2023 (9) TMI 1700 - AT - Service Tax

Extended Limitation Period Invalid Without Proof of Willful Tax Suppression; Penalty Under Section 78 Quashed

M/s Mahanadi Coalfields Limited Versus Commissioner of CGST & Central Excise, Bhubaneswar-I

The CESTAT Kolkata held that the demand for short-paid service tax based on discrepancies between financial statements and returns, raised under the ... Short payment of service tax - demand of short paid service tax on the basis of differences appearing in their Financial Statements and Service Tax Returns for the period from 2005-06 to 2008-09 - suppression of facts or not - invocation of extended period of limitation - levy of penalty - HELD THAT:- The Appellant stated that in the entire proceedings, there is no findings that the Appellant have willfully evaded payment of Service Tax with an intent of fraud or suppression. In this context, they relied on the decision of CESTAT Delhi, Principal Bench in Vandana Global Ltd vs. Comm (Appeals), CGST, Raipur [2022 (12) TMI 450 - CESTAT NEW DELHI], wherein it was observed that If the audit points out some wrong assessment which was not pointed out by the officer scrutinising the ER-1 return, the fault lies at the doorstep of the officer. It does not, by itself, establish that the Appellant had suppressed any facts. The Appellant is a PSU, subjected to several audits including the CAG Audit. Suppression of fact with an intention to evade statutory duties cannot be alleged on a PSU, as they would not reap any benefit by evading the tax due to the Government. This view has been held by the Tribunal in the CCE, Indore vs. Nepa Ltd [2013 (11) TMI 776 - CESTAT NEW DELHI] wherein it has held that it would be absurd to assume that a PSU will have intention to evade payment of duty. The view is also supported by the decision of Hon’ble Supreme Court in the case of Commissioner of Central Excise, Chennai-I v. Chennai Petroleum Corpn. Limited [2007 (4) TMI 4 - SUPREME COURT]. The entire demand has been confirmed against the appellant by invoking the extended period of limitation. However, there is no material evidence available on record to substantiate the allegation of suppression of facts with an intention to evade payment of tax. Accordingly, the demand confirmed in the impugned order, by invoking the extend period is bad in law and liable to be set aside. The penalty imposed under Section 78 of the Finance Act, 1994, in the impugned order is not sustainable as no positive act of suppression coupled with an intent to evade payment of service tax has been brought on record by the Revenue. The impugned order is set aside on the ground of limitation - appeal allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the demand of service tax confirmed by the adjudicating authority, based on differences between financial statements and service tax returns, is sustainable. Whether the rejection of reconciliation statements for certain amounts by the Commissioner without assigning clear reasons is legally valid. Whether invoking the extended period of limitation for recovery of service tax demand is justified in the absence of willful suppression or intent to evade tax. Whether penalty under Section 78 of the Finance Act, 1994, is sustainable without proof of suppression of facts or intent to evade service tax. Whether a Public Sector Undertaking (PSU) can be presumed to have intention to evade statutory duties. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of Service Tax Demand Confirmed on Differences in Financial Statements and Returns Legal Framework and Precedents: Service tax is payable on taxable services as per the Finance Act, 1994. The demand arises when there is short payment or non-payment of tax. The adjudicating authority must base confirmation of demand on clear evidence and valid reasons. Court's Interpretation and Reasoning: The appellant submitted detailed reconciliation statements supported by Chartered Accountant certificates explaining differences between transportation charges recorded in financial statements and service tax returns. The adjudicating authority confirmed a portion of the demand (Rs. 14,98,141/-) while dropping the majority of the claimed demand after accepting reconciliation for most amounts. However, the Commissioner rejected reconciliation for certain amounts under paragraphs 7.6 and 7.7 of the impugned order, citing 'wrong accounting procedure' without providing specific details or supporting evidence. The Tribunal noted absence of categorical findings explaining how the appellant was liable to pay service tax on these amounts. Key Evidence and Findings: The reconciliation statements and CA certificates were accepted for major amounts. The impugned order's rejection of certain deductions lacked documentary support and clarity on the alleged accounting errors. Application of Law to Facts: The absence of clear reasons or evidence for rejecting reconciliation undermines the validity of the confirmed demand portion. The appellant's accounting practices, as a PSU subject to multiple audits, were not demonstrated to be incorrect or evasive. Treatment of Competing Arguments: The Revenue relied on the impugned order's findings; the appellant challenged the lack of reasoned basis for rejection and absence of evidence of willful default. Conclusion: The partial confirmation of demand without clear justification is unsustainable. Issue 2: Validity of Invoking Extended Period of Limitation Legal Framework and Precedents: Under service tax law, the normal period of limitation applies unless there is evidence of willful suppression of facts to evade tax, which justifies invoking the extended period. Self-assessment regime requires assessees to correctly assess and pay tax, but errors detected by audit do not ipso facto amount to suppression. The Tribunal relied on a recent authoritative decision which held that if audit detects discrepancies not identified by officers scrutinizing returns, the fault lies with the officers, not the assessee. Mere differences in assessment do not establish suppression. Court's Interpretation and Reasoning: The appellant is a PSU subjected to rigorous audits including by the Comptroller and Auditor General (CAG), making willful suppression improbable. The impugned order invoked extended limitation without establishing any fraudulent intent or suppression. Key Evidence and Findings: No material evidence of suppression or fraud was found. The appellant's detailed reconciliations were accepted for most amounts. The extended period was invoked solely on the basis of audit findings. Application of Law to Facts: The Tribunal held that invoking extended limitation without proof of suppression is legally impermissible. The appellant's conduct did not amount to evasion or concealment. Treatment of Competing Arguments: Revenue argued that self-assessment obliges correct disclosure and any deficiency justifies extended limitation. The Tribunal rejected this, emphasizing the role of officer scrutiny and audit as checks on self-assessment. Conclusion: Demand confirmed by invoking extended period of limitation is bad in law and liable to be set aside. Issue 3: Imposition of Penalty Under Section 78 of the Finance Act, 1994 Legal Framework and Precedents: Section 78 penalty is imposed for failure to pay service tax due to suppression of facts or fraud. Proof of positive act of suppression and intent to evade tax is necessary to sustain penalty. Court's Interpretation and Reasoning: The impugned order imposed penalty without establishing any positive act of suppression or fraudulent intent. The appellant's status as a PSU, subject to multiple audits, supports presumption against intention to evade tax. Key Evidence and Findings: No evidence of suppression or fraud was brought on record by the Revenue. The appellant's reconciliations were largely accepted. Application of Law to Facts: Without evidence of suppression or intent, penalty under Section 78 is not sustainable. Treatment of Competing Arguments: Revenue relied on the confirmed demand; appellant emphasized lack of suppression and PSU status. Conclusion: Penalty imposed under Section 78 is liable to be set aside. Issue 4: Presumption Regarding Intention of Public Sector Undertakings (PSUs) to Evade Tax Legal Framework and Precedents: Judicial precedents recognize that PSUs, being government-owned entities subject to extensive audits, are unlikely to have intent to evade statutory duties. Court's Interpretation and Reasoning: The Tribunal reaffirmed the principle that it is unreasonable to assume a PSU would intentionally evade tax, as it does not benefit from such evasion and is under constant scrutiny. Key Evidence and Findings: The appellant's PSU status and history of audits, including by CAG, were uncontested. Application of Law to Facts: This presumption supports rejecting allegations of suppression or evasion absent clear evidence. Treatment of Competing Arguments: Revenue did not provide countervailing evidence to rebut the presumption. Conclusion: The presumption against intention to evade tax by a PSU is valid and applicable.