2025 (10) TMI 1193 - AT - Service Tax

Appellant's sale of study materials held goods not taxable; tax demand dropped for lack of suppression and barred by limitation

CESTAT (Chandigarh) AT allowed the appellant's appeal, setting aside the impugned order on merits and limitation. The Tribunal held that amounts received ... Levy of service tax - separate consideration received for training imparted and study material supplied - includible in the assessable value or not - entire demand based only on the third party data - suppression of facts or not - extended period of limitation - HELD THAT:- It is found that the Revenue has wrongly considered the turnover of Rs.8,87,504/- being the sales turnover of study material, which cannot be subjected to levy of the service tax in view of the decision of the Tribunal in the case of Cerebral Learning Solutions Pvt Ltd [2013 (4) TMI 527 - CESTAT NEW DELHI]. Further, it is found that the appellant has issued separate invoices for sale of study material and for conducting training courses which both the lower authorities have failed to consider. The Revenue has failed to establish the suppression of material facts with intent to evade the tax by the appellant. The entire case was built on the basis of third party data i.e. Income Tax data, which itself was derived from the self-discloser made by the appellant in the ITR. Further, the financial statements, invoices etc establishes the sales of goods transaction and the appellant had a bona fide belief that service tax is not leviable on the sales of the goods. Further, the appellant has not committed any positive act to suppress information from the department with intent to evade payment of service tax. The period of dispute involved in the present case is 2015-16 whereas the show cause notice was issued on 24.12.2020, which is completely beyond the normal period of limitation as prescribed in law. The impugned order set aside on merits as well as on limitation - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the receipts from sale of study/course material, separately invoiced and accounted, are includible in the value of taxable training/educational service for service tax purposes. 2. Whether Small Service Provider (SSI) exemption for the relevant year is correctly denied where prior year turnover figures (FY 2014-15) are below the exemption threshold. 3. Whether the demand based on third-party income-tax data, raised after issuance of show-cause notice in December 2020 for FY 2015-16, is barred by limitation or can be sustained by invoking extended period for suppression/intent to evade tax. 4. What standard and evidence are required to establish suppression of material facts with intent to evade tax so as to attract extended limitation and penalties. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of separately invoiced sales of study/course material Legal framework: Service tax law distinguishes between taxable services and sale of goods; value of taxable service may include supply of goods only when integrally linked and not separately charged as goods. Exemptions and prior tribunal rulings treating course materials separately have bearing on valuation. Precedent treatment: A Tribunal decision has held that value of course material supplied to students/trainees is not includible in the value of taxable service where exemption applies to such supplies; that reasoning was relied upon by the appellant and considered by the Court. Interpretation and reasoning: The Court found that the sales turnover of study material was separately invoiced and accounted for, and the lower authorities erred in aggregating that turnover with service receipts. The material on record (invoices, financial statements) demonstrated bona fide treatment of the study material as sale of goods distinct from training services. The Tribunal's prior view that course material need not be included in taxable service value was followed as applicable. Ratio vs. Obiter: The holding that separately invoiced sale of study material is not includible in the taxable value of training services, where supported by documentary evidence and consistent with the Tribunal's earlier treatment, is ratio decidendi for the taxability question in this appeal. Conclusion: Receipts from sale of study materials, separately invoiced and evidenced as sales of goods, are not subject to service tax and cannot be included in the service turnover for the purpose of demand under challenge. Issue 2 - Entitlement to SSI exemption for the relevant period Legal framework: SSI/exemption eligibility depends on specified prior year turnover thresholds and relevant filings (invoices, ITR, financial statements) to establish turnover in the preceding year. Precedent treatment: The appellant relied on documentary records to show prior year turnover below the threshold; the lower authorities did not give appropriate weight to those documents. Interpretation and reasoning: The Court observed that invoices and ITR for the prior year demonstrate service turnover below the exemption threshold, and lower authorities failed to consider these records. Given acceptance of separate treatment of study material as sale of goods (Issue 1), the relevant service turnover for exemption calculation is reduced accordingly. Ratio vs. Obiter: The conclusion that SSI exemption was incorrectly denied insofar as it depended on an improperly aggregated turnover is part of the operative ratio addressing the relief on merits. Conclusion: SSI exemption for the relevant year was wrongly denied where the prior year service turnover, on proper accounting excluding separately invoiced sale of goods, fell below the exemption threshold; entitlement must be recognized as per records. Issue 3 - Limitation and invocation of extended period based on alleged suppression Legal framework: Limitation for recovery of service tax is governed by statutory periods; extended period is available only where the assessee has suppressed material facts or committed willful evasion. Show-cause notices and demands must comply with limitation rules unless suppression/intent is established. Precedent treatment: The appellant relied upon higher-court authorities on limitation and on the principle that mere disclosure in income-tax returns or presence of third-party data does not automatically justify invocation of extended limitation absent positive suppression. Interpretation and reasoning: The Court found that the revenue's case was built solely on third-party income-tax data, which itself originated from the assessee's ITR disclosures. Documentary evidence (invoices, financial statements) corroborated the assessee's position that study material receipts were sales of goods. There was no evidence of positive act of suppression or a deliberate attempt to mislead the department. Consequently, the statutory extended period could not be invoked. Given the show-cause notice was issued well beyond the normal limitation period for FY 2015-16, the demand is time-barred in absence of proven suppression. Ratio vs. Obiter: The finding that the demand is barred by limitation because suppression was not established is a central ratio explaining why extended limitation cannot be applied in this factual matrix. Conclusion: In absence of evidence of suppression with intent to evade, a demand raised after the normal limitation period and founded on third-party/income-tax data is barred by limitation; extended period cannot lawfully be invoked. Issue 4 - Standard of proof for suppression and imposition of penalties Legal framework: To sustain extended limitation and penalties for suppression, revenue must demonstrate that the assessee committed a positive act of concealment or knowingly omitted material facts with intent to evade tax; mere discrepancies or reliance on third-party data are insufficient. Precedent treatment: The appellant cited authorities establishing that constructive knowledge or technical inaccuracies do not amount to suppression warranting extended limitation or penalty. Interpretation and reasoning: The Court applied the standard and examined the record for any deliberate concealment. It concluded that the assessee maintained a bona fide belief that sales of study material were not subject to service tax, issued separate invoices, and did not undertake any positive act to hide information. Therefore, imposition of penalties and invocation of extended limitation were unjustified. Ratio vs. Obiter: The determination that penalties under the Finance Act and extended limitation provisions cannot stand without proof of intentional suppression is ratio in relation to penalty and limitation aspects. Conclusion: The revenue failed to meet the threshold for proving suppression or intent to evade; consequently, penalties and extended limitation are not sustainable and must be set aside. Operative Conclusion (cross-references) Cross-referencing Issues 1-4: Because study material receipts were separately invoiced and established as sales of goods (Issue 1), the service turnover for exemption purposes was lower (Issue 2); there was no positive suppression to invoke extended limitation (Issue 3 & 4). On both merits and limitation grounds, the impugned demand, interest and penalties were set aside and the appeal allowed with consequential relief.