2017 (12) TMI 235 - AT - Service Tax

Invalidity of Late Show Cause Notice for Interest Demand on Tax Payment

The Tribunal held that the show cause notice for interest demand on late service tax payment, issued after the prescribed 5-year period, was invalid. ... Time limitation - late payment of tax - whether the time limit provided under Section 73 ibid is applicable for issuance of show cause notice, in case of confirmation of interest demand for late payment of the amount of service tax? - Held that: - Section 73 ibid mandates that SCN in the case of normal period should be issued within one year and for the extended period, same should be issued within 5 years from the relevant date. No such recovery provisions exist separately in the Service Tax statute, in context with the demand of interest amount for delayed payment of Service Tax. Admittedly, the SCN was issued beyond the period of 5 years from the date of payment of Service Tax and filing of periodical returns by the appellant. Therefore, as per the principle laid down by the Hon’ble Supreme Court in M/s. T.V.S. Whirpool Ltd. [1999 (10) TMI 701 - SUPREME COURT OF INDIA], such show cause notice issued by the Department, seeking recovery of the interest amount and for imposition of penalty will not stand for judicial scrutiny. Application allowed - decided in favor of applicant. Issues:1. Applicability of time limit under Section 73 for issuance of show cause notice for interest demand on late payment of service tax.Analysis:The appeal was against an order passed by the Commissioner (Appeals) concerning the payment of interest under Section 75 of the Finance Act, 1994 for delayed service tax payment by a manpower recruitment and supply agency service provider. The show cause notice was issued after more than 6 years from the date of payment of service tax, leading to a challenge on the maintainability of the notice. The appellant argued that the notice should have been issued within the stipulated time frame of 1/5 years from the relevant date as per Section 73. The appellant relied on various judgments to support this contention, emphasizing the importance of timely issuance of show cause notices for interest recovery and penalty imposition.The Revenue, on the other hand, contended that interest liability is automatic for delayed payment of service tax, and there was no need for a separate show cause notice for interest recovery. The Revenue relied on legal precedents to support their argument that the time limit under Section 73 does not apply to interest recovery. The Tribunal analyzed the arguments presented by both sides and reviewed the case records to determine the key question at hand.The Tribunal deliberated on whether the time limit specified in Section 73 is relevant for issuing show cause notices in cases of interest demand for late service tax payment. Section 73 mandates specific time frames for issuing show cause notices, but no separate provisions exist for interest recovery in the Service Tax statute. The Tribunal referred to the decision of the Hon’ble Supreme Court in a previous case, emphasizing the importance of adhering to statutory time limits for initiating show cause proceedings. The Tribunal concluded that the show cause notice in this case was issued beyond the prescribed 5-year period from the date of service tax payment, rendering it invalid for judicial scrutiny.In light of the above analysis, the Tribunal found no merit in the impugned order confirming the interest demand and penalty imposition. Consequently, the appeal was allowed, setting aside the orders against the appellant. The judgment highlighted the significance of adhering to statutory time limits for initiating recovery proceedings and emphasized the need for timely issuance of show cause notices in such matters.