2026 (2) TMI 1277 - AT - Service Tax

Extended limitation under proviso to Section 73(1) found unsustainable; departmental demand based on extended period set aside.

Invocation of the extended limitation proviso to Section 73(1) of the Finance Act, 1994 was examined against requirements that non payment be attributable ... Extended period of limitation - proviso to Section 73(1) of the Finance Act, 1994 - suppression of facts - burden of proof - bona fide belief - self-assessment - show cause notice must specify allegations - time-barred demand - HELD THAT:- It is a fact on record that the appellant was filing ST-3 returns as required in law after making self assessment of the tax. They were also filing ITRs with the Income Tax Department. From form 26AS of the appellant it is also evident that the value of services against which TDS was deducted was about Rs.89,19,702/- against the value of Rs.84,92,317/- reflected in ST-3 return. I observe that the entire demand has been made by taking the deference of ITR and STR as their difference was higher without specifying the nature of services against which these demands are made. The fact as evident that appellant self assessed the service tax payable by classifying the services provided by him under the category of exempted services have assessed the service tax on the none exempted services and paid them in respect of other exempted services. In the opinion of the appellant, no service tax was payable and hence was not paid. As the appellant was continuously during the period of dispute filing ST3 return on the basis of bonafide belief held by him, I do not find any merits in invocation of extended period of limitation for making this demand. Thus, demand made by invoking extended period cannot be upheld. - No merits in the impugned order and the same is set aside. Appeal is allowed. Issues: Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could be invoked to sustain the departmental demand for service tax, interest and penalties for the period in question, and whether the demand raised on the basis of third party information is sustainable.Analysis: The legal framework applied includes the proviso to Section 73(1) of the Finance Act, 1994 permitting an extended period where non-payment or short-payment is attributable to fraud, collusion, wilful misstatement, suppression of facts or contravention of the Act or Rules with intent to evade tax; Section 75 for interest; and Sections 77(1)(d) and 78 for penalties. Authorities cited establish that invocation of extended limitation requires specific, positive material showing mala fide conduct and that the show-cause notice must put the assessee on notice of the specific allegation relied upon to extend limitation. The facts show the appellant filed ST-3 returns (self-assessment) and ITRs, asserted a bona fide belief about taxability/exemption, and did not have demonstrable evidence of fraud, collusion or deliberate suppression. The demand was based on reconciliation with third party information but the adjudicating orders did not establish the requisite positive conduct or specific averments in the show-cause notice to invoke the proviso to Section 73(1). Relevant precedents were applied to conclude mere discrepancy between returns and third party information, or a bona fide difference in interpretation, is insufficient to justify the extended period absent proof of intent to evade.Conclusion: The invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 is not sustainable on the record; the departmental demand based on extended limitation is set aside and the appeal is allowed in favour of the assessee.