2022 (8) TMI 1103 - AT - Service Tax

Appeal success: Extended limitation period not valid due to taxpayer compliance dispute.

The appeal centered on the issuance of a show cause notice invoking an extended period of limitation for alleged non-disclosure of tax liability. The ... Extended period of limitation - show cause notice - failure to consider departmental records and assessee's reply - reconciliation of turnovers between ST-3 returns and Form 26AS - pre-deposit requirement under Section 35FExtended period of limitation - show cause notice - Validity of the show cause notice issued invoking the extended period of limitation - HELD THAT: - The Tribunal found that the show cause notice dated 23.09.2019 invoked the extended period despite the Department's own records showing ST-3 returns for the relevant half-years filed on 11.11.2014 and 25.07.2015. The adjudicating authority proceeded mechanically and alleged non-filing of returns although the assessee had filed returns and paid admitted taxes. The Tribunal noted that the assessee had also submitted a reply by email with copies of ST-3 returns which the Dy. Commissioner failed to consider. Given the availability of departmental records and the assessee's reply proving disclosure and payment of admitted tax, the extended period was held not invokable as there was no failure to disclose taxable turnover or to deposit admitted taxes; differences between ST-3 (accrual basis) and Form 26AS (receipt basis) were noted as explainable and requiring reconciliation. [Paras 3, 4, 5, 9]Show cause notice invoking the extended period of limitation was not validly issued and the impugned order based thereon was set aside.Failure to consider departmental records and assessee's reply - Whether the adjudicating authority considered the assessee's ST-3 returns and reply before passing the ex parte order - HELD THAT: - The Tribunal recorded that the order-in-original observed non-appearance and absence of written submissions by the assessee, but the record shows the assessee had filed a written reply by email with annexed ST-3 returns. The Dy. Commissioner did not refer to or consider those returns in the adjudication and proceeded ex parte to confirm demand and impose penalties. This failure to take into account available records and the assessee's submissions was material and vitiated the adjudication. [Paras 4, 5, 9]Adjudication was vitiated by failure to consider the assessee's filed returns and reply; the ex parte order was set aside.Pre-deposit requirement under Section 35F - Validity of dismissal of the appeal by Commissioner (Appeals) for want of pre-deposit - HELD THAT: - The Tribunal noted that the appeal memo before the Commissioner (Appeals) erroneously stated 'Nil' in the column for amounts deposited, although the appellant had in fact deposited admitted taxes as per the ST-3 returns and the quantum deposited exceeded the statutory 7.5% pre-deposit requirement. On this basis the Tribunal held that dismissal for want of pre-deposit was improper. [Paras 6, 7, 9]Dismissal of the appeal by the Commissioner (Appeals) for want of pre-deposit was incorrect and thus improper.Reconciliation of turnovers between ST-3 returns and Form 26AS - Further appraisal required to reconcile differences between turnover as per ST-3 returns and Form 26AS and consequent tax liability, if any - HELD THAT: - While the Tribunal set aside the impugned orders, it observed that differences may exist because ST-3 returns are prepared on an accrual basis whereas Form 26AS reflects receipts. The Tribunal directed the appellant to file a reconciliation statement before the Adjudicating Authority reconciling turnover figures between ST-3 returns and Form 26AS. The Tribunal left open the limited question of any additional tax payable, which, if found, must be deposited in accordance with rules. [Paras 9, 10]Matter remanded for reconciliation of turnovers and limited appraisal; any additional tax found payable to be deposited as per rules.Final Conclusion: The appeal is allowed; the ex parte order confirming demand and penalties and the Commissioner (Appeals)'s dismissal for want of pre-deposit are set aside. The appellant is directed to file a reconciliation between ST-3 returns and Form 26AS for further appraisal, and to deposit any tax found payable in accordance with rules. Issues:1. Whether the show cause notice invoking the extended period of limitation was rightly issued.Analysis:The appeal revolved around the correctness of the show cause notice issued to the appellant invoking the extended period of limitation. The appellant, engaged in various services, had filed their service tax returns and paid the admitted taxes for the financial year 2014-2015. The show cause notice alleged non-disclosure of tax liability based on information from the Income Tax Department. The appellant contested the notice, arguing that they had filed the service tax returns and urged that the extended period of limitation was not applicable. However, the Adjudicating Authority failed to consider the appellant's reply and the filed returns, leading to an ex parte confirmation of demand, penalties, and interest by the Deputy Commissioner.The Deputy Commissioner's order was challenged before the Commissioner (Appeals), who dismissed the appeal due to non-compliance with the pre-deposit requirement under Section 35F of the Act. The appellant, through their counsel, highlighted the error in the appeal memo regarding the tax, penalty, or interest deposited, stating that they had indeed deposited taxes as per the ST-3 returns. The counsel argued that the dismissal of the appeal was incorrect, emphasizing that the appellant had complied with the statutory deposit requirement.Upon reviewing the contentions, the Member (Judicial) found that the show cause notice was issued mechanically without referencing available records. Despite the appellant filing a reply with the ST-3 returns, the assessing officer failed to consider these documents. The Member noted that the appellant had not failed to disclose taxable turnover or pay admitted taxes, and there might be differences between turnover in ST-3 returns and Form-26 AS due to accrual vs. receipt basis. Consequently, the extended period of limitation was deemed inapplicable, and the appeal was allowed, setting aside the impugned order. The Commissioner (Appeals)' dismissal was also criticized as the appellant had deposited substantial tax exceeding the statutory requirement.The appellant was directed to submit a reconciliation statement reconciling turnover from ST-3 returns and Form 26 AS for appraisal purposes, with any additional tax found payable to be deposited accordingly. Ultimately, the appeal was allowed, and the impugned order was overturned.