2025 (4) TMI 179 - AT - Service Tax

Evasion of service tax - eligibility for basic exemption of 8 Lakhs - applicability of N/N. 6/2005-ST dated 01.03.2005 - Time limitation - interest and penalty - HELD THAT - The appellant had taken registration under the category of Business Auxiliary Service (BAS) and had been regularly filing returns ST-3 returns during the period from 2005-06 to 2006-07. During the year 2007-08 the appellant availed basic exemption of Rs. 8 lakhs because their taxable turnover in the preceding Financial Year 2006-07 was less than Rs. 8 lakhs. In April 2008 the appellant surrendered their registration. The Department had not raised any objection when the appellant surrendered their registration. It is found that the demand has been raised on the basis of the Audit conducted at other concern i.e. M/s Bharat Ispat Dibrugarh where some papers of the appellant had been found. It is also found that no verification was conducted at the end of the appellant. The demand raised without verifying the records of the appellant is not sustainable. Hence the demand confirmed in the impugned order is not sustainable on merits. Time limitation - HELD THAT - The Department was fully aware about the facts when the registration was surrendered by the appellant. No objections were raised at the time of surrendering the registration. The demand was raised by the Department on the basis of an audit conducted on the records of another unit and appellant s records were beyond the power of that audit team - The Department has also failed to bring any evidence on record to suggest suppression or misrepresentation on the part of the appellant. In these circumstances the entire demand confirmed in the impugned order by invoking extended period of limitation is not sustainable and hence the same is set aside. Interest - penalty - HELD THAT - Since the demand of service tax is not sustained the question of demanding interest and imposing penalty does not arise. Conclusion - The demand for service tax along with interest and penalties is unsustainable due to lack of direct verification and improper invocation of the extended period of limitation. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the appellant, M/s. Agarwal Steel & Bolt Udyog, was liable to pay service tax for the financial years 2005-06 to 2007-08, given the claimed exemptions under Notification No. 6/2005-ST dated 01.03.2005.
• Whether the extended period of limitation was rightly invoked by the Department in issuing the Show Cause Notice.
• Whether the demand for service tax, along with interest and penalties, was sustainable based on the evidence and audit findings.

ISSUE-WISE DETAILED ANALYSIS

1. Liability to Pay Service Tax and Exemption under Notification No. 6/2005-ST

• Legal Framework and Precedents: The appellant claimed exemption under Notification No. 6/2005-ST, which allows a basic exemption threshold of Rs. 8 lakhs for service providers whose turnover in the preceding financial year was below this limit.
• Court's Interpretation and Reasoning: The appellant argued that their turnover for the financial years 2005-06 and 2006-07 was below the exemption threshold, thus entitling them to the exemption for 2007-08. The Tribunal noted that the Department added reimbursements to the taxable value, which the appellant contested.
• Key Evidence and Findings: The Department alleged that the appellant's taxable value exceeded the threshold based on ledger accounts, but the Tribunal found that the demand was raised without verifying the appellant's records directly.
• Application of Law to Facts: The Tribunal concluded that the demand was not sustainable on merits as it was based on incomplete verification.
• Treatment of Competing Arguments: The appellant's argument regarding the exemption was favored over the Department's assertion due to lack of direct verification.
• Conclusions: The Tribunal held that the demand for service tax was unsustainable on merits.

2. Invocation of Extended Period of Limitation

• Legal Framework and Precedents: The extended period of limitation can be invoked in cases of suppression or misrepresentation of facts by the taxpayer.
• Court's Interpretation and Reasoning: The Tribunal observed that the Department was aware of the facts when the appellant surrendered their registration and did not raise objections at that time.
• Key Evidence and Findings: The Show Cause Notice was issued 1 year and 4 months after the audit, based on findings from the audit of a different entity, without evidence of suppression or misrepresentation.
• Application of Law to Facts: The Tribunal determined that the extended period was improperly invoked as the Department failed to demonstrate suppression or misrepresentation.
• Treatment of Competing Arguments: The Tribunal sided with the appellant, noting the lack of evidence supporting the Department's invocation of the extended period.
• Conclusions: The Tribunal set aside the demand based on the improper invocation of the extended period of limitation.

SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "We hold that the demand confirmed in the impugned order is not sustainable on merits."
• Core Principles Established: The demand for service tax must be based on verified records of the taxpayer, and the extended period of limitation requires evidence of suppression or misrepresentation.
• Final Determinations on Each Issue: The Tribunal concluded that the demand for service tax, along with interest and penalties, was unsustainable due to lack of direct verification and improper invocation of the extended period of limitation.

The Tribunal set aside the impugned order and allowed the appeal filed by the appellant, granting consequential relief as per law.