2025 (12) TMI 455 - AT - Service Tax

Service Tax demand on rental income quashed as extended limitation under Section 73 proviso held inapplicable, time-barred

M/s. National Company Versus Commissioner of GST & Central Excise, Chennai

CESTAT Chennai allowed the appeal, setting aside the demand of short-paid Service Tax, interest and penalties on rental income and associated charges. The ... Short paid Service Tax - wrongly deducting Water & Sewerage tax and Urban land tax from the taxable value - Service tax calculated at 10.3% instead of 12.36% - non-payment of Service Tax on the rental income - invocation of extended period of limitation - demand along with interest and penalty - HELD THAT:- The Revenue has not established a prima facie case for invoking the extended period of limitation. It is clearly noted the period of dispute, the dates of payment of taxes along with interest by the Assessee and the date of SCN. From these, it can be safely assumed that right from 2009 itself, the Revenue was aware of the facts of payment/non-payment/short payment of Service Tax and further, the very fact of the exchange of letters seeking clarification in the light of the decision of Hon’ble Delhi High Court in Home Solutions [2009 (4) TMI 14 - DELHI HIGH COURT] itself reveals that the Department was kept in the loop insofar as the payment of Service Tax on the RIPS was concerned, which should have triggered the Revenue Authorities to issue SCN at least at that point of time. Hence, the SCN dated 25.05.2011 is clearly barred by limitation since there is no question of fraud or separation, etc. made out by the Revenue. In view of this alone, the impugned demand cannot sustain and hence the impugned order whereby the said demand stands upheld, is not in order. The impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the invocation of the extended period of limitation for demand of service tax on renting of immovable property service was legally sustainable on the facts and circumstances of the case. (2) Consequent upon the finding on limitation, whether the impugned demand of service tax with interest and penalty could be sustained in law. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Legality of invoking the extended period of limitation Interpretation and reasoning: The Court noted that the period of dispute was from 2007-08 to 2010-11 (up to September 2010), while the show cause notice was issued on 25.05.2011. It found that, as early as 2009, the Department was aware of the facts relating to payment, non-payment and short payment of service tax by the assessee, including through internal audit conducted in October 2009 and through correspondence between the assessee and departmental authorities concerning the levy of service tax on renting of immovable property service in light of the Delhi High Court decision in 'Home Solutions'. The Court held that this contemporaneous correspondence showed that the Department had been 'kept in the loop' regarding the assessee's stand and the factual position, and that if at all the Department intended to raise a demand, it should have issued a show cause notice at that time. In the absence of any material establishing fraud, wilful misstatement, suppression of facts or similar conduct on the part of the assessee, the preconditions for invoking the extended period of limitation were held not to be satisfied. Conclusions: The Court concluded that the show cause notice dated 25.05.2011 was barred by limitation and that the extended period of limitation could not be invoked in the facts of the case. Issue (2): Sustainability of the demand of service tax, interest and penalty Interpretation and reasoning: Having held that the show cause notice itself was time-barred and that the extended period was wrongly invoked, the Court held that the substantive demand of service tax, along with interest and penalty, which had been confirmed by the lower authorities, could not be sustained. In view of the finding on limitation, the Court considered it unnecessary to go into the further arguments on the merits, including the assessee's contentions regarding deduction of various taxes from the taxable value and the applicability of section 73(3). Conclusions: The Court set aside the impugned order which had upheld the demand, and allowed the appeal on the ground of limitation, with consequential reliefs as per law.