2020 (5) TMI 344 - AT - Service Tax

Tribunal overturns extended limitation order, remits service tax liability determination within normal period

M/s Paharia Construction Co. Versus The Commissioner, Central Excise, Commissionerate-I

The Tribunal set aside the order invoking the extended period of limitation and remitted the matter for determining service tax liability, penalty, and ... Non-payment of service tax - non-filing of ST-3 Returns - services to ZEC as a sub-contractor - period of dispute is from 1 April, 2007 upto 30 June, 2013 - recovery alongwith interest and penalty - extended period of limitation - whether the Appellant had submitted a reply to the Show Cause Notice? - HELD THAT:- The impugned order is dated 24 July, 2014. It appears that the reply submitted in the office could not be placed before the Commissioner at the time the order was passed. The matter on merits as to whether a sub contractor is liable to pay service tax on the activity undertaken by a sub-contractor in pursuance of a contract has been decided by a Larger Bench of the Tribunal in COMMISSIONER OF SERVICE TAX VERSUS MELANGE DEVELOPERS PVT. LTD. [2019 (6) TMI 518 - CESTAT NEW DELHI] in favour of the Department. Invocation of Extended Period of Limitation - HELD THAT:- The audit of records of Appellant for the period September, 2006 to March, 2010 was conducted by the Internal Audit of the Department on 13 and 14 September, 2010 and an Internal Audit Report was issued on 14 December, 2010 incorporating audit paragraphs relating to non payment of service tax. The Show Cause Notice was, however, issued on 18 April, 2013 after period of two years and four months of the issuance of the Internal Audit Report. It cannot, therefore, be said that the facts had been suppressed with intention to avoid payment of tax. The Mumbai Bench of the Tribunal in GAMMON INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, GOA [1999 (5) TMI 436 - CEGAT, MUMBAI] dealt with this issue and observed that where a Show Cause Notice was issued in September, 1989 even though the Appellant therein had supplied information to the Department in August, 1987, the notice was barred by limitation. The Civil Appeal filed by the Department before the Supreme Court was dismissed on 1 May, 2002 - In the instant case, the Department kept quiet for over two years and four months before issuing of the Show Cause Notice. Thus, the Department was not justified in invoking the extended period of limitation. The demand of service tax, imposition of penalty and interest for any period beyond the period of one year prescribed under Section 73 of the Act, therefore, cannot be sustained - the matter needs to be remitted to the Commissioner to determine the service tax liability and the imposition of penalty and interest if any, within the normal period prescribed at the relevant time - Appeal allowed by way of remand. Issues Involved:1. Liability of a sub-contractor to pay service tax.2. Justification for invoking the extended period of limitation under Section 73 of the Finance Act, 1994.3. Alleged suppression of facts by the appellant.4. Validity of the Show Cause Notice issued by the Department.5. Determination of service tax liability, penalty, and interest within the normal period.Issue-Wise Detailed Analysis:1. Liability of a Sub-Contractor to Pay Service Tax:The appellant, a sub-contractor, argued that they should not be liable to pay service tax if the main contractor had already discharged the service tax liability. This issue was resolved by a Larger Bench of the Tribunal in Commissioner of Central Excise vs. Melange Developers Private Limited, which held that a sub-contractor is liable to pay service tax. Thus, the Tribunal affirmed that the appellant, as a sub-contractor, was liable to pay service tax on the activities undertaken.2. Justification for Invoking the Extended Period of Limitation:The Department invoked the extended period of limitation under Section 73 of the Finance Act, 1994, citing wilful suppression of facts by the appellant. The appellant contended that the extended period should not apply as there were conflicting decisions regarding the liability of sub-contractors to pay service tax, leading to a bona fide belief that they were not liable. The Tribunal noted that the audit of the appellant's records was conducted in September 2010, and the Show Cause Notice was issued in April 2013, well beyond the normal period. The Tribunal concluded that the Department was not justified in invoking the extended period of limitation as there was no deliberate suppression of facts by the appellant.3. Alleged Suppression of Facts by the Appellant:The Department alleged that the appellant had suppressed material facts to evade payment of service tax. The appellant countered that they had filed a reply to the Show Cause Notice, which the Department failed to consider. The Tribunal found that the appellant had indeed submitted a reply, but it was not placed before the Commissioner at the time of passing the order. The Tribunal also noted that prior to the Larger Bench decision, there were conflicting decisions on the liability of sub-contractors, which could lead to a genuine doubt and negate the allegation of suppression with intent to evade tax.4. Validity of the Show Cause Notice Issued by the Department:The Show Cause Notice was issued after more than two years and four months from the issuance of the Internal Audit Report. The Tribunal referenced previous judgments, including Continental Foundation Joint Venture vs. Commissioner of Central Excise and Binjrajka Steel Tubes Limited vs. Commissioner of Central Excise, which supported the view that the extended period could not be invoked if there was a genuine doubt or if the Department took an unreasonable amount of time to issue the notice. Consequently, the Tribunal held that the Show Cause Notice was not valid for the extended period.5. Determination of Service Tax Liability, Penalty, and Interest within the Normal Period:The Tribunal remitted the matter to the Commissioner to determine the service tax liability, penalty, and interest within the normal period prescribed under Section 73 of the Finance Act, 1994. The Tribunal directed that the issue of penalty or interest for the normal period should be determined after giving the appellant an opportunity for a hearing.Conclusion:The Tribunal set aside the impugned order dated 24 July 2014 to the extent that it invoked the extended period of limitation and remitted the matter back to the Commissioner for determination of service tax liability, penalty, and interest within the normal period. The appeal was allowed to this extent.