2025 (12) TMI 1005 - AT - Service Tax

Extended limitation u/s 11A invalid where facts known via returns, correspondence and audit; demand notice quashed

The Tribunal allowed the appeal on limitation, holding that the extended period was wrongly invoked. It found that all relevant facts were already within ... Invocation of the extended period of limitation - no mens rea on the part of the appellants - suppression of facts or not - HELD THAT:- The relevant facts have been in the knowledge of the Department as the appellants filed the Returns for the year 2012-13 and there was a series of correspondence between the appellants and the Revenue. Audit was conducted in 2017 and accordingly, a show cause notice has been issued invoking extended period - it has been held in a series of cases that extended period cannot be invoked in case the show cause notice is based on audit - there is nothing on record brought by the Revenue to prove with evidence that the appellants have involved themselves in suppression of fact, mis-declaration, collusion etc. with intent to evade payment of duty. The Revenue has not made out any case to extend the period of limitation - the impugned show cause notice and the impugned order are not sustainable and are liable to be set aside - Appeal allowed on limitation. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the invocation of the extended period of limitation for demanding service tax, based on audit findings and in the absence of evidence of suppression, mis-declaration, collusion or intent to evade, was legally sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of invoking the extended period of limitation for service tax demand Legal framework (as discussed) 2.1 The Tribunal examined the applicability of the extended period of limitation in the context of a show cause notice issued on the basis of audit and in light of judicial precedents holding that extended limitation cannot be invoked without proof of suppression, mis-declaration, collusion or intent to evade duty/tax. 2.2 The Tribunal relied on the reasoning in a prior decision wherein it was held that: (i) departmental officers are mandated under the Rules and CBEC instructions to scrutinize returns, (ii) failure of officers to act on returns cannot be a ground to allege suppression by the assessee, and (iii) limitation must be reckoned from the date of filing of returns, as self-assessment is subject to such scrutiny. Interpretation and reasoning 2.3 The Court noted that all relevant facts were within the knowledge of the Department: the appellant had filed service tax returns for 2012-13 and there was a series of correspondence between the appellant and the Department well before the audit and the show cause notice. 2.4 It was observed that the show cause notice was issued only after conduct of audit in 2017, and that there was no material on record produced by the Revenue to establish suppression of facts, mis-declaration, collusion or any mens rea with intent to evade payment of service tax. 2.5 Referring to the prior Tribunal decision, the Court reiterated that: (i) returns filed by an assessee are the basis for the Department to acquire knowledge of activities and to verify correctness of self-assessment; (ii) the Rules and departmental instructions cast a duty on officers to scrutinize returns, call for documents and records, and raise demand within the normal period if any short payment or non-payment is noticed; and (iii) the Department cannot justify extended limitation merely by asserting that it was a case of self-assessment or that discrepancies surfaced only during audit. 2.6 Applying this reasoning, the Court held that where the Department had full access to returns and records and could have taken action within the normal limitation period, extended limitation cannot be invoked solely on the basis of an audit objection, absent any substantiated allegation of deliberate suppression or intent to evade. 2.7 The Court also took note of the appellant's contention that the matter involved interpretation of law and that the situation was revenue neutral, reinforcing the absence of any motive to evade tax. Conclusions 2.8 The Court concluded that the Revenue had failed to make out a case for invocation of the extended period of limitation; accordingly, the show cause notice and the impugned order were held to be unsustainable on the ground of limitation alone. 2.9 Having allowed the appeal on limitation, the Court expressly declined to examine the merits of the taxability of the impugned transactions or the characterization of the appellant as a pure agent or otherwise.