2025 (12) TMI 366 - AT - Service Tax

Service tax demand quashed for lack of identifiable taxable service under Sections 65B(44), 66B; extended limitation rejected

The CESTAT allowed the appeal, setting aside the demand of service tax, interest and penalty. It held that the demand, founded solely on differences ... Recovery of short paid duty with interest and penalty - demand made on the basis of the difference in the figures of gross receipts reported in ST-3 return and ITR by the appellant - invocation of extended period of limitation - HELD THAT:- In absence of any finding that the amounts so received by the appellant were against providing of any specific service which is taxable as per Section 65 B (44) read with Section 66 B of the Finance Act, 1994, I find that the demand has been made without any legally sustainable basis just on basis of presumption that appellant was receiving these amounts against provision of some taxable service. Impugned order is also totally silent in respect of determination of the nature of the services provided by the appellant. It is found that for the Financial Year 2016-17 demand has been issued vide show cause notice dated 27.09.2021 except for the reason that the appellant was not filing ST-3 return during the relevant period, no other ground has been taken for invoking the extended period of limitation. Failing to file service tax return cannot be a ground for invoking the extended period of limitation, specifically in the case where appellant shutdown the business in the year 2014. Hence, there is no reason for demand of service tax for the extended period of limitation. However, there are no merits for invocation of extended period of limitation for making this demand. Accordingly, entire demand stands barred. The impugned order has no merit and the same is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether service tax liability for the financial year 2016-17 could be confirmed solely on the basis of income-tax records (ITR/26AS) and section 194J deductions, without identifying or establishing the specific taxable service provided under section 65B(44) read with section 66B of the Finance Act, 1994. 1.2 Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994 was validly invoked for the demand raised vide show cause notice dated 27.09.2021, particularly when the only ground was non-filing/non-reflection in ST-3 returns and the appellant had stopped business activities earlier. 1.3 Consequential validity of the interest demand under section 75 and the penalties imposed under sections 78 and 77(1) of the Finance Act, 1994. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Demand based solely on income-tax data without identification of taxable service (a) Legal framework as discussed 2.1 The Tribunal noted that the appellant was registered under the erstwhile service tax regime and that the demand was framed by reference to section 65B(44) (definition of 'service') read with section 66B of the Finance Act, 1994. The adjudicating authority proceeded on the basis of amounts reflected in ITR/26AS under section 194J of the Income-tax Act, 1962, and treated them as consideration for taxable services. 2.2 The Tribunal referred to and relied upon the decision of the Kolkata Bench in 'Maa Kalika Transport Pvt. Ltd.', which held that a demand cannot be raised merely on the basis of data received from the Income-tax Department without corroborative evidence that the amounts represent consideration for taxable services, and that there must be a finding linking the receipts to taxable services. (b) Interpretation and reasoning 2.3 The Tribunal found that the entire demand in the present case was founded on the difference between gross receipts as per ITR (including 26AS data) and the nil/absent figures in ST-3 returns. The adjudicating authority simply inferred from section 194J deductions that the receipts were against services 'covered under the ambit of section 65B(44)' and not in the negative list, and therefore taxable. 2.4 The Tribunal observed that the order-in-original did not specify which particular taxable service(s) were provided by the appellant, nor did it determine the nature of the underlying activities. The impugned order was 'totally silent' on the determination of the nature and classification of the services. 2.5 The Tribunal held that, in the absence of any clear finding that the receipts were against provision of some specific taxable service covered by section 65B(44) read with section 66B, the demand had been raised only on the basis of presumption drawn from income-tax data. Such presumption, without corroborative evidence identifying the taxable service, could not form a legally sustainable basis for levy of service tax. 2.6 The Tribunal aligned its view with the principle laid down in 'Maa Kalika Transport Pvt. Ltd.' that income-tax data by itself, without further investigation or evidence establishing that the receipts are for taxable services, is insufficient to sustain a service tax demand. (c) Conclusions 2.7 The Tribunal concluded that the demand of service tax on the basis of income-tax/26AS data alone, without identifying the specific taxable service or determining the nature of activity under section 65B(44) read with section 66B, was unsustainable in law. The demand was held to have been made without any legally tenable basis. Issue 2 - Invocation of extended period of limitation under proviso to section 73(1) (a) Legal framework as discussed 2.8 The demand for the financial year 2016-17 was raised by show cause notice dated 27.09.2021 invoking the proviso to section 73(1) of the Finance Act, 1994, which permits a longer limitation period where non-payment or short-payment is by reason of fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade payment of service tax. 2.9 The Tribunal referred to the reasoning adopted in earlier decisions including 'Rangoli Division' and 'G.D. Goenka Private Limited', wherein it was held that: (i) Mere suppression of facts is not enough; there must be a deliberate and wilful attempt to evade payment of duty/tax. (ii) Mens rea is built into the grounds in the proviso (fraud, collusion, wilful misstatement, suppression with intent, or contravention with intent), and cannot be presumed. (iii) Mere non-disclosure/non-reflection of receipts in returns, or incorrect self-assessment, does not by itself amount to suppression with intent to evade so as to justify the extended period. (b) Interpretation and reasoning 2.10 The Tribunal noted that, for the period 2016-17, the show cause notice was issued on 27.09.2021, entirely relying on the extended period. The only effective ground taken for invoking the extended period was that the appellant did not file ST-3 returns or did not reflect the gross receipts therein. 2.11 The Tribunal observed that the appellant had asserted that they had stopped their business activities in the name of 'Jai Maa Traders' from 2014 and had surrendered their VAT TIN. The record did not disclose any independent material establishing any deliberate, wilful or fraudulent intent to evade service tax. 2.12 The Tribunal held that failure to file service tax returns, especially in a situation where business had been closed earlier, cannot by itself constitute a valid ground for invoking the extended period of limitation. It reiterated that non-filing or incorrect filing, without proof of intent to evade, does not satisfy the statutory requirement of 'suppression of facts with intent to evade' under the proviso to section 73(1). 2.13 The Tribunal drew support from 'Rangoli Division' and 'G.D. Goenka Private Limited' to emphasize that extended limitation requires clear evidence of mens rea and cannot be assumed merely because the assessee operated under self-assessment or failed to disclose certain receipts. (c) Conclusions 2.14 The Tribunal concluded that the extended period of limitation had been wrongly invoked. Since the show cause notice dated 27.09.2021 covered the financial year 2016-17 entirely under the extended period, and no valid ground under the proviso to section 73(1) was established, the entire demand was held to be time-barred. 2.15 As a result, the Tribunal held that there was 'no reason for demand of service tax for the extended period of limitation' and that the 'entire demand stands barred' by limitation. Issue 3 - Consequential interest and penalties under sections 75, 78 and 77(1) (a) Legal framework as discussed 2.16 The adjudicating authority had ordered recovery of interest on the confirmed service tax demand under section 75 of the Finance Act, 1994 read with section 174 of the CGST Act, 2017, and imposed penalty equal to the tax amount under section 78 along with a separate penalty under section 77(1). (b) Interpretation and reasoning 2.17 The Tribunal found that since the principal demand of service tax itself was unsustainable both on merits (for want of any identification of a taxable service) and on limitation (being wholly time-barred), the consequential liabilities of interest and penalties could not survive. 2.18 Furthermore, in light of its finding that there was no valid basis for invoking the extended period and no established intent to evade, the preconditions for penalty under section 78, which also rests on elements of fraud, collusion, wilful misstatement or suppression with intent to evade, were not satisfied. (c) Conclusions 2.19 With the principal demand set aside, the Tribunal held that the interest demand under section 75 and penalties imposed under sections 78 and 77(1) were unsustainable and stood annulled. 2.20 The Tribunal, therefore, set aside the impugned order in toto and allowed the appeal.