Extended limitation for service tax demands requires deliberate suppression with intent to evade; penalty falls when that foundation is absent.

The extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994 requires proof of deliberate suppression or wilful conduct with intent to evade service tax; mere non-payment is insufficient. On the facts noted, the contract and recipient formed part of the Government defence setup, the assessee had a plausible exemption claim under the mega exemption notification, and the record showed no positive concealment or specific averment of intent to evade. The demand was therefore treated as time-barred, and the penalty under Section 78 could not survive once the limitation foundation failed. The appeal succeeded on limitation, with the associated penal consequence also failing.

---

---

Issues: Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could be invoked in the absence of a positive act of suppression with intent to evade service tax, and whether the penalty under Section 78 of the Finance Act, 1994 could survive once the demand failed on limitation.

Analysis: The dispute turned on whether the Revenue had established deliberate suppression or wilful default so as to justify invocation of the extended limitation period. The order found that the contract and service recipient were within the Government defence setup, the appellant had a plausible claim of exemption under the relevant mega exemption notification, and the record did not show a positive act of concealment or a specific averment demonstrating intent to evade. The finding was that mere non-payment, without evidence of deliberate suppression, is insufficient for the proviso to Section 73(1). Since the demand itself was held to be time-barred, the penalty linked to the same alleged evasion could not stand.

Conclusion: The extended period of limitation was not invocable, and the penalty under Section 78 of the Finance Act, 1994 was not sustainable.

Final Conclusion: The demand was set aside on limitation grounds, with the associated penal consequence also failing, and the appeal succeeded.

Ratio Decidendi: Invocation of the extended period requires proof of deliberate suppression or wilful conduct with intent to evade tax, and a penalty dependent on such invocation cannot survive when that foundation is absent.

---