2026 (3) TMI 912 - AT - Service Tax

Extended Limitation cannot be invoked where department already knew facts; SCN based solely on third party data unsustainable.

Extended limitation cannot be invoked where identical facts were already known to the Department and an earlier SCN on the same facts existed; therefore ... Validity of the subsequent show cause notice invoking the extended period of limitation, when an earlier SCN on similar facts for an earlier period had been issued - suppression of facts - examination of books of account - demand for service tax based solely on Income Tax third-party data - negative list (clause (e) of Section 66D of the Finance Act, 1994) - violation of principles of natural justice - non-taxability of trading activity - absence of pre-SCN consultation and unsustainability of penalties. Invocation of extended period of limitation - HELD THAT: - The Tribunal held that when a Show Cause Notice invoking the extended period has already been issued on a particular set of facts, the Department cannot issue a subsequent SCN on the same facts again invoking the longer limitation on the ground of suppression. The extended period is available only where there is evidence of conscious fraud, collusion or suppression with intent to evade tax; absent such evidence and where returns had been filed, the larger period is not invocable. The reasoning relied on prior authority and the fact that the earlier SCN for F.Y. 2015-16 had been decided in favour of the appellant, indicating the Department had prior knowledge of the facts. [Paras 17, 18, 19] Extended period of limitation was not invocable and the subsequent SCN for F.Y. 2016-17 was unsustainable on limitation grounds. Reliance solely on third-party income-tax data for demand - HELD THAT: - The Tribunal found that the notice and demand for service tax arose only from third-party information (Form 26AS) supplied by the Income Tax Department and that the Department had not examined the appellant's books of account or other records to arrive at the assessable value. Citing earlier Tribunal in the case of Sharma Fabricators & Erectors Pvt. Ltd.[2017 (7) TMI 168 - CESTAT ALLAHABAD] and High Court precedent [2019 (2) TMI 2100 - ALLAHABAD HIGH COURT], the Tribunal held that charges framed merely on presumptions from third-party data, without examining the assessee's records, cannot sustain a demand. [Paras 20, 21] The demand founded solely on third-party Income Tax data without verification of the appellant's records was unsustainable. Trading of goods covered by negative list - HELD THAT: - On examination of invoices, a chart reconciling sales with Form 26AS and documentary material including a certificate of association with the importer, the Tribunal was satisfied that the appellant was engaged in sale and trading of goods and had discharged applicable state tax. The Tribunal concluded that the activity falls under clause (e) of Section 66D (negative list), and no specific taxable service had been identified by the Department in the SCN or impugned orders. [Paras 22, 23, 24] The impugned order was unsustainable on merits because the appellant was engaged in trading of goods covered by the negative list. Final Conclusion: The impugned order was set aside: the extended period of limitation was not invocable, the demand based solely on third-party Income Tax data was unsustainable, and on merits the appellant's activity was trading of goods within the negative list; the appeal was allowed with consequential relief. Issues: (i) Whether the subsequent show cause notice invoking the extended period of limitation for F.Y. 2016-17 is sustainable when an earlier SCN on similar facts for an earlier period had been issued; (ii) Whether the demand for service tax of Rs.86,23,306/- based solely on Income Tax third-party data is sustainable and whether the appellant's trading activity falls under the negative list (clause (e) of Section 66D of the Finance Act, 1994) and is therefore not taxable.Issue (i): Whether the extended period of limitation could be invoked for the later SCN dated 22/23.10.2021 for F.Y. 2016-17 when an earlier SCN on similar facts for F.Y. 2015-16 had already been issued and adjudicated.Analysis: The Tribunal examined the sequence of SCNs and the authorities' knowledge of the same facts at the time of the earlier SCN. Reliance was placed on settled principles that extended limitation is invokable only upon conscious suppression, fraud or collusion and not where relevant facts were already within the knowledge of the Department. The Tribunal noted that the earlier SCN for F.Y. 2015-16 had been issued on similar facts and was decided in favour of the appellant by the Commissioner (Appeals). The second SCN was issued mechanically on the basis of third-party Income Tax data without evidence of suppression by the assessee and despite the assessee filing ST-3 returns.Conclusion: The extended period of limitation is not invokable in favour of the Revenue; the subsequent SCN invoking the extended period is unsustainable. Conclusion in favour of the assessee.Issue (ii): Whether the demand based solely on Income Tax third-party information is sustainable and whether the appellant's activity of trading in goods is taxable.Analysis: The Tribunal considered authorities holding that demands based solely on third-party Income Tax data without examination of the assessee's books are not sustainable. The appellant produced sale invoices, VAT payment evidence and documentary material showing trading in goods and association with an importer. The Tribunal found the transactions to be trading of goods on which VAT had been discharged and that the demand relied mechanically on Form 26AS entries without independent verification of records. The Tribunal also noted that trading activity falls under clause (e) of Section 66D of the Finance Act, 1994 (Negative List), and no specific taxable service was identified in the SCN or impugned orders.Conclusion: The demand based solely on third-party Income Tax information is unsustainable and the appellant's trading activity is not subject to service tax under the negative list; conclusion in favour of the assessee.Final Conclusion: The impugned order is set aside both on limitation grounds and on merits; the appeal is allowed with consequential relief as per law.Ratio Decidendi: Where relevant facts were already known to the Department and an earlier SCN on the same facts exists, extended limitation cannot be invoked later; further, demands founded solely on third-party income tax data without examination of the assessee's books of account and records are not sustainable, and pure trading of goods covered by the negative list under clause (e) of Section 66D of the Finance Act, 1994 is not taxable for service tax purposes.