2018 (5) TMI 1424 - HC - Service Tax

High Court rules in favor of Gujarat Pulses Mfg Assoc in service tax dispute

The High Court ruled in favor of the petitioners, Gujarat Pulses Manufacturing Association and its members, in a case challenging a circular issued by the ... Service tax exemption - interpretation of exemption notification - reverse charge mechanism - normal period of limitation - extended period of limitation - willful evasion - show cause notice - quashing of notices for limitationShow cause notice - normal period of limitation - extended period of limitation - willful evasion - quashing of notices for limitation - Whether show cause notices issued in August/September 2012 seeking recovery of service tax on transportation of Tur Dal for periods beyond eighteen months were barred by limitation and liable to be quashed for want of jurisdiction. - HELD THAT: - The Court examined whether the authorities could invoke the extended limitation period under the proviso to section 73(1) for recovery of service tax alleged to have been unpaid prior to issuance of the exemption amendment of 27.2.2010. At the relevant time the normal limitation for issuance of notice was eighteen months, extendable to five years only where non-payment arose by reason of fraud, collusion, willful misstatement, suppression of facts or contravention of provisions with intent to evade tax. The factual findings recorded by the Court include that until 2010 trade and departmental practice uniformly proceeded on the bona fide understanding that transportation of Tur Dal fell within the prior exemption; no demand was raised nationally before amendment; and there was no evidence of fraud, collusion, willful misstatement, suppression of facts or intent to evade tax by the petitioners. In those circumstances the condition precedent for applying the extended period was absent and the authorities lacked jurisdiction to issue notices for periods beyond eighteen months. The Court therefore held that show cause notices which necessarily relate to periods outside the normal limitation could not be sustained. The Court qualified its order by noting that these observations do not affect any notice that is confined to the period within eighteen months of its issuance. [Paras 9, 10, 11, 12]Show cause notices seeking recovery for periods beyond the eighteen month limitation are barred and are quashed; notices limited to the eighteen month period remain unaffected.Final Conclusion: All impugned show cause notices which seek recovery of service tax for periods beyond the normal eighteen month limitation are quashed for want of jurisdiction; the order does not affect notices confined to the eighteen month period, and the petition is disposed of. Issues:Challenge to circular dated 26.2.2010 and show cause notices for recovery of unpaid service tax on transportation of Tur Dal.Analysis:The petitioners, Gujarat Pulses Manufacturing Association and its members, challenged a circular issued by the CBEC in 2010 making clarifications in the service tax regime regarding transportation of Tur Dal. They argued that prior to the amendment in the exemption notification, there was a belief that Tur Dal fell under the exemption for transportation of specified goods like fruits and vegetables. The CBEC amended the exemption notification in 2010 to include pulses, including Tur Dal, which exempted service tax on its transportation. However, the issue arose regarding levying service tax for the period before the amendment. The petitioners contended that the extended period of limitation invoked by the authorities in the show cause notices was not justified as there was no willful evasion of duty or fraudulent intent in not paying service tax on Tur Dal transportation before the amendment.The High Court examined the facts and found that prior to 2010, no service tax was levied on Tur Dal transportation based on the belief that it was covered under the existing exemption notification. The court noted that the extended period of limitation for recovery of unpaid service tax beyond 18 months could only be invoked in cases of fraud, collusion, willful misstatement, suppression of facts, or contravention of statutory provisions to evade payment of duty. In this case, the court found no evidence of willful evasion or fraudulent intent in not paying service tax on Tur Dal transportation before the amendment. The trade did not pay service tax on Tur Dal until 2010, and the department did not dispute this interpretation until the amendment. Therefore, the court concluded that the show cause notices seeking to recover duty beyond the normal limitation period could not be sustained.The High Court quashed all the impugned show cause notices, except for those covering the period within 18 months from their issuance. The judgment clarified that if any show cause notice fell within the 18-month limitation period, the directions and observations provided in the judgment would not apply. The petition was disposed of based on the court's findings regarding the lack of willful evasion or fraudulent intent in not paying service tax on Tur Dal transportation before the exemption amendment in 2010.