2025 (4) TMI 9 - AT - Service Tax

Time limitation for filing SCN - abnormal delay - disallowance of CENVAT credit - invocation of extended period of limitation. Whether the show cause notice dated 24.10.2011 had been properly served in 2011 or it was served for the first time on 01.07.2020 as claimed by the Appellant? - HELD THAT - Reference made to the Tribunal s order in the case of Collector of Custom Vs. Shani International 1992 (11) TMI 206 - CEGAT NEW DELHI . In the said case the service of SCN to clearing agent has been held to be not a proper service where it was held that service of Show Cause Notice demanding the duty on clearing agent is not a valid service after the goods have been released and that the importer to whom the demand notice was issued beyond the period of six months cannot be made to pay the duty under Customs Act merely because a copy of the notice was sent to the clearing agent in time. Besides for the reasons mentioned by the Collector (Appeals) (with which we agree) we are satisfied that the Department has failed to prove that the less charge demand was issued within six months from the date of the payment of the duty. The ratio of law laid down in the aforesaid case is squarely applicable to the facts of the present case. There is nothing on record to show that the SCN was served to the Appellant or its authorised agent any time during 2011. Conclusion - Notice was served to the Appellant for the first time on 01.07.2020 which is much beyond the extended period of 5 years. The demand of service tax and penalty imposed on the Appellant are set aside - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

A. Whether the show cause notice (SCN) dated 24.10.2011 was properly served on the appellant in 2011 or was it served for the first time on 01.07.2020 as claimed by the appellant;

B. Whether the orders passed by the Adjudicating Authority are liable to be set aside on the ground of abnormal delay in adjudication;

C. Whether Cenvat credit of Rs.28,94,515/- is liable to be disallowed on the grounds raised;

D. Whether the extended period of limitation for issuance of the SCN is invokable in the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue A: Proper Service of Show Cause Notice

Relevant Legal Framework and Precedents: The provisions governing service of decisions, orders, summons, and notices under the Central Excise Act, 1944, particularly Section 37C, are applicable to service tax matters by virtue of Section 83 of the Finance Act, 1994. Section 37C mandates that service must be effected by tendering or sending by registered post with acknowledgment due to the person concerned or his authorized agent. If such service is not possible, alternative modes such as affixing the notice at a conspicuous place are allowed.

Precedents relied upon include the Tribunal's decision in Raja Sethi Financial Services (2017 (49) S.T.R. 432), which held that service of SCN must be valid and that failure to record satisfaction of proper service before passing an ex parte order renders the order untenable. Similarly, the Tribunal in Collector of Customs Vs. Shani International (1993 (67) E.L.T. 206) held that service of SCN to a clearing agent without proper service to the importer was invalid.

Court's Interpretation and Reasoning: The Revenue contended that the SCN was served in 2011 by handing it over to the gate security of the appellant's premises. However, the Tribunal noted that service to a security guard cannot be equated with service to the person concerned or its authorized agent as mandated under Section 37C. The appellant specifically stated that the SCN was received for the first time on 01.07.2020. The Order-in-Original did not address this aspect, but the Tribunal emphasized that valid service is a prerequisite for adjudication.

Key Evidence and Findings: The appellant's letter dated 07.07.2020, submitted to the Commissionerate, stated that the SCN was served for the first time on 01.07.2020. No evidence was produced by the Revenue to show service to the appellant or its authorized agent in 2011. The SCN was signed and dispatched on 24.10.2011 but mere dispatch is insufficient without proof of proper service.

Application of Law to Facts: Applying the statutory requirement of Section 37C and the precedents, the Tribunal concluded that service of SCN to the security guard did not constitute valid service. Consequently, the SCN was effectively served only on 01.07.2020.

Treatment of Competing Arguments: The Revenue's contention that service to the security guard sufficed was rejected as inconsistent with the statutory mandate. The appellant's claim of delayed service was accepted due to lack of contrary proof.

Conclusion: The SCN dated 24.10.2011 was not validly served in 2011 but only in 2020, which is beyond the extended limitation period.

Issue B: Abnormal Delay in Passing Orders

Relevant Legal Framework and Precedents: Delay in adjudication can be a ground for setting aside orders if it causes prejudice or violates principles of natural justice. The appellant relied on decisions such as Eastern Agencies Aromatics (2023), Sunrise Remedies (2019), and Shivkrupa Processors (2018) which emphasize timely adjudication.

Court's Interpretation and Reasoning: Although the appellant raised the issue of delay (about 10 years between SCN issuance and adjudication), the Tribunal noted that since the SCN itself was not validly served until 2020, the delay in adjudication post-service was not determinative. Thus, the Tribunal did not find it necessary to decide this issue in detail.

Key Evidence and Findings: The delay was linked to the question of service. Since service was held invalid in 2011, the delay argument became redundant.

Conclusion: The Tribunal did not adjudicate this issue separately as the appeal was allowed on the ground of invalid service.

Issue C: Disallowance of Cenvat Credit of Rs.28,94,515/-

Relevant Legal Framework and Precedents: Cenvat Credit Rules, 2004, permit credit only on input services used for providing output services. The appellant was engaged in providing taxable IT and consultancy services and exported services to group companies abroad. The Commissioner (Appeals) disallowed credit on certain input services for lack of nexus with output services and due to procedural deficiencies in invoices.

The appellant relied on a prior Tribunal decision in their own case (2015 (38) S.T.R. 998) which held that all services fall within the definition of input service for exporters.

Court's Interpretation and Reasoning: The Tribunal did not delve into merits of this issue since the appeal was allowed on the ground of invalid service and limitation. The Commissioner (Appeals) had upheld the disallowance based on lack of nexus and invoice deficiencies.

Key Evidence and Findings: The audit report and verification by Range Officers disallowed credit on certain invoices. The appellant argued the deficiencies were minor procedural lapses and that the services were integral to marketing and promotion of software products, thus qualifying as input services.

Conclusion: No final determination was made by the Tribunal on this issue due to the disposal on procedural grounds.

Issue D: Invokability of Extended Period of Limitation

Relevant Legal Framework and Precedents: Under service tax law, the normal limitation period for issuance of demand is 3 years from the relevant date, extendable to 5 years in cases of fraud, willful misstatement, or suppression of facts. The appellant contended that extended limitation could not be invoked as they had filed returns regularly and bonafidely claimed credit.

Court's Interpretation and Reasoning: Since the SCN was held not to have been validly served in 2011 but only in 2020, the extended period of limitation could not be invoked retrospectively. The appellant's reliance on the Tribunal's decision in G.D. Goenka Pvt. Ltd. (2023) supported this view.

Conclusion: Extended limitation period was not invokable as the SCN was not validly served within the limitation period.

3. SIGNIFICANT HOLDINGS

"I am of the opinion that service of the notice to security guard cannot be deemed to be service to authorized agent."

"There is nothing on record to show that the SCN was served to the Appellant or its authorised agent any time during 2011."

"Accordingly, I hold that notice was served to the Appellant for the first time on 01.07.2020, which is much beyond the extended period of 5 years."

"As I propose to allow the appeal on this ground itself, it is not necessary for me to deal with the other issues raised by the Appellant in the appeal."

Core principles established include the strict requirement of valid service of show cause notices under Section 37C of the Central Excise Act, 1944 (applicable to service tax), and that service to a security guard does not satisfy this requirement. Without valid service, limitation periods do not commence, and demands are liable to be set aside.

Final determination: The appeal was allowed, with the demand of service tax and penalty set aside on the ground that the SCN was not validly served within the limitation period, rendering the entire adjudication and penalty unsustainable.