2025 (9) TMI 675 - AT - Service Tax

Appeal allowed: extended limitation period and Section 78 penalty set aside for lack of wilful suppression or intent

M/s. SINGH TRANSPORT COMPANY Versus COMMISSIONER OF CGST & CENTRAL EXCISE, RAIPUR, CHHATTISGARH

CESTAT New Delhi - AT allowed the appeal, quashing the impugned order and setting aside the entire demand. The tribunal held that amounts for April ... Levy of service tax on Business Support Services during the period 1.04.2010 to 30.06.2012 - wilful suppression of facts or not - invocation of extended period of limitation - HELD THAT:- The SCN was issued on 15.04.2016 for the period April 2010 to December 2014. The period from July 1,2012 to December 2014 has been set aside by the impugned order. The previous period from April 2010 to March 2011 falls beyond the extended period of five years from the date of show cause notice and is, therefore, outside the tax net. The remaining period from April 2011 to June 2012, falls within the extended period, however, in the impugned order, there are no discussion justifying the applicability of the extended period of limitation. The allegation of suppressing the taxable value with respect to the services under Renting of Immovable Property Service, C&F Agent Service and Business Support Services is that they have not been disclosed by the appellant and the same was detected by the Department during the course of investigation. Since the appellant is not contesting the levy of tax in respect of the two categories, Renting of Immovable Property Service and Clearing & Forwarding Agency Service, the same is no longer subject matter of present appeal. The learned Counsel is correct in relying on the decision of the Tribunal in M/s.Oil and Natural Gas Corporation Ltd. [2024 (4) TMI 823 - CESTAT NEW DELHI], where the invocation of extended period of limitation and imposition of penalty under Section 78 was set aside on the principle that if the self-assessment of service tax by the appellant was not correct in the opinion of the Department as it had not disclosed certain amounts which were taxable according to the Department, the remedy against incorrect self-assessment is the Best Judgement Assessment under Section 72 by the officer and in that regard it was observed that 'The Central Excise officer has, evidently, not done his job of scrutinising the returns, calling for records and ascertaining if the service tax was correctly paid and later, the audit discovered the incorrect self-assessment by the appellant. This does not prove that the appellant had an intention to evade but only proves that the Central Excise officer under the Commissioner had not done scrutinized the returns as he was required to. Nothing in the entire impugned order establishes intent or adduces any evidence to establish intent. We, therefore, hold in favour of the appellant and against the Revenue on the questions of extended period of limitation and the penalty under Section 78.' Thus it is found that neither the Adjudicating Authority nor the Commissioner (Appeals) have recorded any findings on the applicability of the extended period of limitation and hence the issue of invocation of extended period of limitation is decided against the Revenue and consequently, no penalty is also leviable on the appellant. The entire demand which is the subject matter of appeal is, therefore, set aside. There are no reason to sustain the impugned order and the same is hereby quashed. The appeal is, accordingly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended period of limitation could be invoked for service tax demands relating to the period April 2011 to June 2012 in the absence of recorded findings establishing willful suppression of facts by the assessee. 2. Whether mandatory penalty under Section 78 of the Finance Act, 1994 is leviable where extended limitation is invoked but no findings of intentional suppression are recorded. 3. Whether the correct remedy for alleged incorrect self-assessment discovered by departmental audit is invocation of extended limitation and penalty, or resort to Best Judgment Assessment under Section 72. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of extended period of limitation (April 2011-June 2012) Legal framework: The extended period of limitation for recovery of service tax is invocable only upon satisfaction of statutory requirements, typically where there is concealment or willful suppression of facts; standard departmental powers to reassess or recover taxes are circumscribed by limitation provisions. Precedent Treatment: The Tribunal's earlier decision in the cited authority (Oil and Natural Gas Corporation Ltd.) held that discovery by audit of an alleged incorrect self-assessment, without evidence of intent to evade or recorded findings of suppression, does not justify invocation of the extended period; that decision is followed. Interpretation and reasoning: The impugned order did not contain any independent, reasoned discussion or recorded findings by the Adjudicating Authority or the Commissioner (Appeals) justifying invocation of the extended period for the period April 2011 to June 2012. The Department's case rests on detection by audit of undeclared taxable services; however, detection alone, without findings of intent or suppression, does not satisfy the statutory threshold for extending limitation. The Tribunal applies the principle that audit discovery of possible incorrect self-assessment establishes departmental oversight (failure to scrutinize returns) rather than proof of deliberate concealment by the assessee. Ratio vs. Obiter: Ratio - Extended limitation cannot be invoked absent recorded findings or evidence of willful suppression; audit-detected discrepancies alone do not meet the statutory standard. (This follows and applies the reasoning of the prior Tribunal decision.) Conclusions: The invocation of the extended period of limitation for April 2011-June 2012 is not justified on the record and is therefore disallowed; the related demand is set aside. Issue 2 - Liability for mandatory penalty under Section 78 where extended limitation not established Legal framework: Section 78 prescribes penalty for suppression/false statements; imposition is linked to findings that would justify extended limitation (i.e., deliberate concealment or suppression). Precedent Treatment: The Tribunal decision followed holds that absence of evidence of intent or of recorded findings precludes both invocation of extended limitation and imposition of penalty under Section 78; that treatment is followed here. Interpretation and reasoning: The Adjudicating Authority imposed penalty premised on a finding of suppression; however, neither the adjudicating order nor the appellate reasoning contains independent findings establishing suppression in respect of Business Support Services for the relevant pre-July 2012 period. Because the threshold for extended limitation was not met, the statutory basis for mandatory penalty under Section 78 also fails. The Tribunal reasons that penalty cannot stand where the predicate factual/mental element for extended limitation is absent. Ratio vs. Obiter: Ratio - Mandatory penalty under Section 78 cannot be sustained where the extended limitation is improperly invoked due to absence of recorded findings of suppression or intent. Conclusions: The penalty imposed under Section 78 insofar as it was dependent on invocation of extended limitation is not sustainable and must be set aside; consequential reduction or complete annulment of penalty follows the setting aside of the demand. Issue 3 - Correct departmental remedy for alleged incorrect self-assessment (Best Judgment Assessment under Section 72 vs extended limitation) Legal framework: Departmental powers include Best Judgment Assessment under Section 72 to rectify incorrect or omitted self-assessment; extended limitation and penalty are specialty remedies requiring higher factual threshold (suppression/intent). Precedent Treatment: The Tribunal in the cited authority held that where the Department discovers incorrect self-assessment through audit but cannot show intent to evade, the correct course is to undertake Best Judgment Assessment rather than to invoke extended limitation and penal provisions; that precedent is followed. Interpretation and reasoning: The facts show audit detection of undeclared services. The Tribunal reasons that such discovery indicates either an incorrect self-assessment or departmental failure to scrutinize returns, not necessarily deliberate evasion. Consequently, the officer's remedy is Best Judgment Assessment under Section 72, which addresses under-assessment within ordinary limitation, rather than retrospective extension of limitation and imposition of mandatory penalty. The absence of any exercise of Section 72 by the Department and lack of findings on suppression underscores the impropriety of invoking extended limitation. Ratio vs. Obiter: Ratio - Best Judgment Assessment under Section 72 is the appropriate remedy for incorrect self-assessment discovered by audit when there is no evidence of wilful suppression; extended limitation and penalty are not substitutes for Section 72 action absent requisite findings. Conclusions: The Department's reliance on extended limitation and penalty in lieu of Best Judgment Assessment is misplaced; the demands premised on that route cannot be sustained. Cross-References and Outcomes 1. Issues 1 and 2 are interlinked: absence of recorded findings on suppression (Issue 1) defeats the statutory basis for penalty under Section 78 (Issue 2). 2. Issue 3 reinforces Issues 1 and 2: where only incorrect self-assessment is shown by audit, the correct and limited departmental remedy is Best Judgment Assessment under Section 72, not extended limitation or mandatory penalty. Final disposition: The demand and penalty confirmed for Business Support Services in the pre-July 2012 period are quashed for lack of justification for extended limitation and penalty; the appeal is allowed on these grounds.