Service tax extended limitation requires proving willful suppression with intent to evade payment

CESTAT New Delhi set aside the Commissioner's order dated 30.12.2016 in a service tax case. The tribunal held that extended limitation period under section 73(1) proviso of Finance Act, 1994 cannot be invoked without proving willful suppression of facts with intent to evade service tax. The department failed to demonstrate appellant's intent to evade payment despite non-disclosure of correct service tax liability in returns for services to STPI units, US entities, and SEZ units during 2006-09. The tribunal found appellant acted in bonafide belief regarding tax liability interpretation, citing Supreme Court precedent that disputes involving legal interpretation don't justify extended limitation. Appeal allowed.

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Issues Involved:

1. Services rendered to STPI units.
2. Services rendered to US Library of Congress and US Commercial Services.
3. Service Tax on the above services during 2006-07 and 2007-08.
4. Utilization of Credit in excess of 20%.
5. Short-payment of Service Tax.
6. Non-payment of Service Tax on services rendered to SEZ units during 03.03.2009 to 20.05.2009.
7. Interest on late payment of Service Tax.
8. Invocation of the extended period of limitation under section 73(1) of the Finance Act, 1994.

Issue-wise Detailed Analysis:

I. Services rendered to STPI units:

(a) The appellant rendered services to STPI Units (100% EOU) during the relevant period, which are not exempted from service tax under Notification dated 31.03.2004.

(b) The services rendered by the appellant were in nature of lease circuit services, telecommunication services, internet telecommunication services, online information services, on which the appellant is liable to pay service tax.

(c) For the period from 2008-09 to 2010-11, the appellant is liable to pay service tax of Rs. 1,03,66,861/-.

II. Services rendered to US Library of Congress and US Commercial Services:

(a) The appellant rendered certain services to US Library of Congress and US Commercial Services, which are not exempt under Notification dated 02.08.2002.

(b) For the period from 2008-09 to 2010-11, the appellant is liable to pay service tax of Rs. 2,25,573/-.

III. Service Tax on the above services during 2006-07 and 2007-08:

(a) On the above services rendered to STPI Units, US Library of Congress and US Commercial Services, the appellant is liable to pay service tax of Rs. 1,93,12,582/- for the period 2006-07 and 2007-08 also.

IV. Utilization of Credit in excess of 20%:

(a) In its ST-3 returns, the appellant claimed and utilized CENVAT Credit on common input services for the period 2006-07 to 2007-08. There was a restriction on utilization of credit in excess of 20%.

(b) During September, 2006 to March, 2008, the appellant utilized credit in excess of 20%, on which it is liable to pay interest of Rs. 5,16,956/-.

V. Short-payment of Service Tax:

(a) For the period April-June, 2006, the appellant short-paid service tax of Rs. 13,85,051/-, as reflected in ST-3 returns.

VI. Non-payment of Service Tax on services rendered to SEZ units during 03.03.2009 to 20.05.2009:

(a) The appellant rendered services to a SEZ Unit during 03.03.2009 to 20.05.2009 for Rs. 1,07,879/-, on which it is liable to pay service tax of Rs. 11,112/-.

VII. Interest on late payment of Service Tax:

(a) Service tax liability for the months of September, 2007 and March, 2008 was deposited by the appellant after the due date. Thus, the appellant is liable to pay interest of Rs. 5,231/-.

VIII. Invocation of the extended period of limitation under section 73(1) of the Finance Act, 1994:

The show cause notice invoked the extended period of limitation under the proviso to section 73(1) of the Finance Act, alleging that the appellant had intentionally and willfully suppressed facts to evade payment of service tax. The Commissioner upheld this invocation, stating that the appellant had suppressed all material facts from the department.

Detailed Analysis:

1. Invocation of the Extended Period of Limitation:

The Tribunal first examined whether the extended period of limitation could be invoked. Section 73(1) of the Finance Act allows a notice to be served within one year from the relevant date for recovery of service tax not levied or paid. However, the proviso extends this period to five years in cases involving fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade payment of service tax.

The Tribunal cited several Supreme Court judgments (Pushpam Pharmaceuticals, Anand Nishikawa Company Ltd., Uniworth Textile Limited, Continental Foundation Joint Venture Holding) and the Delhi High Court judgment in Bharat Hotels Limited, which established that suppression of facts must be "wilful" and with an intent to evade payment of service tax.

The Tribunal found that the show cause notice merely presumed intent to evade payment of service tax without providing specific reasons or evidence. The Commissioner also failed to provide any reason for the alleged intent to evade payment. The burden of proving wilful suppression with intent to evade payment was on the department, which it failed to discharge.

2. Self-Assessment Scheme:

The Tribunal noted that under the self-assessment scheme, it is the responsibility of the assessee to determine the liability correctly. However, the department can always call upon an assessee and seek information. The Tribunal referred to the judgment in M/s. Raydean Industries, which emphasized that even in self-assessment, the department has a duty to scrutinize the correctness of the duty assessed by the assessee.

3. Bona Fide Belief:

The Tribunal referred to the Supreme Court judgment in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd., which held that if an assessee bona fide believes it is correctly discharging duty, merely being found wrong later does not render the belief malafide. Disputes related to interpretation of legal provisions do not justify invoking the extended period of limitation.

4. Demand for Period Within Limitation:

The Tribunal cited the Kolkata High Court judgment in Infinity Infotech Parks, which held that if the extended period of limitation is not invocable, the demand for the period within limitation cannot be confirmed.

Conclusion:

The Tribunal concluded that the extended period of limitation could not be invoked as there was no wilful suppression of material facts with intent to evade payment of service tax. Consequently, the demand for the period within limitation also could not be confirmed. The impugned order dated 30.12.2016 passed by the Commissioner was set aside, and the appeal was allowed.

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