2025 (11) TMI 1881 - AT - Service Tax

Extended limitation under proviso to section 73(1) requires proven intent to evade, mere non-disclosure not enough

M/s. Omaxe for EST Spa & Hills Developers Limited Versus Commissioner, CGST, Delhi East, New Delhi

CESTAT set aside the order of the Commissioner (Appeals) that had upheld invocation of the extended period of limitation under the proviso to section ... Non-payment of service tax - car parking charges under the category of construction of complex services - invocation of extended period of limitation - suppression of fats 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. It would also be appropriate to refer the decision of the Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and others [2023 (4) TMI 216 - DELHI HIGH COURT]. The Delhi High Court observed that merely because MTNL had not declared the receipt of compensation as payment for taxable service, does not establish that it had wilfully suppressed any material fact. The Delhi High Court further observed that the contention of MTNL that receipt was not taxable under the Act is a substantial one and no intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. It is, therefore, clear from the aforesaid discussion that 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 06.11.2017 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 extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 was validly invoked for demanding service tax on car parking charges for the period July 2010 to June 2012. 1.2 Whether penalties imposed under sections 77 and 78 of the Finance Act, 1994 could be sustained when the demand itself rested on invocation of the extended period of limitation. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 Legal framework (as discussed) 2.1 The Court examined section 73(1) of the Finance Act, 1994 as it stood during the relevant period, providing a normal limitation of six months (subsequently one year) for issuing show cause notice for non-levy/short-levy of service tax. 2.2 The proviso to section 73(1) permits extension of the limitation to five years where non-levy or short-levy arises by reason of: (a) fraud; (b) collusion; (c) wilful mis-statement; (d) suppression of facts; or (e) contravention of statutory provisions with intent to evade payment of service tax. 2.3 The Court relied on precedents interpreting provisions analogous to section 73(1), particularly the proviso to section 11A of the Central Excise Act, 1944, including decisions in Pushpam Pharmaceutical Co., Anand Nishikawa Co. Ltd., Easland Combines, Uniworth Textiles Ltd., Continental Foundation Joint Venture, and the Delhi High Court ruling in Bharat Hotels Limited. 2.4 These authorities uniformly hold that 'suppression of facts' and similar expressions in the proviso must be construed strictly, require a deliberate act with intent to evade duty/tax, and that mere non-payment, omission, or failure to declare in the absence of such intent does not justify invoking the extended period. 2.5 The Court also referred to Delhi High Court's decision in Mahanagar Telephone Nigam Ltd. and Tribunal decisions in Raydean Industries, G.D. Goenka, India Glycols Limited, Sunshine Steel Industries (affirmed by the Supreme Court), and Kalya Constructions Private Limited, all emphasising that: (i) intention to evade must be demonstrably established; (ii) self-assessment does not by itself prove suppression or intent; and (iii) failure of departmental officers to scrutinize returns cannot be converted into a ground to invoke the extended period. Interpretation and reasoning 2.6 The show cause notice alleged that the assessee had 'intentionally and wilfully suppressed' facts and contravened provisions 'with the intention to evade' service tax, and asserted that but for audit, the non-payment would not have come to light. However, it did not set out any specific material demonstrating a deliberate design or positive act to evade tax beyond the non-payment itself. 2.7 The Commissioner (Appeals) upheld invocation of the extended period essentially on the reasoning that: (i) the case was detected only on audit; (ii) the assessee, being under self-assessment, had a duty to pay correct tax; (iii) non-payment of tax on car parking charges and non-disclosure of those charges in returns amounted to suppression; and (iv) such conduct could be treated only as intention to evade. 2.8 The Court rejected this reasoning, holding that mere contravention of provisions, non-payment of tax, or incorrect self-assessment, even where detected only on audit, does not ipso facto establish fraud, collusion, wilful mis-statement, or suppression with intent to evade as required by the proviso to section 73(1). 2.9 The Court accepted the assessee's contention that it entertained a bona fide belief that car parking charges were not liable to service tax during the relevant period, the question being one of interpretation regarding taxability of a newly introduced service. Such bona fide belief could not be treated as mala fide merely because the authorities later took a different legal view. 2.10 Reliance was placed on the Supreme Court's decision in Reliance Industries Ltd., wherein it was held that: (i) if an assessee bona fide believes it is correctly discharging duty, a subsequent judicial determination to the contrary does not retrospectively render the belief mala fide; (ii) interpretational disputes between two plausible views cannot justify invoking the extended period; and (iii) in a self-assessment regime, an assessee's liability determination must be bona fide, but an allegedly wrong view, without more, does not amount to suppression or intent to evade. 2.11 The Court further emphasized that in a self-assessment system, departmental officers remain under a statutory and administrative duty to scrutinize returns, call for information, and verify correctness. The Tribunal decisions cited (Raydean Industries, India Glycols Limited, Sunshine Steel Industries, Kalya Constructions) were followed to hold that: (i) officers could have scrutinized the assessee's returns and records within the normal period; (ii) the fact that short payment surfaced only during audit indicates failure of departmental scrutiny, not a deliberate evasion by the assessee; and (iii) the department cannot rely on the mere fact of self-assessment or audit detection as a substitute for proof of intent to evade. 2.12 The Court also drew support from Delhi High Court's observations in Bharat Hotels Limited and MTNL that 'suppression' in the proviso must connote a deliberate act to evade tax and that non-disclosure of a receipt in returns, where the assessee acts under a substantial and bona fide contention of non-taxability and openly reflects such receipts in its accounts, cannot by itself justify invocation of the extended period. 2.13 Applying these principles, the Court found no material, either in the show cause notice or in the findings of the Commissioner (Appeals), establishing that the assessee had deliberately withheld information on car parking charges with intent to evade service tax. The conclusion of 'intent to evade' was found to be an inference drawn solely from non-payment and alleged contravention in self-assessed returns, which is legally insufficient for invoking the extended period. Conclusions 2.14 The Court held that: (a) For invocation of the extended period under the proviso to section 73(1), the department must prove suppression of facts with intent to evade payment of service tax; mere non-payment, omission, or incorrect self-assessment, even when detected on audit, does not suffice. (b) The show cause notice and the impugned appellate order did not disclose or rely on any cogent material indicating a deliberate intent by the assessee to evade service tax on car parking charges. (c) The assessee's bona fide belief about non-taxability of car parking charges, in the backdrop of an interpretational issue and a newly introduced service, negated the allegation of mala fides or suppression with intent to evade. (d) The departmental plea that the assessee, in a self-assessment regime, was bound to correctly discharge tax, and that failure to do so alone constitutes suppression, is untenable and contrary to the settled legal position. (e) The mere fact that the alleged short payment came to light only during audit does not establish intent to evade; it more appropriately reflects lack of proper scrutiny by departmental officers within the normal limitation period. 2.15 Consequently, the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 was held to have been wrongly invoked; the impugned order upholding such invocation was set aside. Issue 2 - Sustainability of penalties under sections 77 and 78 of the Finance Act, 1994 Interpretation and reasoning 3.1 The adjudicating authority had imposed penalty under section 78 equivalent to the recomputed tax demand and penalty under section 77 for contraventions, and the Commissioner (Appeals) had endorsed such penalties primarily on the same reasoning used to justify the extended period, namely alleged intent to evade and suppression of information in a self-assessment regime. 3.2 The Court, having held that the extended period itself was not validly invoked due to absence of material establishing suppression with intent to evade, found that the foundational requirement for penalty under section 78 (which is predicated on fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade) was also not met. 3.3 The Court further noted, in line with Bharat Hotels Limited and other authorities, that failure to pay tax in a situation involving bona fide interpretational dispute does not justify imposition of penalty. Conclusions 3.4 As the demand founded on the extended period was unsustainable, and there was no established intent to evade, the consequential penalties under sections 77 and 78 of the Finance Act, 1994 could not survive. 3.5 The impugned order, insofar as it upheld invocation of the extended period and the related penalties, was set aside and the appeal was allowed.