Extended limitation and penalty under service tax fail without proof of suppression or intent to evade

Mere non-payment or delayed payment of service tax under reverse charge did not, by itself, justify invocation of the extended limitation period or penalty. Where the assessee had disclosed the commission payments in its books and discharged tax with interest before the show cause notice, and the department failed to prove fraud, collusion, wilful misstatement, or suppression of facts with intent to evade tax, the penal and extended limitation provisions could not be sustained. A circular relied upon by the assessee did not alter that result on the facts. The invocation of the extended period and the levy of penalty were therefore held unsustainable.

---

---

Issues: Whether the extended period of limitation and penalty under the service tax law could be sustained where the appellant had discharged the tax liability with interest before issuance of the show cause notice and the department had not established suppression of facts or intent to evade tax.

Analysis: Liability under reverse charge was not in dispute for the limited purpose of the appeal, but the decisive question was whether the ingredients for invoking the proviso to the limitation provision and for imposing penalty were proved. Mere non-payment, by itself, was held insufficient to establish fraud, collusion, wilful misstatement, or suppression of facts with intent to evade. The records showed that the commission payments were reflected in the books and that tax and interest were paid before the notice. In the absence of cogent evidence from the department proving deliberate evasion, the penal and extended limitation provisions could not be applied. The circular relied upon by the appellant was not treated as sufficient to alter this conclusion on the facts.

Conclusion: The invocation of the extended period and the levy of penalty were unsustainable, and the appellant was entitled to relief.

Ratio Decidendi: Mere non-payment or delayed payment of service tax does not, without proof of deliberate suppression or intent to evade, justify invocation of the extended period or imposition of penalty when tax and interest have already been discharged before notice.

---