2025 (11) TMI 949 - AT - Service Tax

Show-cause notice barred by limitation under s.73; penalties waived under s.80 where no willful suppression

CESTAT ALLAHABAD - AT held the show-cause notice was issued beyond the normal limitation under s.73 of the Finance Act, 1994 and the extended period could ... Invocation of extended period of limitation - wilful suppression of facts or not - appellant neither obtained registration nor complied with any other provision of law - Commercial Coaching and Training Service - Online Information Retrieval Service - Event Management Service - Business Auxiliary Service - Franchise service - HELD THAT:- The show cause notice without invoking the extended period of limitation could have been issued in the present case within one year from the date of filing the ST-3 return. It is found that as the show cause notice has been issued on 13.10.2011 the same has been issued beyond normal period of limitation as provided by the Section 73 of the Finance Act, 1994. There are no reason being recorded to show that the Appellant had willfully suppressed or mis-declared with regards to the taxable services provided by them with intent to evade payment of taxes. It is also evident that taking note of the fact that the Appellant is a Uttar Pradesh Government undertaking and transaction on which tax demand was being upheld was captured in the books of accounts for waving off the penalties to be imposed under Section 80 of the Finance Act, 1994 - If all the transactions were recorded as observed in the books of accounts of the Appellant there could have been no ground for invoking extended period of limitation. Secondly mere failure to disclose certain information could not have been the reason for invoking the extended period. Revenue in their appeal has challenged dropping of the penalties that could have been imposed on the Appellant by invoking provisions of Section 80. There are no merits in the said ground for the basic reason that the Appellant is a State Government undertaking and the findings of the Commissioner that all the transactions were recorded in the books of accounts of the Appellant has not been challenged. There are no merits in the impugned order to the extent it confirms demand by invoking extended period of limitation - there are no merits in the appeal filed by the Revenue against invocation of Section 80 in waving of the penalties that were to be imposed under terms of Section 76 & 78 of the Act. Appeal of appellant is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the extended period of limitation (proviso to Section 73/analogous proviso) could be invoked on the ground of 'suppression of facts'/'wilful mis-statement' where the assessee regularly filed ST-3 returns and transactions were recorded in books of account. 2. Whether the demand of service tax should be computed on gross receipts treated as cum-tax value or re-quantified in accordance with Section 67(2) (i.e. adjustment where tax has been collected separately or is deemed included). 3. Whether penalties under Sections 76 and 78 could be imposed where a state government undertaking had recorded the transactions in books of account and there was asserted bona fide belief regarding tax liability; and whether waiver under Section 80 was appropriate. 4. Burden and standard of proof required to establish 'fraud, collusion, wilful mis-statement or suppression of facts' so as to justify extended limitation and penalty. 5. Whether the show-cause notice was a non-speaking/defective notice or otherwise unsustainable for proposing demand and penalties. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Invocation of extended period of limitation (proviso): Legal framework: The proviso to the limitation provision permits invoking an extended period where demand arises by reason of fraud, collusion, wilful mis-statement or suppression of facts (with intent to evade payment). The main body deals with ordinary default within the ordinary limitation period. Precedent treatment: The Court applied settled Supreme Court authority (e.g., Pushpam, Sarabhai, Cosmic Dye Chemical, Easland, Aban Loyd and related decisions) holding that (i) suppression/misstatement are to be construed strictly and must be wilful (deliberate) and (ii) mere non-payment or omission is insufficient to attract the proviso; intent to evade is mandatory. These authorities were followed. Interpretation and reasoning: The Tribunal examined facts that the assessee had filed ST-3 returns regularly, recorded transactions in books and had relied on bonafide understanding. There was no recorded positive act evincing deliberate concealment or fraudulent intention; mere failure to disclose certain taxable activities in returns did not, by itself, amount to wilful suppression. The finding that detection resulted from departmental audit and follow-up did not establish mala fides. Ratio vs. Obiter: Ratio - extended period cannot be invoked absent evidence of deliberate, wilful suppression or intent to evade; mere non-disclosure/non-payment where transactions appear in books and returns were regularly filed does not satisfy proviso. Obiter - observations about comparative language of analogous statutes and implications. Conclusion: Invocation of the extended period was not justified; demand based on extended period was set aside to the extent premised on that invocation. Issue 2 - Valuation: Application of Section 67(2) and quantification of demand Legal framework: Section 67(2) requires that where tax is collected separately or deemed included, the taxable value must be adjusted to reflect tax-inclusive receipts (cum-tax to be converted to tax-exclusive value) when computing demand. Precedent treatment: The Tribunal accepted the assessee's contention that S.67(2) principle applies and that the Department's computation treating gross receipts without S.67(2) adjustment was incorrect. Relevant case law principles regarding valuation and cum-tax treatment were applied. Interpretation and reasoning: The impugned order acknowledged that the original show-cause notice had not followed S.67(2) and there was no evidence that tax had been collected separately. Consequently the demand was re-quantified by computing taxable value as per S.67(2) and recalculating service tax due year-wise; the re-quantified demand (reduced amount) was accepted by the Tribunal/Commissioner. Ratio vs. Obiter: Ratio - where S.67(2) applies and there is no evidence of separately collected tax, the taxable value must be determined in accordance with that provision and demands must be recomputed; failure to do so renders quantification incorrect. Conclusion: The original computation treating gross receipts as tax-exclusive was incorrect; demand was re-quantified in accordance with Section 67(2) resulting in a reduced demand (specified aggregate amount as re-quantified). Issue 3 - Penalties under Sections 76, 78 and waiver under Section 80 Legal framework: Sections 76 and 78 empower imposition of penalties for non-payment/withholding and for suppression/mis-statement respectively; Section 80 permits waiver of penalty in certain circumstances. Precedent treatment: Authorities cited and followed establish that imposition of penalties for mala fide conduct requires proof of deliberate intent; burden rests on Revenue to establish wilful default/suppression. The jurisprudence requires strict proof before invoking penal consequences and extended limitation. Interpretation and reasoning: The Tribunal accepted the Commissioner's pragmatic finding that the assessee was a State Government undertaking, transactions were recorded in books, and there was no record of deliberate evasion. Those factors supported waiver under Section 80. Given absence of proven wilful suppression, penalties under Sections 76 and 78 were not sustained. The Revenue's challenge to waiver lacked merit because the Commissioner's factual determination (recorded transactions; government undertaking; no evidence of mala fide) remained uncontroverted. Ratio vs. Obiter: Ratio - penalties for suppression/mis-statement cannot be imposed where there is no evidence of deliberate intent to evade and where transactions were recorded; waiver under Section 80 is permissible in such circumstances. Conclusion: Penalties under Sections 76 and 78 were not imposed; waiver under Section 80 was sustained and the Revenue's appeal against waiver was dismissed. Issue 4 - Burden and standard of proof for establishing wilful suppression/fraud Legal framework: The party alleging mala fide has the burden of proof; 'wilful' introduces a mental element requiring evidence of conscious, deliberate act to evade tax. Precedent treatment: The Tribunal relied on Supreme Court authority placing a heavy burden on the Revenue to establish mala fides and requiring more than mere non-payment or omission; positive acts amounting to concealment must be shown. Interpretation and reasoning: On facts there was no material demonstrating deliberate concealment - transactions were on books, returns were regularly filed, and there was evidence of bonafide belief; the Tribunal emphasized that burden to prove intent lies on the Revenue and was not discharged. Ratio vs. Obiter: Ratio - allegations of mala fide require proof of a high order; mere default does not suffice. Conclusion: Burden was not discharged; wilful suppression/fraud not established; extended period and penal consequences could not be sustained on that basis. Issue 5 - Sufficiency/speaking nature of the Show-Cause Notice Legal framework: A show-cause notice must be sufficiently precise and unambiguous in proposing demand and penalties; it must comply with statutory requirements and indicate grounds for extended period invocation if relied upon. Precedent treatment: The Tribunal observed that the impugned SCN was 'precise and unambiguous' in proposing demand and penalties, but substantive legal requirement for invoking the proviso (proving wilful suppression) remained unsatisfied. Interpretation and reasoning: Even though the SCN was treated as sustaining procedural sufficiency, the substantive legal prerequisites for extended limitation and penalty - viz., evidence of intent - were absent; the Tribunal therefore addressed merits despite the SCN's form sufficiency. Ratio vs. Obiter: Obiter - notation that SCN was precise; Ratio - procedural sufficiency of SCN does not obviate substantive requirement of proving wilful suppression for extended limitation/penalties. Conclusion: The SCN was not struck down as defective on form; however, form sufficiency could not compensate for absence of evidence required to invoke extended limitation or penalties. OVERALL CONCLUSIONS 1. Extended period of limitation was wrongly invoked in absence of proved wilful suppression/intent to evade; demand based on extended period was not sustainable and was set aside to that extent. 2. Quantification of tax demand was required to be made in accordance with Section 67(2); the demand was re-quantified on that basis and a reduced aggregate demand resulted. 3. Penalties under Sections 76 and 78 could not be sustained; waiver under Section 80 was reasonable and correctly upheld. 4. Burden to prove mala fide or wilful suppression rests on the Revenue and was not discharged on the material before the authorities; accordingly the appeals were disposed in favour of the assessee on these points and the Revenue's challenge was dismissed.