Service tax payments and returns under wrong PAN, audit and income-tax data trigger time-bar dispute; demand set aside

The dominant issue was whether the service tax demand for Oct 2014-Mar 2015, raised by SCN dated 28.09.2020, was time-barred due to impermissible invocation of the extended limitation period. The Tribunal found the assessee had been paying service tax and filing returns (though under an incorrect PAN), and the allegation arose from departmental audit findings and third-party income-tax data. Applying consistent CESTAT precedent that extended period cannot be invoked when the demand is founded on audit objections or third-party data, the Tribunal held the demand was beyond limitation; consequently, the entire demand with penalties was set aside and the appeal was allowed on limitation.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the demand for Service Tax for the period October 2014 to March 2015, raised by show cause notice dated 28.09.2020, was barred by limitation due to improper invocation of the extended period.

(ii) Whether, in the absence of evidence establishing the statutory prerequisites for invoking the extended period (including suppression), the demand and consequential interest and penalties could survive.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Limitation and validity of invoking the extended period

Legal framework (as discussed by the Court): The Tribunal examined the demand through the lens of limitation and the permissibility of invoking the extended period where the proceedings are founded on audit-based objections and/or third-party data (including information received from the Income Tax Department). The Tribunal proceeded to decide the appeal solely on limitation.

Interpretation and reasoning: The Tribunal noted that the dispute period was October 2014 to March 2015, while the show cause notice was issued on 28.09.2020, and therefore the demand depended upon valid invocation of the extended period. It found, on record, that the demand was triggered by an audit report and by third-party data received from the Income Tax Department. The Tribunal applied its consistent view that when a demand is proposed on the basis of audit, the extended period cannot be invoked, and similarly, where the demand is founded on third-party data (including Income Tax data), the extended period is not invocable. It further found that the Revenue failed to place any evidence establishing the essential ingredients required to invoke the extended period.

Conclusion: The Tribunal held that the impugned demand was totally barred by limitation because the extended period was not invocable on the facts and evidentiary record before it.

Issue (ii): Survival of demand, interest, and penalties once limitation fails

Legal framework (as discussed by the Court): The Tribunal treated the time-bar as dispositive and did not proceed to examine the demand on merits once limitation was decided against the Revenue.

Interpretation and reasoning: Having held that the demand itself could not be sustained due to limitation, the Tribunal concluded that it was unnecessary to enter into the merits of taxability, quantum, or alleged incorrect payment particulars. Since the demand was set aside on limitation, the consequential liabilities premised on that demand could not stand.

Conclusion: The Tribunal set aside the demand by allowing the appeal only on limitation, without adjudicating the merits; consequently, the impugned order confirming tax demand (and the linked interest and penalties) was not sustained.

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