2025 (7) TMI 840 - AT - Service Tax

Service tax demand partially set aside as extended limitation period cannot be invoked based solely on audit detection

CESTAT Chandigarh-AT partially allowed appellant's appeal against service tax demand and CENVAT credit denial. The tribunal held that extended limitation ... Invocation of extended period of limitation - admissibility of CENVAT Credit - invoices prescribed under Rule 9(1) of CENVAT Credit Rules were not available with the appellants - HELD THAT:- The Department cannot invoke extended period in the subsequent show cause notices when it failed to take cognizance of some issues in the earlier audit as held in International Merchandising Co. [2025 (4) TMI 1600 - CESTAT CHANDIGARH]. Other than mere invoking the extended period, Revenue has not brought out any mis-declaration etc. on the part of the appellants and therefore, the extended period cannot be invoked only for the reason that audit has detected certain issues. Reliance placed on the decision of the Principal Bench in the case of M/s G.D Goenka Pvt. Ltd. [2023 (8) TMI 995 - CESTAT NEW DELHI]. As there are conflicting judgments on the taxability of the issues involved, the appellants are in their right to entertain an opinion that the impugned charges received by them are not exigible to service tax. Therefore, it is found that major portion of the appeal succeeds on limitation. In respect of the CENVAT credit that is proposed to be denied to the appellants, it is found that the appellant claim that they are in possession of the requisite invoices and documents which prove their eligibility to the CENVAT credit. Learned Commissioner has given a categorical finding that the appellants could not produce the relevant invoices so as to prove their eligibility to avail CENVAT Credit before him - the issue of CENVAT credit also requires to travel to the Original Authority for allowing the CENVAT credit after due verification of the invoices. Demand pertaining to the normal period is remanded to the Original Authority with a direction to decide the taxability of the various receipts by the appellants considering the submissions of the appellants and the jurisprudence evolved in this regard - Invocation of extended period is set aside - appeal allowed in part. The core legal questions considered by the Tribunal revolve around the taxability of various receipts and charges under the Service Tax regime, the applicability of the extended period of limitation for demanding service tax, and the entitlement to CENVAT credit. Specifically, the issues include:(i) Whether service tax is payable on lease pay holder receipts under Cable Operator services;(ii) The taxability of channel placement and carriage receipts under Cable Operator services or Business Auxiliary Services;(iii) The applicability of service tax on infrastructure provider receipts under telecommunication services;(iv) Whether installation, repair, and maintenance charges form part of the taxable value;(v) The validity of invoking the extended period of limitation for the demand raised;(vi) The entitlement of the appellant to CENVAT credit in the absence of production of invoices;(vii) Treatment of penalties imposed in light of the above issues.Issue-wise Detailed Analysis1. Taxability of Lease Pay Holder Receipts under Cable Operator ServicesThe legal framework involves Section 65(22) and Section 65(21) of the Finance Act, which incorporate definitions from the Cable Television Networks (Regulation) Act, 1995 (CTN Act). The CTN Act defines cable service as transmission by cables of programmes and cable operator as a person providing such services or managing cable television networks. Section 65(105)(zs) makes services provided by cable operators taxable under 'cable operator services'.The appellant contended that lease pay holder receipts represent payments from smaller operators for non-expansion of business in their areas and for signal provision, which do not constitute taxable cable operator services. The receipts were booked under a single head 'Cable Subscription', but the appellant argued that only the signal provision part is taxable, not the lease pay holder charges. The adjudicating authority did not accept this distinction.The Tribunal noted that the issue requires detailed consideration in light of the definitions and the nature of services provided. The appellant's submissions were recorded but not adjudicated upon in the impugned order, and the Tribunal found merit in reconsidering this issue.2. Taxability of Channel Placement and Carriage ReceiptsThe appellant argued that channel placement and carriage receipts pertain to agreements with channels for telecasting at desired frequencies to maximize viewership, which is not transmission of signals but a service enhancing channel reach. Such receipts, the appellant submitted, are correctly classifiable under Business Auxiliary Services per Section 65(19) read with Section 65(105)(zzb) of the Finance Act.The Tribunal referenced a prior decision supporting this classification, indicating that the impugned order's treatment of these receipts under cable operator services was incorrect. The adjudicating authority had not considered this submission in detail.3. Taxability of Infrastructure Provider Receipts under Telecommunication ServicesSection 65(109a) and Section 65(105)(zzzx) define telecommunication services as those involving transmission, emission, or reception of signals by telegraph authority. The appellant leased dark optical fibre to telecom companies without transmitting any signals themselves. The appellant argued that since no transmission was done by them, service tax on infrastructure provider receipts under telecommunication services is not leviable.The adjudicating authority had dropped the demand for this head but did not exclude the corresponding amount from the total demand confirmed. The Tribunal found this inconsistent and directed reconsideration.4. Inclusion of Installation and Repair & Maintenance Charges in Taxable ValueThe appellant submitted that these charges represent costs of wire and hardware used during installation and maintenance, which are not part of the taxable service value. The Tribunal found that this issue was not adequately addressed by the adjudicating authority and required fresh examination.5. Invocation of Extended Period of LimitationThe department invoked the extended period on the ground of suppression and tax evasion, alleging non-reporting of services in ST-3 returns. The appellant contended that they were under bona fide belief that service tax was not payable on the disputed receipts, supported by the fact that an earlier audit and show cause notice covering overlapping periods did not dispute these transactions.The Tribunal relied on precedent that extended period cannot be invoked merely because certain issues surfaced in a later audit if the department had earlier opportunity and failed to act. The Tribunal referred to decisions holding that fraud or suppression cannot be presumed solely on audit findings and that bona fide belief on complex taxability issues negates invocation of extended period. The Tribunal set aside the invocation of extended period on these grounds.6. Entitlement to CENVAT CreditThe impugned order denied CENVAT credit on the ground that invoices prescribed under Rule 9(1) of CENVAT Credit Rules were not produced. The appellant claimed possession of such invoices and documents substantiating credit eligibility.The Tribunal observed that the adjudicating authority had given a categorical finding on non-production of invoices but accepted that the appellant's claim warranted verification. It directed the original authority to verify the invoices and decide the credit claim afresh.7. PenaltiesGiven that the demand on merits and limitation was set aside or remanded, the Tribunal held that penalties imposed could not survive and accordingly set them aside.Significant HoldingsThe Tribunal held: '(i) Invocation of extended period set aside as the department failed to establish suppression or fraud and the appellant had bona fide belief on non-taxability.' '(ii) The demand for the normal period is remanded for fresh adjudication considering the appellant's submissions and relevant jurisprudence on taxability of lease pay holder receipts, infrastructure provider receipts, channel placement and carriage receipts, and installation, repair & maintenance charges.' '(iii) The issue of CENVAT credit eligibility is remanded for verification of invoices and documentary evidence.' '(iv) Penalties imposed are set aside in view of the above findings.'The Tribunal emphasized that mere detection of issues in audit does not justify extended period invocation absent evidence of suppression or fraud. It recognized the complexity of taxability under service tax law and upheld the appellant's right to a fair hearing and consideration of legal precedents. The remand directions ensure that the original authority applies evolved jurisprudence and examines all relevant facts and documents before concluding on tax liability and credit entitlement.