2025 (3) TMI 331 - AT - Service Tax

Extended limitation demand quashed where receipts fell below Notification No.33/2012 threshold; recovery and penalty disallowed

CESTAT allowed the appeal and set aside the impugned order insofar as it invoked the extended period of limitation. The Tribunal found the appellant's ... Recovery of not paid/short paid service tax alongwith interest and penalty - discrepancies between the amounts reported in their service tax returns and those reflected in Form 26AS - extended period of limitation - HELD THAT:- The appellant have received amounts which are much bellow the threshold limit as prescribed under N/N. 33 of 2012, whereby threshold limit of exemption was provided by 10 lakhs in relation to the services exempted from payment of service tax as per Notification No.33 of 2012 dated 20 June, 2012 in relation to eatable products. There is sufficient ground for the appellant to enter into a belief that no service tax was payable by them. It is also supported by the decision to belief is well founded on the basis of the decision of this Tribunal in the case of M/s Kwality Ice Cream Company [2018 (3) TMI 1389 - CESTAT NEW DELHI]. Conclusion - There are no merits in the impugned order to the extent that it holds invocation with regards to extended period of limitation for making this demand, as this demand is based by limitation, so no penalty could have been imposed on the appellant. The impugned order is set aside - appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the appellant was liable to pay the service tax for the period 2015-16 to 2017-18, given the discrepancies between the amounts reported in their service tax returns and those reflected in Form 26AS.Whether the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, was justified in this case.Whether penalties imposed under Sections 77 and 78 of the Finance Act, 1994, were appropriate given the appellant's alleged suppression of facts and failure to maintain prescribed records.Whether the appellant's belief that no service tax was payable was bona fide and whether this belief could negate the applicability of penalties and extended limitation periods.ISSUE-WISE DETAILED ANALYSIS1. Liability to Pay Service TaxRelevant legal framework and precedents: The Finance Act, 1994, particularly Section 68 and Rule 6 of the Service Tax Rules, 1994, mandates the payment of service tax on taxable services. Section 70 requires self-assessment and payment based on the services provided.Court's interpretation and reasoning: The Tribunal noted that the appellant declared both the assessable value and service tax as 'NIL', which was inconsistent with the income reported to the Income Tax Department. This discrepancy suggested a suppression of taxable value.Key evidence and findings: The appellant's ST-3 returns showed no service tax liability, while Form 26AS indicated significant receipts. The Tribunal found that the appellant's records were maintained for income tax purposes but not for service tax.Application of law to facts: The Tribunal upheld the demand for service tax based on the information from the Income Tax Department, as the appellant failed to declare the correct assessable value for service tax purposes.2. Invocation of Extended Period of LimitationRelevant legal framework and precedents: Section 73(1) of the Finance Act, 1994, allows for an extended period of limitation in cases of suppression of facts or willful misstatement.Court's interpretation and reasoning: The Tribunal considered whether the appellant's failure to declare the correct assessable value constituted suppression of facts. The Tribunal referenced previous decisions, including M/s Hari Har Engineering Works, which highlighted bona fide belief as a factor negating the applicability of the extended period.Key evidence and findings: The Tribunal found that the appellant had a bona fide belief that no service tax was payable, supported by the decision in M/s Kwality Ice Cream Company.Application of law to facts: The Tribunal concluded that the extended period of limitation was not applicable as the appellant's belief was bona fide and supported by precedent.Treatment of competing arguments: The Tribunal weighed the appellant's argument of bona fide belief against the revenue's assertion of suppression of facts and found in favor of the appellant.3. Imposition of PenaltiesRelevant legal framework and precedents: Sections 77 and 78 of the Finance Act, 1994, impose penalties for failure to pay service tax and for suppressing facts.Court's interpretation and reasoning: The Tribunal considered whether the penalties were justified given the appellant's bona fide belief and the lack of intent to evade tax.Key evidence and findings: The Tribunal found that the appellant's actions were not willful suppression but were based on a bona fide belief, negating the imposition of penalties.Application of law to facts: The Tribunal set aside the penalties, citing the appellant's bona fide belief and the precedent set by M/s Hari Har Engineering Works.Treatment of competing arguments: The Tribunal accepted the appellant's argument of bona fide belief and dismissed the revenue's claim of suppression.SIGNIFICANT HOLDINGSCore principles established: The Tribunal reaffirmed the importance of bona fide belief in tax matters, which can negate the applicability of extended limitation periods and penalties.Final determinations on each issue: The Tribunal set aside the impugned order to the extent it invoked the extended period of limitation and imposed penalties, allowing the appeal in favor of the appellant.Verbatim quotes of crucial legal reasoning: 'In view of the decisions as above, I do not find any merits in the impugned order to the extent that it holds invocation with regards to extended period of limitation for making this demand, as this demand is based by limitation, so no penalty could have been imposed on the appellant.'