Service tax demand barred by limitation when department already knew facts during first notice issuance

The CESTAT Allahabad held that service tax demand was barred by limitation as the department could not invoke extended period of limitation in subsequent show cause notices when they were already aware of facts during the first notice issuance. Following precedent in A.N. Kapoor (Janitors) Pvt. Ltd., the third show cause notice invoking extended limitation period was invalid. However, the tribunal upheld late filing fees imposed for delayed submission of three returns, finding such penalties justified for filing delays.

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Issues Involved:

1. Confirmation of Service Tax demand and associated penalties.
2. Invocation of the extended period of limitation for issuing the show cause notice.
3. Imposition of late fees for delayed filing of returns.

Detailed Analysis:

1. Confirmation of Service Tax Demand and Associated Penalties:

The Tribunal reviewed the Order-in-Appeal which confirmed the demand for Service Tax amounting to Rs. 53,43,481 for the fiscal years 2015-16 to 2017-18, along with a smaller amount of Rs. 14,065 on legal expenses for the same period. The order also imposed penalties under Section 78 of the Finance Act, 1994, and late fees under Section 70 of the Act. The Tribunal noted that the original authority had upheld these demands based on the alleged willful suppression of taxable value by the noticee, which was not disclosed in the service tax returns. This suppression was identified through third-party data and subsequent investigation, leading to the conclusion that the noticee had deliberately evaded payment of service tax.

2. Invocation of the Extended Period of Limitation:

A significant issue was the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994. The Tribunal observed that the original authority had relied on the extended period due to suppression of facts by the noticee. However, the Tribunal found that the show cause notice issued on 17.12.2020 for the period 2015-16 to 2017-18 was time-barred. The Tribunal referred to the CBIC Notification dated 30.09.2020, which was issued in response to the COVID-19 pandemic, but concluded that the notification could not revive a demand that was already barred by limitation. The Tribunal emphasized that subsequent show cause notices could not invoke the extended period of limitation if the facts were already known to the department, as established in previous judgments, including the Supreme Court decision in Nizam Sugar Factory v. Collector of Central Excise. Consequently, the Tribunal set aside the demand on the ground of limitation.

3. Imposition of Late Fees for Delayed Filing of Returns:

The Tribunal upheld the imposition of late fees for delayed filing of service tax returns. It acknowledged that the appellant had filed the returns with a delay of about 65 days, which was not contested. The imposition of late fees was deemed a legal obligation, independent of any tax evasion considerations. The Tribunal reiterated its earlier stance that the late fees were justified as per statutory requirements.

Conclusion:

The appeal was partly allowed. The Tribunal set aside the service tax demand and associated penalties due to the improper invocation of the extended period of limitation but upheld the imposition of late fees for the delayed filing of returns. The decision was dictated and pronounced in open court.

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