2026 (2) TMI 289 - HC - Service Tax

Clearing and forwarding services service tax limitation, liability and penalty reassessment ordered; fresh demand and interest directed.

Assessment of service tax on clearing and forwarding services turned on limitation and classification. The High Court found subsections 1A and 3 of ... Clearing and Forwarding services - service tax - limitation u/s 73 - penalty under subsection 4A of Section 73 - acknowledgement of debt u/s 18 of the Limitation Act, 1936 - order of remand - Estoppel against law (no estoppel against statute) - HELD THAT:- Sub section 1A and 3 of Section 73 are inapplicable to the appellant firm. Sub-section 1A provides when the past service tax dues has been paid after the issuance of the show cause notice. In the present case, the appellant made the payment towards the past dues before the issuance of the show cause notice. Sub-section 3 is also not applicable since the same is applicable to the payment of past service tax which is to be paid after May, 2004. In the present case the appellant ought to have paid the service tax from September, 1999. We are conscious of the fact that the services of the appellant came under the radar of the authorities, for the first time on April 19, 2002. On that said date, the revenue authority conducted a search and seizure operation in the office premises of the appellant. Indeed, the revenue authority did not immediately act qua the appellant from the said date of the search and seizure. Thus, the limitation period of 5 years applies to the claim of service tax against the appellant. In view of the above, the revenue authority had 5 years to raise a claim against the appellant from the date when it made the payment on January 29, 2004 towards the past service tax dues under sub-section 4A to Section 73 of the Finance Act. CONCLUSIONS- It is ruled that the appellant firm has provided clearing and forwarding services to the companies, TISCO and TRL. To that extent, the decision of the first authority and the appellate tribunal is upheld. The claim of service tax for bending and bundling services and stock verification services raised by the revenue authority under the head Clearing and Forwarding services is hereby quashed. The revenue authority will be at liberty to tax the said services in accordance with law. The appellate tribunal has not decided the point of limitation discussed hereinabove. It is evident from the above that the Ld. Tribunal had clear and adequate evidence before it to rule on the point of limitation and the quantum of penalty. This Court notes with anguish, an attitude of “passing the buck” and abdication of responsibility on the part of the Tribunal. The judgment and order dated May 29, 2008 of the Ld. Tribunal to the extent that it that the remanded issue of limitation and imposition of penalty to the first authority is thus set aside. A remand can only be made when the evidence on record is inadequate for the appellate authority to rule upon the point raised. Consequently, the issue is remanded to the first authority for recording of evidence and decision. An order of remand is also made when the first authority has not decided an issue and the appellate forum to ensure that parties do not lose a forum passes an order of remand. Since the appellant has voluntarily registered itself under the Central Excise Act after the search and seizure operation conducted by the revenue authority, the court has leaned in favour of a reduction of penalty. The conduct of the revenue authority in not immediately issuing a show cause for the payment of service tax after the search and seizure operation has also persuaded us to lean in favour of the said reduction. The penalty however has to be imposed in view of the deliberate omission of the appellant firm to pay the service tax from the period September 1999. The appellant and the revenue authority have submitted that the former has deposited security money as a condition precedent for the hearing of the subject appeal with the Registrar, Original Side. Thus, the revenue authority shall raise a fresh demand within 7 days from the date of pronouncement of this judgment as regards the service tax for the clearing and forwarding services upon the appellant strictly in terms of paragraphs nos.39 and 40of this judgment. The said paragraphs have upheld the amount of service tax levied upon the appellant for clearing and forwarding services. There shall be a simple interest of 10% per annum on the consolidated amount of the service tax to be paid by the appellant under the tax bracket of 'Clearing and Forwarding services'. The said interest shall be computed from the date of filing of this appeal to the date of the actual payment by the appellant. With the aforesaid discussions and directions, stands disposed off. Issues: (i) Whether the appellant provided clearing and forwarding services to the companies and hence liable to service tax; (ii) Whether the department's claim of past service tax is barred by limitation under Section 73 of the Finance Act, 1994; (iii) Whether penalty should be imposed and whether the Tribunal's remand on limitation and penalty was justified.Issue (i): Whether the services rendered fall within the definition of clearing and forwarding services.Analysis: The Court examined the contractual obligations and activities performed (receipt, unloading, storage, transport and forwarding to destinations, bearing transport costs and warehousing) against the legal understanding of clearing and forwarding operations as explained in precedent. Incidental activities necessary to receive and dispatch goods, including warehousing and arranging transport, were treated as part of clearing and forwarding; activities altering the character of goods (e.g., bending and bundling) and stock verification involving assessment of quality were treated as distinct services beyond mere clearing and forwarding.Conclusion: The Court holds that the appellant provided clearing and forwarding services and is liable for service tax on that head; demands relating to bending and bundling and stock verification as charged under clearing and forwarding are quashed.Issue (ii): Whether the show cause notice dated September 13, 2004 is time-barred under Section 73.Analysis: The Court applied Section 73 (as amended) and subsection 4A, and the principle under Section 18 Limitation Act regarding acknowledgement/renewal of cause of action. The appellant voluntarily registered and made payments towards past dues on January 29, 2004, which revived the cause of action; subsection 4A and the extended limitation for suppression of facts apply, and the relevant limitation period was counted from the date of those payments. The Tribunal had sufficient material and should have decided limitation instead of remanding.Conclusion: The Court holds that the claim is not time-barred; the extended limitation (as applicable) applies and the show cause notice was validly issued.Issue (iii): Whether penalty should be imposed and whether the Tribunal's remand on penalty was justified.Analysis: Having found that the appellant suppressed facts by not filing returns and omitted payment from September 1999, and having regard to Section 73(4A) (penalty framework) and mitigating circumstances (voluntary registration and partial payments after search), the Court exercised its power to determine quantum of penalty rather than remanding, noting the Tribunal's abdication in remanding issues where evidence was adequate.Conclusion: The Tribunal's remand on limitation and penalty is set aside; the Court imposes penalty at 15% (computed month-wise) on the specified assessed tax amounts and directs fresh demand, interest and compliance as ordered.Final Conclusion: The Court affirms the tax liability on clearing and forwarding services, quashes demands insofar as bending/bundling and stock verification were charged under that head, holds the departmental claims not time-barred, sets aside the Tribunal's remand on limitation and penalty, and determines penalty and interest directions to give effect to recovery.Ratio Decidendi: Where a taxpayer voluntarily registers and makes payments towards past tax dues during an investigation, such acknowledgement renews the cause of action under Section 18 Limitation Act and subsection 4A of Section 73 governs limitation and penalty, permitting recovery and imposition of penalty within the extended period when suppression of facts is established.