter was sent back for recomputation of the demand within the normal period, with penalty deleted.

Ratio Decidendi: Where taxability is debatable and the assessee acts under a bona fide dispute, the extended limitation period cannot be invoked and penalty is not warranted.

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