Levy of service tax challenged for extended limitation invocation; court quashes demand and related penalties under writ review

Levy of service tax was challenged on grounds that revenue invoked the extended period of limitation without satisfying statutory preconditions, amounting to assumption of jurisdiction and jurisdictional error; the court found no examination of returns or findings of suppression, willful misstatement, fraud or collusion and held the invocation of extended limitation invalid, with the consequence that the demand was quashed. The court further held that related penalties, surcharge and interest linked to the invalid demand were not leviable, and exercised writ jurisdiction despite the existence of alternative statutory remedies to set aside the impugned adjudication.

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Issues: (i) Whether the service tax demand and penalties confirmed by the adjudicating authority on the basis of Form 26AS and related proceedings are sustainable; (ii) Whether invocation of the extended period of limitation under proviso to Section 73(1) is valid in the absence of a finding of fraud, collusion, willful misstatement or suppression of facts with intent to evade tax; (iii) Whether the writ petition is maintainable despite the availability of statutory alternative remedies.

Issue (i): Whether the impugned demand of service tax and penalties confirmed against the petitioner on the basis of Form 26AS and without proper appreciation of payment challans and reverse charge liability is sustainable.

Analysis: The material before the authority included evidence that (a) receipts from IOC/IOC Marketing were subject to reverse charge and were discharged by the recipients, (b) the petitioner produced challans showing payment of service tax in respect of ONGC receipts, and (c) amounts reflected in Form 26AS relating to sale of flats were not service receipts. The adjudicating authority proceeded to levy tax principally on inferences from Form 26AS without determining whether specific receipts were taxable in the hands of the petitioner or whether tax had already been discharged by recipients or by the petitioner as evidenced by challans.

Conclusion: The demand of service tax and penalties confirmed on that basis is not sustainable and is set aside in favour of the assessee.

Issue (ii): Whether invocation of the extended five-year limitation under proviso to Section 73(1) was valid where there was no conclusive finding of fraud, collusion, willful misstatement or suppression of facts with intent to evade tax.

Analysis: The proviso to Section 73(1) permits extension only if any of the specified conditions (fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade) are found. Jurisprudence requires such conditions to be established by cogent findings of willful conduct or intent. The adjudicating authority invoked the extended period without reaching a conclusive, fact-based finding that the petitioner had acted with the requisite willful intent to evade tax; mere non-filing or reliance on Form 26AS without examination of submitted documents does not satisfy the statutory preconditions for extension.

Conclusion: Invocation of the extended period under proviso to Section 73(1) was unlawful and held to be invalid; therefore the show cause notice and consequent demand premised on extended limitation are set aside in favour of the assessee.

Issue (iii): Whether the writ petition is maintainable despite available statutory appellate remedies.

Analysis: Interference by prerogative writ is permissible where the impugned action is arbitrary, without jurisdiction, procedurally infirm, or where a jurisdictional error is apparent on the face of the record. The adjudicating authority assumed extended jurisdiction under Section 73(1) without fulfilling statutory preconditions and levied tax arbitrarily without considering relevant materials; these defects go to the root of jurisdiction and justify exercise of writ jurisdiction.

Conclusion: The writ petition is maintainable and entertained; relief is granted in favour of the assessee.

Final Conclusion: The impugned show cause notice and the Order-in-Original dated 23.05.2022 are quashed and set aside; consequently the demand, interest and penalties confirmed therein are vacated and the petitioner succeeds.

Ratio Decidendi: For demands under Section 73(1) by invoking the extended period, the adjudicating authority must record a conclusive, fact-based finding that one or more of the proviso conditions (fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade tax) are satisfied; absent such a finding, invocation of extended limitation and any demand based solely on Form 26AS or analogous inference is unauthorized and void.

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