2026 (1) TMI 853 - AT - Service Tax

Invoking proviso to s.73(1) for alleged short payments after prior audit/adjudication - demand and penalties set aside

Dominant issue - whether the proviso to s.73(1) (extended limitation) could be invoked for alleged short payments where the appellant's records were ... Short payments - Extended period of limitation under the proviso to Section 73(1) - Suppression of facts - Fraud / Collusion / Wilful misstatement - discrepancies between income-tax returns and ST-3 returns - HELD THAT:- It is evident that the records of the appellant were duly audited earlier and the matter in respect of short payments was also adjudicated against the appellant. In such circumstances a show cause notice could not have been issued by invoking extended period of limitation. This Tribunal has in number of decisions held that extended period of limitation could not have been invoked for making the demand when the appellant was registered and was duly audited, audit cannot said to be a fishing exercise and whatsoever remain could not have been covered by a subsequent show cause notice by invoking extended period of limitation. Hon’ble Supreme Court has in the case of Stemcyte India Therapeutics Pvt. Ltd. [2025 (7) TMI 1007 - SUPREME COURT] held that- ' it is evident that the appellant neither suppressed nor concealed any material facts from the Department. On the contrary, they were in constant communications with the Department, seeking clarifications on whether their services were exempt from the levy of service tax. As already held by us, the show cause notice issued by the Department is time-barred. Therefore, the imposition of penalties is not warranted. ' Thus I do not find any merits in the impugned order and the same is set aside. Appeal is allowed. Issues: (i) Whether the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 to raise demands for the period 2016-17 was sustainable and whether the impugned appellate order remanding/dropping demands should be upheld.Analysis: The proceedings concern demands raised by invoking the extended limitation period based on discrepancies between income-tax returns and ST-3 returns for 2016-17, after departmental audit and earlier adjudication for overlapping periods. The Tribunal examined whether there was material establishing fraud, collusion, wilful misstatement or deliberate suppression of factsingredients necessary to invoke the proviso to Section 73(1). The record shows prior audit (FAR) and earlier show-cause notices and adjudication in respect of the same period; the adjudicating authority had concluded that audit and statutory records were examined and had dropped demands relying on reconciliations and submitted documents. The appellate order under challenge had set aside the adjudicating authority's order and remanded certain issues for re-examination. The Tribunal applied settled legal principles (including precedents on the scope of the proviso to extended limitation) that mere mismatch or non-payment without positive act of suppression is insufficient to invoke extended limitation and that where facts were within departmental knowledge following audit/adjudication, reopening by extended period is not permissible. The Tribunal also treated the revenues challenge to maintainability (typographical reference to wrong section) as not sustainable and found that the specific finding of the adjudicating authority on invocation of extended period was not assailed by revenue in earlier proceedings and had attained finality; accordingly the Tribunal held the show-cause notices invoking extended limitation to be time-barred and the remand/setting aside effected by the impugned appellate order unsustainable.Conclusion: The appeal is allowed and the impugned appellate order is set aside; the demands raised by invoking the extended period of limitation for the period in question are time-barred and the adjudicating authority's orders dropping the demands are sustained, resulting in a decision in favour of the assessee.