Export of services and SEZ supplies may be exempt, but suppression and non-remittance justify extended limitation and penalties.

Export of services under Rule 6A and SEZ supplies were treated as exempt where the required documentation and exemption conditions were satisfied, but the balance of taxable domestic service income remained liable to service tax. The assessee's claim for Cenvat credit failed for lack of supporting duty-paying documents and compliance records. Non-filing of ST-3 returns, coupled with collection of service tax from recipients without remittance or disclosure of liability, was held to constitute suppression of material facts with intent to evade tax. On that basis, invocation of the extended limitation period and the consequential penalties under the Finance Act, 1994 were upheld.

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Issues: (i) whether the demand of service tax on the disputed turnover was sustainable, including the claim that a substantial part represented export of services and services supplied to SEZ units and was therefore exempt; (ii) whether the extended period of limitation and the penalties under the Finance Act, 1994 were rightly invoked and sustained.

Issue (i): whether the demand of service tax on the disputed turnover was sustainable, including the claim that a substantial part represented export of services and services supplied to SEZ units and was therefore exempt.

Analysis: The disputed turnover was bifurcated into export services, SEZ-related supplies, and taxable domestic services. On the materials produced, the services rendered to foreign clients satisfied the conditions of export of services under Rule 6A of the Service Tax Rules, 1994 and were treated as exempt. The services supplied to SEZ units were also held exempt, the required A-1 and A-2 documentation and the relevant exemption notification conditions being found satisfied. The remaining turnover was treated as taxable domestic service income on which service tax had been charged but not deposited, and the claim for Cenvat credit was rejected for want of supporting duty-paying documents and compliance records.

Conclusion: The exemption claim succeeded only to the extent of export and SEZ supplies, while the balance service tax demand on taxable domestic services was upheld.

Issue (ii): whether the extended period of limitation and the penalties under the Finance Act, 1994 were rightly invoked and sustained.

Analysis: The appellant had not filed ST-3 returns for the relevant period and had not disclosed the taxable liability despite collecting service tax from recipients on invoices. The non-disclosure of the taxable turnover, coupled with collection of tax without remittance to the exchequer, was treated as suppression of material facts with intent to evade tax. On that basis, invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994 was upheld. Since suppression and evasion were established, the penalty under Section 78 was also sustained, and no basis was found to interfere with the penalty under Section 77(1)(d) as modified below.

Conclusion: The extended period and the consequential penalties were upheld.

Final Conclusion: The appeal failed on the substantive challenge to the surviving demand and on the challenge to limitation and penalty, leaving the adverse tax liability substantially intact.

Ratio Decidendi: Where the assessee, despite collecting service tax on taxable services and failing to disclose or remit it through returns, withholds material facts from the department, the extended period of limitation and penalty for suppression and intent to evade tax are justified; exemption for export and SEZ supplies depends on strict satisfaction of the governing conditions and documentary proof.

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