CESTAT rules show cause notices invalid after voluntary service tax payment, rejects reverse charge liability for loan facilitation services

CESTAT NEW DELHI allowed the appeal, holding that show cause notices issued after appellant's voluntary payment of service tax dues were invalid. The tribunal found no liability for service tax under Reverse Charge Mechanism for business auxiliary services as appellants merely facilitated customer loans without rendering services to financial institutions. Demand for service tax on unclaimed creditors written off was rejected as amounts from accessory sales cannot constitute service provision. Extended limitation period was improperly invoked absent evidence of willful suppression or mala fide intent. The show cause notice was deemed void ab initio and time-barred, with no penalties imposable.

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Issues Involved:
1. Short payment/non-payment of service tax.
2. Liability to pay service tax under Reverse Charge Mechanism.
3. Alleged rendering of Business Auxiliary Services.
4. Wrongful availing of Cenvat credit.
5. Invocation of extended period for demand.
6. Imposition of penalties.

Summary:

Issue 1: Short payment/non-payment of service tax
The appellant, M/s. Tanushka Automobiles Pvt. Ltd., was observed to have short paid service tax for various periods between 2010-11 and 2014-15. The amounts were identified through six Spot Memos. The appellant paid the amounts along with interest for five of the Spot Memos before the issuance of the Show Cause Notice (SCN). The Tribunal held that as per Section 73(3) of the Finance Act, the SCN should not have been issued for these five Spot Memos since the payments were made prior to the SCN. Consequently, the SCN was deemed void ab initio for these five Spot Memos, and no penalties were warranted.

Issue 2: Liability to pay service tax under Reverse Charge Mechanism
The appellant was found liable to pay service tax under the Reverse Charge Mechanism w.e.f. 01.07.2012, but the amount was unpaid. This was included in the SCN, but since the appellant paid the amount along with interest before the SCN, the Tribunal held that the SCN should not have been issued for this liability as well.

Issue 3: Alleged rendering of Business Auxiliary Services
The appellant contested the demand under Spot Memo No. 4, which alleged that amounts received as incentives, extension warranty commission, and unclaimed creditors written off were for rendering Business Auxiliary Services. The Tribunal found no evidence of an agreement or arrangement between the appellant and financial institutions to promote their business. It was held that the appellant was promoting its own business by facilitating loans for its customers, not rendering Business Auxiliary Services. Thus, the demand under Spot Memo No. 4 was set aside.

Issue 4: Wrongful availing of Cenvat credit
The appellant was alleged to have wrongly availed Cenvat credit of input service amounting to Rs.1,24,589/-. This was included in the SCN, but since the appellant paid the amount along with interest before the SCN, the Tribunal held that the SCN should not have been issued for this liability as well.

Issue 5: Invocation of extended period for demand
The department invoked the extended period alleging suppression of facts. The Tribunal held that mere non-declaration in ST-3 returns does not amount to willful suppression or misrepresentation. There was no evidence of mala fide intent by the appellant. Therefore, the extended period should not have been invoked, rendering the SCN barred by limitation.

Issue 6: Imposition of penalties
Given that the payments were made before the issuance of the SCN and there was no willful suppression, the Tribunal held that no penalties should be imposed. The SCN was void ab initio for five Spot Memos, and the demand under Spot Memo No. 4 was also set aside.

Conclusion:
The Tribunal set aside the order under challenge, holding the SCN void ab initio for five Spot Memos and barred by limitation. The demand under Spot Memo No. 4 was also set aside. The appeal was allowed.

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