2025 (11) TMI 1880 - AT - Service Tax

Extended service tax limitation under proviso to section 73(1) quashed for car parking charges; mere errors not suppression

M/s. Omaxe Buildhome Versus Commissioner of GST Delhi-East, New Delhi

CESTAT set aside the order of Commissioner (Appeals) upholding invocation of the extended period of limitation under the proviso to section 73(1) of the ... Invocation of extended period of limitation - non-payment of service tax - car parking charges excluded from the scope of service tax or not - intention on the part of the appellant to evade payment of tax or not - HELD THAT:- The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word “six months” or “one year”, the word “five years” has been substituted. The Supreme Court in Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay [1995 (3) TMI 100 - SUPREME COURT], in the context of section 11A of the Central Excise Act, 1944, which is identical to section 73(1) of the Finance Act, examined whether the department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Central Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since “suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. In Easland Combines, Coimbatore vs. Collector of Central Excise, Coimbatore [2003 (1) TMI 107 - SUPREME COURT] the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation. The extended period of limitation can be invoked only if there is suppression of facts with intent to evade payment of service tax. It is also clear that the show cause notice must disclose material as to why there was a deliberate intent to evade payment of service tax and in the absence of such intention which is evident from the material and record or from the conduct of the assessee, the extended period of limitation under the proviso to section 73(1) of the Finance Act cannot be invoked. The extended period of limitation cannot be invoked merely because the appellant had suppressed the material facts and had contravened to provisions of the Finance Act - In the present case, as can be seen from the order, a conclusion has been drawn by the Commissioner (Appeals) that there was intent to evade payment of service tax merely because the appellant had contravened the provisions of the Finance Act while filing the self assessed returns of service tax. The Commissioner (Appeals) was not justified in holding that the extended period of limitation was correctly invoked. The impugned order dated 22.12.2017 passed by the Commissioner (Appeals) upholding the invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, therefore, cannot be sustained and is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the conditions for invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, for demanding service tax on car parking charges for the period July 2010 to June 2012, were satisfied. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Invocation of extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 (a) Legal framework as discussed 2.1.1 The Court reproduced section 73(1) of the Finance Act, 1994, as applicable during the relevant period, providing a normal limitation of six months (subsequently one year) for issuing a show cause notice where service tax has not been levied or paid, or has been short-levied or short-paid or erroneously refunded. 2.1.2 The proviso to section 73(1) was noted as permitting an extended limitation of five years only where non-levy, non-payment, short-levy, short-payment or erroneous refund is 'by reason of' fraud, collusion, wilful misstatement, suppression of facts, or contravention of the provisions of the Chapter or Rules made thereunder 'with intent to evade payment of service tax'. 2.1.3 The Court referred to decisions interpreting 'suppression of facts' and allied expressions in pari materia provisions (proviso to section 11A of the Central Excise Act, 1944 and proviso to section 73(1) of the Finance Act), holding that: (i) 'suppression of facts' must be deliberate and with intent to evade duty/tax; (ii) mere omission or failure to declare, without such intent, is not sufficient; (iii) non-payment or short payment by itself is not equivalent to fraud, collusion, wilful misstatement or suppression; and (iv) the burden to prove the requisite intent lies on the Revenue. 2.1.4 The Court also referred to case law holding that: (i) where the dispute is interpretational or involves two plausible views, extended limitation is not justified; (ii) the assessee may genuinely and bona fide believe that no tax is payable, and such belief, even if later found incorrect, does not amount to mala fides; and (iii) in a regime of self-assessment, departmental officers retain a statutory duty to scrutinize returns and may call for records; failure of the department to do so cannot, by itself, justify invocation of the extended period. (b) Interpretation and reasoning 2.1.5 The show cause notice alleged that the assessee had intentionally and willfully suppressed facts regarding provision of taxable services and collection of value towards car parking charges, and that, but for audit, the non-payment of service tax would not have come to light. It invoked the extended period under the proviso to section 73(1) on this basis. 2.1.6 The Commissioner (Appeals) upheld invocation of the extended period, reasoning that: (i) the case was detected only in audit; (ii) the assessee had an onus under self-assessment to pay correct tax and had failed to do so; (iii) there was suppression, as no information on parking charges was provided; and (iv) the intent to evade tax 'could not be anything other than intention to evade' in the absence of explanation. 2.1.7 The Court held that this approach was legally unsustainable, as it treated mere non-payment under self-assessment and post-audit detection as sufficient to infer intent to evade and suppression, contrary to the settled requirement of a deliberate act with intent to evade, supported by specific material. 2.1.8 The Court accepted the assessee's contention that it held a bona fide belief that service tax was not payable on car parking charges for the period in dispute; the issue was interpretational and related to the taxability of construction of complex services, a relatively new levy. The mere fact that the assessee's legal understanding might ultimately be held to be incorrect could not, by itself, render its conduct mala fide or evidential of intent to evade. 2.1.9 It was noted that the assessee maintained proper records and regularly filed service tax returns, containing details of services rendered and tax paid. The Court emphasized that where facts are known or available to both parties, omission by the assessee to do what it might have done (but was not under an absolute duty to do) does not amount to 'suppression' in the sense required for the extended period. 2.1.10 The Court further held that in a self-assessment system, while the assessee must make a bona fide determination of liability, the proper officer has a concomitant duty to scrutinize returns and, where necessary, call for records and conduct enquiry. Departmental instructions and statutory rules were cited to show that scrutiny of returns is a statutory and administrative responsibility of officers. 2.1.11 The fact that alleged non-payment came to light only during audit was held to show, at most, that earlier scrutiny by the jurisdictional officers was inadequate, not that the assessee acted with intent to evade. Detection during audit is not, by itself, proof of suppression with intent. 2.1.12 The Court rejected the reasoning that operating under self-assessment, coupled with incorrect self-assessment, automatically establishes suppression with intent to evade. Such a view would render otiose the distinction between the normal period and the extended period and would effectively treat every non-payment as falling within the proviso, contrary to binding precedent. 2.1.13 The Court reiterated that to lawfully invoke the extended period, the show cause notice must disclose material indicating deliberate intent to evade payment of service tax. Merely invoking the words 'suppression' or 'intent to evade' in a general, formulaic manner, without supporting factual allegations or material, is not sufficient. (c) Conclusions 2.1.14 The Court concluded that the conditions for invoking the extended period under the proviso to section 73(1) were not satisfied in the facts of the case, as there was no material to establish deliberate suppression of facts with intent to evade service tax on car parking charges. 2.1.15 The inference of intent to evade, drawn solely from: (i) the assessee's self-assessment not including car parking charges; (ii) non-disclosure of specific details of parking charges in returns; and (iii) the fact that the issue was detected only during audit, was held to be contrary to the statutory requirement and judicial interpretation of the proviso to section 73(1). 2.1.16 The invocation of the extended period of limitation was held to be unsustainable, and consequently the order upholding the demand and penalty based on such extended period, as confirmed by the Commissioner (Appeals), was set aside on the ground of limitation. 2.1.17 On this basis, the appeal was allowed and the impugned order of the Commissioner (Appeals), in so far as it upheld the invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, was quashed.