Service tax demand on additional license fees set aside due to limitation and no point of taxation arising

CESTAT Chandigarh allowed the appeal, setting aside the service tax demand on additional license fees/spectrum charges. The tribunal held that the demand was barred by limitation as extended period was wrongly invoked, noting the appellant regularly filed returns without suppressing facts and completed service tax audit raised no demand. The Rs. 222.1 crores additional license fee pertained to FY 2008-09 to 2013-14 when service tax was not leviable on such fees, not FY 2016-17 as claimed. Additionally, point of taxation had not arisen as no invoice or document was issued by Government demanding payment.

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The core legal questions considered by the Tribunal in this appeal are as follows:

(i) Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 could be invoked to confirm the demand of service tax on additional license fees/spectrum charges for the period FY 2016-17 to FY 2017-18 (up to June 2017).

(ii) Whether the additional license fee/spectrum charges of Rs. 222.1 crores, on which service tax demand was confirmed, pertain to the period FY 2008-09 to FY 2013-14 (up to September/October 2013) and not to FY 2016-17 as alleged by the Revenue.

(iii) Whether the appellant was liable to pay service tax on the additional license fee in the absence of issuance of invoice, bill, challan or any other document by the Government demanding such payment, in terms of the Point of Taxation Rules, 2011.

(iv) Whether the demerger of the appellant's telecom business to Reliance Communications Limited (RCOM) with effect from 31.10.2017 transferred the liability to pay service tax on additional license fee to RCOM.

(v) Whether penalties and interest under Sections 75, 77 and 78 of the Finance Act, 1994 were correctly imposed on the appellant.

Issue-wise Detailed Analysis:

(i) Invocation of Extended Period of Limitation under Section 73(1)

The legal framework governing the limitation period for recovery of service tax is Section 73(1) of the Finance Act, 1994, which allows issuance of show cause notice within one year from the relevant date, except where there is fraud, collusion, wilful misstatement, suppression of facts or intent to evade tax, in which case the period extends to five years.

The Tribunal referred extensively to judicial precedents, including decisions of the Supreme Court and High Courts, which clarify that "suppression of facts" must be deliberate and with intent to evade payment of tax. Mere omission or failure to pay tax does not constitute suppression. The burden of proof lies on the Revenue to establish such willful suppression or intent.

In the present case, the appellant had undergone service tax audit for the disputed period, filed ST-3 returns regularly, and supplied all information sought by the department. No demand was raised during audit, and the appellant had paid service tax on the services availed from the Government on reverse charge basis for FY 2016-17 and FY 2017-18 (up to June 2017).

Moreover, the demand arose from the interpretation of the AGR judgment of the Hon'ble Supreme Court delivered on 24.10.2019, overturning an earlier TDSAT decision. This was an issue of law and interpretation, not concealment of facts by the appellant. Hence, the extended period could not be invoked.

The Tribunal relied on a recent Principal Bench decision which elaborated the strict interpretation of suppression and the requirement of intent to evade tax for invoking extended limitation.

Conclusion: The demand is barred by limitation as the extended period was wrongly invoked. This issue is decided in favour of the appellant.

(ii) Period to which Additional License Fee pertains

The appellant contended that the additional license fee of Rs. 222.1 crores relates to AGR dues self-assessed for the period FY 2008-09 to FY 2013-14, corresponding to 21 2G licenses cancelled by the Supreme Court in its 2G Spectrum Judgment dated 02.02.2012, with validity ending by 03.10.2013.

The appellant submitted documentary evidence including:

• DOT's office memorandum dated 21.01.2014 listing cancelled licenses and their expiry dates.
• Circle-wise and year-wise breakup of the additional license fee certified by a Chartered Accountant.
• Correspondence with DOT confirming the amount pertains to cancelled licenses.

The Revenue arbitrarily held that the amount pertains to FY 2016-17 without providing any corroborative evidence. The Commissioner rejected the CA certificate solely on the ground that it was not supported by corroborative documents, contrary to settled law that such certificates cannot be rejected without evidence to the contrary.

Further, affidavits filed by DOT before the Supreme Court in 2020 and 2021 showed the appellant's name was not included in the total outstanding AGR dues, which were shown only against RCOM. DOT admitted that except for Rs. 0.73 crores paid by appellant, no additional license fee was payable by the appellant.

Conclusion: The additional license fee pertains to the period FY 2008-09 to FY 2013-14, on which service tax was not leviable, and not to FY 2016-17. This issue is decided in favour of the appellant.

(iii) Liability to pay service tax in absence of invoice or demand document under Point of Taxation Rules, 2011

Rule 7 of the Point of Taxation Rules, 2011, as amended by Notification No. 24/2016-ST, provides that where services are provided by the Government to a business entity, the point of taxation arises when payment becomes due as specified in the invoice, bill, challan, or any other document issued by the Government demanding payment.

In the instant case, the Government had not issued any invoice, bill, challan or similar document demanding payment of the additional license fee. The Revenue's reliance on agreements or other documents not issued in the nature of invoices was rejected by the Tribunal applying the principle of ejusdem generis, supported by Supreme Court precedents.

Further, the appellant had not made any payment of the disputed amount to DOT.

Conclusion: The point of taxation had not arisen for the additional license fee, and hence no service tax liability arose. This issue is decided in favour of the appellant.

(iv) Effect of Demerger of Telecom Business to RCOM on Service Tax Liability

The appellant entered into a demerger agreement with RCOM in November 2015, transferring its telecom business including licenses and spectrum to RCOM under a court-approved Scheme of Arrangement effective from 31.10.2017. DOT also approved the transfer of assets and liabilities to RCOM.

The appellant contended that all liabilities including disputed license fees were transferred to RCOM and hence they are not liable for service tax on such fees post-demerger.

The Revenue argued that demerger under Companies Act does not affect statutory liability to pay service tax under Finance Act, which cannot be transferred to a non-assessee. The Revenue also pointed out that the Scheme did not expressly provide for transfer of service tax liability.

The Tribunal noted that the demand relates to the period prior to demerger effective date and that the statutory service tax liability for that period remains with the appellant. However, since the disputed additional license fees pertained to cancelled licenses prior to FY 2016-17 (on which service tax was not leviable), the issue of transfer of liability became moot.

Conclusion: The demerger does not absolve the appellant of service tax liability for the disputed period, but since the demand relates to fees for cancelled licenses prior to FY 2016-17, the appellant is not liable for service tax on such fees.

(v) Penalties and Interest under Sections 75, 77 and 78

The appellant challenged the imposition of interest and penalties, contending that there was no suppression, fraud or intent to evade tax, and that the demand was barred by limitation.

The Tribunal found that since the demand itself was barred by limitation and the appellant had acted bona fide under a genuine dispute of law, penalties and interest were not sustainable.

Conclusion: Penalties and interest imposed are not sustainable and are set aside.

Significant Holdings:

"It is clear that even when an assessee has suppressed facts, the extended period of limitation can be invoked only when 'suppression' is shown to be wilful with intent to evade the payment of service tax."

"A CA Certificate cannot be rejected by the department without providing any evidence to contradict the same."

"The point of taxation arises when payment becomes due as specified in the invoice, bill, challan or any other document issued by the Government demanding such payment. In the absence of such document, no liability to pay service tax arises."

"The demand raised pertains to the period FY 2008-09 to FY 2013-14 on cancelled licenses, during which period service tax was not leviable on license fee/spectrum charges."

"The extended period of limitation under Section 73(1) of the Finance Act, 1994 cannot be invoked in absence of fraud, collusion, wilful misstatement, suppression of facts or intent to evade tax."

"The demerger of the appellant's telecom business to RCOM effective from 31.10.2017 does not affect the appellant's service tax liability for the period prior to demerger, but since the disputed fees pertain to cancelled licenses prior to FY 2016-17, no service tax liability arises."

The Tribunal set aside the impugned order confirming demand, interest and penalties, and allowed the appeal with consequential relief.

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