2026 (2) TMI 20 - HC - Service Tax

Service tax assessment by invoking extended limitation on omitted ST-3 disclosures quashed for jurisdictional error and procedural lapse

Revenue issued demand cum show cause notices invoking extended limitation and based on Form 26AS/books to tax alleged suppression in ST-3 returns; court ... Invocation of extended period of limitation - Suppression of facts - exemption under Mega Exemption Notification No. 25/2012 (Entry 14(a)) - determination of service tax liability on the basis of Form 26AS - assumption of jurisdiction by revenue authorities - violation of principles of natural justice - writ jurisdiction under Article 226 - supervisory jurisdiction to correct jurisdictional error - Petitioner received work orders in the nature of works contracts for execution of construction, erection, commissioning or installation of original works pertaining to Railways and AMC services - deduction of TDS is on payment basis with or without accrual as and when payments arise in terms of the contracts. - HELD THAT:- This Court is of the considered view that the determination made by the respondent authorities by issuing the demand cum show cause notice and the confirmation in the impugned order-in-original is contrary to the provisions of the Act and the law declared by the Apex Court as well as by the High Court. The impugned order-in-original is therefore is bad and the same is liable to set aside. It is seen that the ST-3 returns filed for the period mentioned, the petitioner declared only Rs. 1,09,71,749/- as the gross value of services and thus suppressed the actual value of taxable services provided during the said period and consequently evaded payment of service tax to the tune of Rs. 9,37,91,059/- including Krishi Kalyan Cess and Swachh Bharat Cess on the differential taxable value of Rs. 62,52,73,726/-. Therefore, assessing authority found that the petitioner did not declare the correct value of taxable service in the ST-3 returns as per their book of accounts. It is a trite law that greater the power prescribed under the statute greater will be the responsibility on the authorities on whom it has been bestowed to ensure that no infraction of the provisions of the Act and the Rules are made and no injustice is caused to the assessee during the process of demand and recovery. It is not a case that the documents which were called for required to be submitted were not furnished. The ST-3 Returns filed by the petitioner assessee were available in the records of the revenue authorities and which would have given a complete picture of the services rendered by petitioner assessee and/or whether such services come within the ambit of service taxes or are excluded by any circular or notification issue. However, there is no finding by the revenue authorities as to why this aspect was not examined. There is no conclusion of the revenue authorities in this aspect of the matter as is evident from the impugned order in original. It is a clear case of assumption of jurisdiction by the Revenue authorities where the statutes did not confer them such jurisdiction by default. A Writ Court while exercising its powers under Article 226 can certainly examine whether the Tribunal or the quasi-judicial authority by exercising its jurisdiction mandated under the statute has fulfilled the necessary pre-conditions prescribed by the statute itself. It is the conclusion arrived at by this Court that such preconditions mandated by law under section 73(1) having not been fulfilled by the Revenue authorities, their assumption of jurisdiction under section 73(1) of the GST Act was completely unwarranted and revenue authorities could not have assumed the jurisdiction under section 73(1) unless these pre-conditions mandated and a conclusion thereto has been arrived at by the Revenue authorities before assumption of such jurisdiction. It is under these circumstances that notwithstanding the availability of statutory alternative remedy, this Court considers it an appropriate case to invoke its jurisdiction under Article 226 to interfere with the impugned order in original and to set aside and quash the order-in-original. Under these circumstances, the case laws referred to by the respondents will have no bearing in the facts and circumstances of the present proceedings. There is also no quarrel with the general proposition of law that in the face of statutory alternative remedy being available, a Writ Court would ordinarily not invoke its power of issuance of prerogative Writs. Since this Court has held that the levy of service tax on the petitioner by extending the limitation is contrary to the provisions of law, the natural corollary that would follow is that the levy of all penalty, surcharge and interest are also not leviable on the petitioner, this Court therefore issues a writ of certiorari setting aside the impugned order in original and it is ordered accordingly. Therefore the writ petition stands accordingly allowed. However no order as to cost. Pending I.A.s are also dismissed and the interim order if any stands merged. Issues: (i) Whether the service tax demand confirmed against the petitioner based solely on third-party Form 26AS and without a conclusive finding that the services were taxable or not exempt under Notification No.25/2012 is sustainable; (ii) Whether invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994 was validly available and whether the writ petition was maintainable despite availability of alternative statutory remedies.Issue (i): Whether the service tax demand confirmed on the basis of Form 26AS without a conclusive determination of tax liability and without considering claimed exemption under Notification No.25/2012 is sustainable.Analysis: The adjudication relied principally on third-party Form 26AS entries showing receipts and tax deducted at source, without a reasoned finding that the receipts constituted taxable services or that the exemption under Notification No.25/2012 did not apply. The position that tax cannot be imposed by inference or analogy and that liability must be declared under the taxing statute was applied. The material filed by the petitioner, including contracts and audited accounts claiming exemption for railway contracts, was not adequately considered by the authority before confirming demand.Conclusion: The demand confirmed against the petitioner on the basis of Form 26AS without conclusively determining taxability or considering the claimed exemption is unsustainable and is set aside in favour of the assessee.Issue (ii): Whether the extended period of limitation under Section 73(1) could be validly invoked in the absence of a finding of fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade, and whether the writ petition was maintainable notwithstanding alternative statutory remedies.Analysis: The proviso to Section 73(1) permits invocation of a five-year limitation only upon a finding of one or more specified conditions (fraud, collusion, willful misstatement, suppression, or contravention with intent to evade). The impugned order does not record any conclusive finding that such conditions were established; instead the authority proceeded on the basis of inferences from Form 26AS and perceived non-furnishing of documents. The legal principles requiring strict proof of willful suppression and that mere omission or reliance on third-party tax records does not satisfy the proviso were applied. The exercise of writ jurisdiction was addressed as permissible because the authority was found to have assumed jurisdiction not conferred by statute, producing a decision that was palpably without jurisdiction.Conclusion: Invocation of the extended limitation under Section 73(1) without the requisite conclusive findings was unlawful; the assumption of jurisdiction to levy tax and penalties under the extended period is invalid and the writ petition is maintainable. The result is in favour of the assessee.Final Conclusion: The impugned order-in-original confirming service tax demand, interest and penalty is quashed and set aside; the writ petition is allowed and the relief granted is for the petitioner (assessee).Ratio Decidendi: The extended period under Section 73(1) can be invoked only after a reasoned and conclusive finding that one or more of the proviso conditions (fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade) are established; reliance solely on third-party Form 26AS or inference without specific findings of such conditions is insufficient to sustain a demand under the extended period.