2018 (2) TMI 23 - HC - Service Tax

Extended period of limitation - Penalty for non-compliance with the provisions of FA 1994 - whether the Appellate Tribunal fell into error in holding that invocation of the extended period under proviso to Section 73(1) of the Act in respect of two services i.e. management maintenance and repair services and mandap keeper services is justified in the facts and circumstances of the case? Held that - it is evident that failure to pay tax is not a justification for imposition of penalty. Also the word suppression in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso i.e. fraud collusion wilful misstatement - there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid paying excise duty. The terms mis-statement and suppression of facts are preceded by the expression wilful . The meaning which has to be ascribed is deliberate action (or omission) and the presence of an intention. Thus invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention. In the present case the revenue argues that appellant wilfully suppressed the value of taxable services and thus did not discharge its liability of paying the service tax on same. The contention of the appellant is that the appellant was under a bona fide belief that the appellant was not liable for payment of Service Tax for the Mandap Keeping and Management Maintenance and Repair Services. The Revenue has not been able to prove an intention on the part of the appellant to evade tax by suppression of material facts. In fact it is clear that the appellant did not have any such intention and was acting under bona fide beliefs. For these reasons it is held that the revenue cannot invoke the proviso to Section 73(1) of the Finance Act to extend the limitation period for issuing of SCN. The SCN was issued on 24.10.2008. The undischarged liability for payment of service tax with respect to Mandap Keeper Service and Management Maintenance and repair services alleged in the SCN is for the period 2004-06 and 2005-08 respectively. Since the proviso to Section 73(1) cannot be invoked the SCN had to be served within one year from the relevant date. Therefore the SCN with respect to short-payment of service tax for Mandap Keeper Service for the years 2004-2006 is barred by limitation. The SCN with respect to short- payment of service tax for Management Maintenance and Repair Services for the years 2005-2007 is also barred by limitation. The SCN for the year 2007-2008 is however not barred by the limitation period of one year and the assessee is liable to pay service tax on the same. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the invocation of the extended period under proviso to Section 73(1) of the Finance Act, 1994, for Management, Maintenance and Repair Services and Mandap Keeper Services, was justified.
2. Whether the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, were justified.

Detailed Analysis:

1. Invocation of Extended Period under Section 73(1) of the Finance Act, 1994:

The appellant, a public limited company engaged in running five-star hotels, was scrutinized by the Service Tax Department for non-payment of service tax on various services, including Mandap Keeper Services and Management, Maintenance, and Repair Services. An enquiry initiated on 11.03.2005 expanded to include these services, revealing non-compliance for the periods 2004-05 to 2005-06 and 2005-08 respectively. The appellant paid service tax during the enquiry and a Show Cause Notice (SCN) dated 24.10.2008 was issued, invoking the extended period under Section 73(1) for recovery of service tax.

The appellant contended that it relied on Notification No. 12/2003-ST and judicial pronouncements, believing that VAT, not service tax, applied to food, beverages, and liquor. It argued that there was no suppression of facts or intent to evade tax, as it paid service tax during the enquiry and started regular payments from April 2006. The appellant cited Supreme Court judgments (Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, 2008) to support mutual exclusivity of VAT and service tax.

The respondent argued that the appellant, being a large corporate entity, could not claim ignorance of tax liabilities and that the payment during the enquiry indicated acknowledgment of liability.

The court examined Section 73(1) and relevant Supreme Court judgments (Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur, 2012) to interpret "wilful misstatement" and "suppression of facts." It concluded that mere non-payment of duties does not justify invoking the extended period; there must be deliberate action to evade tax. The appellant's prompt payment during the enquiry indicated no intent to evade tax. Thus, the extended period under Section 73(1) was not justified, and the SCN for periods 2004-06 and 2005-07 was barred by limitation. However, the SCN for 2007-08 was within the limitation period, making the appellant liable for service tax for that period.

2. Justification of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:

The appellant argued that there was no fraud, collusion, or wilful suppression of facts, and it acted under a bona fide belief regarding tax liabilities. It cited Supreme Court judgments (Commissioner of Central Excise v. Chemphar Drugs & Limiments, 1989) to argue that penalties could not be imposed without proving intent to evade tax.

The court referred to Section 80 of the Finance Act, which exempts penalties if the assessee proves reasonable cause for failure to comply with tax provisions. The court noted that the appellant's prompt payment during the enquiry and subsequent regular payments indicated no intent to evade tax. Therefore, no penalties could be imposed under Sections 76, 77, and 78.

Conclusion:

The court ruled in favor of the appellant, stating that the extended period under Section 73(1) could not be invoked for periods 2004-06 and 2005-07, making the SCN for these periods barred by limitation. However, the appellant was liable for service tax for 2007-08. The court also held that no penalties could be imposed, given the appellant's bona fide belief and prompt compliance during the enquiry. The appeal was allowed without any order as to costs, except for the liability to pay service tax for 2007-08.