2024 (12) TMI 352 - AT - Service Tax

Extended limitation period under section 73(1) proviso requires proof of wilful suppression with intent to evade service tax

CESTAT New Delhi held that extended limitation period under section 73(1) proviso of Finance Act cannot be invoked without establishing wilful suppression ... Invocation of Extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act - suppression of facts or not - HELD THAT:- The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word “one year”, the word “five years” has been substituted. It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be “wilful‟ since “wilful‟ precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression “wilful” before “suppression of facts” under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be “wilful‟ and there should also be an intent to evade payment of service tax. In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY [1995 (3) TMI 100 - SUPREME COURT], the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The said proviso to pari materials the proviso to section 73(1) of the finance Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It would transpire from the aforesaid decision that mere suppression of facts is not enough and there must be a deliberate and wilful attempt on the part of the assessee to evade payment of duty. In the absence of any intention to evade payment of service tax, which intention should be evident from the materials on record or from the conduct of the assessee, the extended period of limitation cannot be invoked. Thus, mere non disclosure of the receipts in the service tax return would not mean that there was an intent to evade payment of service tax. In THE COMMISSIONER, CENTRAL EXCISE AND CUSTOMS AND ANOTHER VERSUS M/S RELIANCE INDUSTRIES LTD. AND COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX VERSUS M/S RELIANCE INDUSTRIES LTD. [2023 (7) TMI 196 - SUPREME COURT], the Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bona-fide manner. In the present case, all that has been stated in the show cause notice is that the appellant received an amount for the three taxable services and since the appellant did not provide the required documents it suppressed facts from the department with intent to evade payment of service tax - The Commissioner (Appeals) held that there was no infirmity with the issue of demand as the period of demand was within five years. The appellant had filed a reply to the show cause notice clearly stating that though the show cause notice referred to the search of the premises of M/s. Hans Travel on 04.04.2008, but even earlier on 16.09.2003 the office of M/s. Hans Travel was searched by the officers of the Service Tax Section of Central Excise Division and all the records were ceased for further investigation about the taxable service. The reply also mentions that not only the day to day record of M/s. Hans Travel were scrutinized by the officers of the department but even the financial records were scrutinized. The reply also mentions that no reasons had been stated as to why the facts were suppressed with intention to evade payment of service tax. The reply also mentions that the show cause notice was issued on the basis of entries made in the balance sheet which were available to the department when the search was carried out. The extended period of limitation, therefore, could not have been invoked. The impugned order dated 16.11.2016 passed by the Commissioner (Appeals), therefore, deserves to be set aside on the sole ground that the extended period of limitation contemplated under the proviso to section 73 (1) of the Finance Act could not have been invoked in the facts and circumstances of the case. The order dated 16.11.2016 passed by the Commissioner (Appeals) is, therefore, set aside - Appeal allowed. Issues Involved:1. Invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994.2. Allegations of suppression of facts with intent to evade payment of service tax.Issue-wise Detailed Analysis:1. Invocation of the Extended Period of Limitation:The primary issue in this appeal was whether the extended period of limitation could be invoked under the proviso to Section 73(1) of the Finance Act, 1994. The appellant contended that the show cause notice was issued beyond the stipulated period, as the department had prior knowledge of the facts, and thus, the extended period could not be invoked. The relevant section allows for a five-year period in cases involving fraud, collusion, wilful misstatement, or suppression of facts with intent to evade tax, as opposed to the standard one-year period.The Tribunal examined the appellant's argument that the department had been aware of the facts since a search conducted in 2003, and thus, the show cause notice issued in 2013 was time-barred. The appellant argued that the department's knowledge of the facts precluded the invocation of the extended period. The Tribunal referred to several judicial precedents, including Supreme Court and High Court decisions, which established that 'suppression of facts' must be deliberate and with intent to evade tax. The Tribunal concluded that mere non-disclosure or omission does not constitute suppression unless it is wilful and intended to evade tax.2. Allegations of Suppression of Facts:The show cause notice alleged that the appellant had suppressed facts to evade payment of service tax on services categorized under 'rent-a-cab service,' 'renting of immovable property,' and 'business support service.' The appellant countered that all relevant information was available in public documents like the balance sheet and profit and loss account, which were accessible to the department.The Tribunal analyzed whether the appellant's actions amounted to suppression of facts with intent to evade tax. It emphasized that for the extended period to apply, there must be evidence of deliberate suppression with intent to evade. The Tribunal found that the department failed to establish such intent, noting that the demand was based on publicly available financial documents. The Tribunal also highlighted that the department's failure to act on available information in a timely manner does not justify the invocation of the extended period.The Tribunal concluded that the department did not provide sufficient evidence of wilful suppression or intent to evade tax. It reiterated that mere non-disclosure in returns does not equate to suppression unless accompanied by an intent to evade. Consequently, the Tribunal set aside the impugned order, ruling that the extended period of limitation was incorrectly invoked, and allowed the appeal with consequential relief to the appellant.