Suppression without deliberate intent to evade service tax cannot invoke extended limitation period under Section 73

CESTAT New Delhi held that mere suppression of facts without deliberate intent to evade service tax cannot invoke extended period of limitation under reverse charge mechanism. The appellant, a registered taxpayer filing regular returns, failed to inform department about foreign currency remittances to service providers. However, since non-payment was detected during routine audit and no positive act showing willful evasion was established, the extended limitation period was improperly invoked. Following SC precedent in Pushpam Pharmaceutical, suppression must be willful with intent to evade. Appeal allowed, impugned order set aside.

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Issues Involved:

1. Liability to pay service tax under the reverse charge mechanism.
2. Invocation of the extended period of limitation.
3. Allegation of suppression of facts with intent to evade tax.
4. Eligibility for Cenvat credit and revenue neutrality.

Detailed Analysis:

1. Liability to Pay Service Tax Under the Reverse Charge Mechanism:

The appellant, engaged in manufacturing excisable goods, was alleged to have failed to pay service tax on services imported during 01.04.2011 to 31.03.2014. The department claimed a service tax liability of Rs. 4,49,046/- under the reverse charge mechanism (RCM) as per Section 66A of the Finance Act, 1994. The appellant contended that services such as exhibition, advertisement, research and development, and consultancy were provided and consumed outside India, thus not attracting service tax. However, the tribunal found that the services related to research and development and consultancy were for commercial activities in India, making them liable for service tax under RCM.

2. Invocation of the Extended Period of Limitation:

The department issued a show cause notice on 20.01.2016, invoking the extended period of limitation for the demand. The appellant argued that the entire demand fell under the extended period and was based on a bona fide belief that no tax was payable since services were consumed outside India. The tribunal noted that the transactions were recorded in the appellant's financial statements and the non-payment was detected during an audit, indicating no intent to suppress facts. The tribunal emphasized that mere non-disclosure does not equate to suppression unless it is deliberate and with intent to evade tax, referencing Supreme Court judgments that suppression must be "wilful" and with intent to evade payment.

3. Allegation of Suppression of Facts with Intent to Evade Tax:

The department alleged the appellant suppressed facts by not informing about the remittances made in foreign currency for taxable services. The tribunal highlighted that suppression, as per legal precedents, requires a deliberate act with intent to evade tax. The tribunal found no evidence of wilful suppression or intent to evade, as the transactions were part of audited financial records and the appellant was under a bona fide belief regarding tax liability. The tribunal concluded that the extended period of limitation could not be invoked due to the absence of deliberate suppression or intent to evade.

4. Eligibility for Cenvat Credit and Revenue Neutrality:

The appellant claimed eligibility for Cenvat credit on the demanded tax, arguing that the situation was revenue-neutral. The tribunal acknowledged this claim, noting that the appellant was eligible for Cenvat credit as the services were input services. The tribunal referenced decisions where demands were dropped on grounds of revenue neutrality, reinforcing the appellant's position. The tribunal's decision to set aside the impugned order was influenced by the recognition of revenue neutrality and the appellant's eligibility for Cenvat credit.

Conclusion:

The tribunal set aside the impugned order, allowing the appeal. It concluded that the appellant was liable for service tax under RCM for services consumed in India but found no grounds for invoking the extended period of limitation due to lack of wilful suppression or intent to evade tax. The tribunal also recognized the appellant's eligibility for Cenvat credit, leading to a revenue-neutral situation.

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