Extended limitation under proviso to Section 73(1) Finance Act denied where bona fide belief existed; demand set aside on appeal

Invocation of the extended period of limitation for service tax assessment was invalidated because the impugned order failed to record findings establishing the proviso's required ingredients or whether default was deliberate or due to ignorance. The tribunal found that the appellant entertained a bona fide belief that the receipts were not taxable and therefore did not pay tax; on that basis the demand made by invoking the extended period of limitation was set aside and the appeal allowed.

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Issues: Whether the demand raised by invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994 is sustainable where the appellant entertained a bona fide belief about non-liability / exemption and there is no specific finding or averment of fraud, collusion, wilful misstatement or suppression of facts with intent to evade.

Analysis: The Tribunal examined whether the proviso to Section 73(1) (extended limitation) could be invoked in the absence of specific findings or averments that the default arose from fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of service tax. The impugned orders did not record discussion establishing those ingredients nor did the show-cause notice specify which proviso-ground was alleged, and a large part of the original demand was disallowed by lower authorities. Relying on settled precedent the Tribunal applied the legal framework that the extended period is an exception and requires positive material showing deliberate suppression or intent to evade, that the burden of proving mala fide lies on the Revenue, and that mere non-payment or bona fide belief in non-taxability is insufficient to attract the proviso. The Tribunal consequently held the show-cause notice and demand, to the extent premised on the extended period, to be time-barred.

Conclusion: The invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994 is not sustainable in this case; the demand made by applying the extended period is set aside and the appeal is allowed in favour of the appellant.

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