2023 (12) TMI 747 - AT - Service Tax

CESTAT dismisses appeal against extended limitation period and confirms 100% penalty under Section 78 for tax evasion

M/s. Hakim Singh Contractor Versus Commissioner of Central Goods and Service Tax, Customs and Central Excise, Alwar

The CESTAT New Delhi dismissed the appeal challenging invocation of extended limitation period and penalty imposition. The appellant acknowledged short ... Invocation of Extended period of Limitation - whether the show cause notice served upon the appellant hits by the time bar limit? - Levy of penalty - HELD THAT:- The appellant has otherwise acknowledged the short payment of service tax during the disputed period and has not challenged the quantum of demand proposed and confirmed against the appellant. It is apparent from the record that after receiving the specific information that the appellant has short paid service tax, a letter dated 11.02.2014 was served upon the appellant requiring them to produce requisite documents and to submit the reply with the said specific information. It is very much apparent from the show cause notice itself that the said information/documents were never provided by the appellant to the department. No reason has been brought on record by the appellant nor has been submitted by making submissions even today about the said delay on part of the appellant and about the reason as to why none of those documents were never been provided, the delay for the entire period since February 2014 till April 2018 is held to be appellant’s fault. Hence benefit cannot be extended in favour of the appellant for the said fault. Resultantly, it cannot be held that the impugned show cause notice has been issued by invoking the extended period of limitation. Had there been a response by the appellant to the letter dated 11.02.2014, there is nothing on record to even presume that department would have delayed issuing the impugned show cause notice. Levy of penalty - HELD THAT:- As already held that the act of appellant amounts to an act of suppression of facts, there is no infirmity in the imposition of penalty under Section 78 of the Finance Act - Though learned counsel had made another submission that the penalty imposed is disproportionate, it has been imposed 100% whereas it is on record that an amount of Rs.8,14,159/- was deposited by the appellant even prior the issuance of show cause notice. On this ground learned counsel has prayed for confining the penalty for the balance amount of Rs. 2.57 lakhs approximately. Since the findings of Para 8 and 9 of the order under challenge have been confirmed and it has been held that there is an intentional suppression on part of the appellant. The only possibility of such suppression is an intent to evade the payment of tax as has been appreciated by Commissioner (Appeals) in Para 9 of the order under challenge. There are no reason to differ from the said findings also. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the issuance of the show cause notice after the extended limitation period was justified, given the department's invocation of extended period and the appellant's alleged non-cooperation. 2. Whether invocation of extended limitation is excluded by absence of misrepresentation or fraud on the part of the assessee. 3. Whether imposition of penalty under Section 77(1)(c) and Section 78 of the Finance Act (penalty for suppression/non-furnishing of information) is justified where some tax was paid before issuance of the show cause notice but a short payment remained. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of invoking the extended period of limitation Legal framework: Limitation for issuing demand notices is governed by the statutory limitation regime; extended period may be invoked where rebutting facts (such as suppression, misrepresentation or failure to produce required information) justify a period beyond the normal limitation. Precedent Treatment: The Tribunal upheld the reliance placed by the adjudicator on prior judicial authorities referenced in paras 8-9 of the impugned appellate order and treated those authorities as applicable to the facts (i.e., followed). Interpretation and reasoning: The Tribunal examined documentary chronology: information received by department alleging short payment; letter dated 11.02.2014 requesting records; multiple follow-up letters (26.03.2014, 01.05.2014, 25.09.2014, 16.04.2015, 03.10.2017, 05.04.2018) requesting tax returns, balance sheets, Form 26AS, VAT returns, work orders, invoices, etc.; no substantive response or documents furnished by the assessee until issuance of the show cause notice on 26.04.2018. The Tribunal treated the delay between February 2014 and April 2018 as caused by the assessee's failure to produce information and held that such delay cannot be attributed to the department. The Tribunal rejected the contention that extended period was invoked wrongly in the absence of proven misrepresentation, reasoning that silence and failure to produce requested documents constituted culpable conduct for limitation purposes. Ratio vs. Obiter: Ratio - where a taxpayer, after receipt of specific departmental request for documents regarding suspected short payment, fails to supply the requested information over an extended period, the resulting delay is attributable to the taxpayer and authorizes invocation of the extended limitation period. Obiter - general observations on departmental conduct in absence of taxpayer response. Conclusion: The extended period of limitation was validly invoked; the show cause notice issued on 26.04.2018 is not time-barred. Issue 2 - Relevance of absence of affirmative evidence of misrepresentation Legal framework: Extended limitation may be invoked where there is suppression or misrepresentation; however, the statutory tests consider conduct and failure to furnish information as relevant indicia. Precedent Treatment: The Tribunal followed the approach in the impugned appellate order and related superior court decisions that treat non-cooperation and suppression by omission as justifying extended limitation. Interpretation and reasoning: The appellant acknowledged short payment and produced challan details showing part payment (Rs.8,14,159) but admitted approximately Rs.2.54-2.57 lakhs remained unpaid. The Tribunal found no explanation for the prolonged non-production of documents after specific requests and held that absence of an explicit affirmative misstatement does not preclude treating the conduct as suppression by omission. The Tribunal emphasized that had the appellant responded to the initial request in February 2014, delay in issuing the show cause notice would likely not have occurred, thereby linking the extended period to the appellant's non-response. Ratio vs. Obiter: Ratio - deliberate or culpable omission to furnish requested information in the face of specific departmental queries may constitute suppression for limitation purposes even absent an express false statement. Obiter - commentary on hypothetical departmental action had documents been produced earlier. Conclusion: Lack of direct evidence of affirmative misrepresentation does not invalidate invocation of extended limitation where there is sustained non-cooperation amounting to suppression by omission. Issue 3 - Validity and quantum of penalty under Section 77(1)(c) and Section 78 where part tax was paid pre-notice Legal framework: Penalty provisions penalize suppression of facts and failure to furnish information; adjudicatory discretion may consider partial voluntary payment but suppression/intent to evade are central to penalty imposition. Precedent Treatment: The Tribunal endorsed the appellate authority's reliance on superior court authorities (paras 8-9) and did not disturb the application of penalty principles to the facts (i.e., followed). Interpretation and reasoning: Facts accepted by the Tribunal: partial tax payment made before issuance of show cause notice (Rs.8,14,159), admitted short payment of approximately Rs.2.54-2.57 lakhs, and failure to produce documents or provide explanations despite repeated departmental requests. The Tribunal characterized the appellant's conduct as suppression of facts and found an intent to evade payment as the plausible inference (as appreciated in para 9 of impugned order). On proportionality, the appellant argued penalty should be confined to the unpaid balance since some tax was deposited pre-notice. The Tribunal rejected that mitigation because the decisive factor was the intentional suppression and non-cooperation; given that finding, imposition of penalty at 100% was held not to be infirm in the circumstances. Ratio vs. Obiter: Ratio - where intentional suppression and failure to furnish information are established, section 77(1)(c) and section 78 penalties are appropriately imposable even if part of the tax was paid prior to the show cause notice. Obiter - remarks on potential mitigation had credible explanations or documents been produced. Conclusion: Penalties under Section 77(1)(c) and Section 78 were lawfully imposed and not disproportionate in light of the finding of intentional suppression; the request to limit penalty to the unpaid balance was rejected. Cross-references and overall disposition All issues are interrelated: the Tribunal's conclusion on extended limitation (Issues 1-2) directly supports the finding of suppression and justification for penalties (Issue 3). The Tribunal affirmed the appellate order's findings (paras 8-9) and dismissed the appeal, upholding the demand, interest and penalties as confirmed below.