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2025 (5) TMI 649 - AT - Service TaxNon-service of SCN - SCN was not served on Appellant in the manner prescribed and was delivered to them on e-mail - Recovery of service tax with interest and penalty - HELD THAT - Taking the note of the prevailing situation at the time the Hon ble Supreme Court has by the order in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2021 (1) TMI 261 - SC ORDER provided for delivery of the notices summons etc. through electronic media and e-mail. Article 141 of the Constitution of India provides that Law declared by Supreme Court to be binding on all courts. The law declared by the Supreme Court shall be binding on all courts within the territory of India. It is found that Appellant to whom the show cause notice was delivered by e-mail and who have responded to the same and attended the personal hearing etc. cannot take the stand that there was no service of the notice in the prescribed manner during the period of COVID. There are no merits in the submissions made by the Appellant in the appeal - appeal dismissed.
The core legal questions considered by the Tribunal in this appeal are:
1. Whether the show cause notice (SCN) issued to the appellant was validly served, particularly given that it was sent by e-mail during the COVID-19 pandemic, and whether such service complies with the statutory requirements. 2. Whether the demand for service tax raised on the appellant based on third-party data from the Income Tax Department is sustainable, including the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994. 3. Whether the penalties under Sections 77(1) and 78 of the Finance Act, 1994 are rightly imposed on the appellant for alleged suppression and short payment of service tax. 4. The applicability and interpretation of Sections 73A and 73B of the Finance Act, 1994 regarding the recovery of service tax collected from customers but not deposited with the government, including interest liability. Issue 1: Validity of Service of Show Cause Notice by E-mail The appellant challenged the validity of the SCN on the ground that it was served by e-mail and not in the manner prescribed by law, contending that this rendered the proceedings void. The appellant relied on several precedents emphasizing strict adherence to prescribed modes of service to uphold the validity of proceedings. The Tribunal examined the context of the COVID-19 pandemic and the lockdown restrictions prevailing at the time of service. It referred to the Supreme Court's suo-motu order dated 10.07.2020 in Writ Petition (C) No. 3/2020, which recognized the impossibility of physical service during the lockdown and permitted service of notices, summons, and pleadings by electronic means such as e-mail, fax, and instant messaging services, provided that e-mail service is simultaneously effected. Given that the SCN was sent by e-mail, and the appellant responded to the notice and participated in personal hearings, the Tribunal held that the service was valid and in compliance with the law as modified by the extraordinary circumstances of the pandemic. It emphasized the binding nature of Supreme Court decisions under Article 141 of the Constitution of India, thereby rejecting the appellant's contention. Issue 2: Sustainability of Service Tax Demand Based on Third-Party Data and Invocation of Extended Limitation Period The demand arose from a significant discrepancy between the value of services declared in the appellant's Income Tax Returns (Rs. 20,34,42,788) and the value declared in their ST-3 service tax returns (Rs. 4,96,50,393) for the financial year 2014-15, resulting in a short payment of service tax amounting to Rs. 1,90,08,740. The Department issued the SCN invoking the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, on the basis that the short payment was deliberate and willful suppression of facts, which came to light only through third-party data shared by the Income Tax Department under an approved Memorandum of Understanding (MOU) between CBDT and CBIC. The appellant argued that since the value was declared in Income Tax Returns, the extended period could not be invoked, and the demand was vague. The Tribunal analyzed the statutory provisions and relevant case law, including the following key points:
The Tribunal concluded that the appellant deliberately and willfully suppressed the taxable value in their ST-3 returns despite declaring higher values in Income Tax Returns, thereby justifying the invocation of the extended limitation period and confirming the demand. Issue 3: Imposition of Penalties under Sections 77(1) and 78 of the Finance Act, 1994 The appellant contended that penalties were not imposable given the circumstances and the mode of service of the SCN. The Tribunal held that once suppression of facts with intent to evade tax is established, penalties under Section 78 are mandatory and the discretion to reduce or waive penalty does not arise. It relied on authoritative decisions, including:
The Tribunal found that the appellant's conduct attracted the penal provisions and upheld the penalties imposed. Issue 4: Applicability of Sections 73A and 73B Regarding Service Tax Collected but Not Deposited The appellant challenged the demand of Rs. 2,13,981 for the period April 2014 to September 2014 on the ground that it was barred by limitation and that the demand under Section 73A was wrongly confirmed under Section 73. The Tribunal analyzed Sections 73A and 73B, which mandate that any service tax collected from customers, whether legally payable or not, must be deposited with the government forthwith, and that interest is payable on such amounts. The Tribunal referred to Board's Circular No. 334/4/2006-TRU dated 28.02.2006 clarifying these provisions, and relied on precedents such as Gurbani Security Pvt. Ltd., Chankakya Mandal Pariwar, Executive Engineer Nagpur, and Commissioner of Service Tax v. Silverline Estates, which confirm the mandatory nature of deposit and recovery of service tax collected but not deposited, irrespective of taxability of services. The Tribunal held that the demand for the said amount was sustainable despite limitation, as the appellant had collected the amount from customers but failed to deposit it with the government, thereby attracting interest and liability under Section 73A and 73B. Significant Holdings and Core Principles Established "Service of notices, summons and pleadings etc. have not been possible during the period of lockdown because this involves visits to post offices, courier companies or physical delivery of notices, summons and pleadings. We, therefore, consider it appropriate to direct that such services of all the above may be effected by e-mail, FAX, commonly used instant messaging services, such as WhatsApp, Telegram, Signal etc. However, if a party intends to effect service by means of said instant messaging services, we direct that in addition thereto, the party must also effect service of the same document/documents by e-mail, simultaneously on the same date." (Supreme Court suo-motu order dated 10.07.2020) "Any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government." (Section 73A(2), Finance Act, 1994) "Where it is established that ingredients to attract operation of Section 78 of the Finance Act, 1994 are present in a case, the discretion to quantify the amount of penalty ends." (Tribunal reasoning) "Under self-assessment scheme, onus of assessee to disclose information to department has become more important - Demand - Limitation - Suppression." (Lakhan Singh & Co.) "In economic crimes and departmental penalties, 'mens rea' is not essential for imposing penalty." (R S Joshi v. Ajit Mills) The Tribunal upheld the demand of service tax including interest and penalties, confirming that the appellant had willfully suppressed taxable value, invoked the extended period of limitation appropriately, and that penalties under Sections 77(1) and 78 were rightly imposed. It also confirmed the validity of electronic service of notices during the pandemic period. The appeal was dismissed in its entirety.
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