2025 (5) TMI 1228 - AT - Service Tax

Maintainability of second SCN - Issuance of second SCN invoking extended period of limitation - a prior show cause notice had already been issued for an overlapping period under extended limitation - HELD THAT - The present show cause notice dated 24.08.2015 issued to the appellant again invokes extended period of limitation for demanding service tax for the period 2010-11 to 2013-14 which is not sustainable. The show cause notice dated 23.04.2012 issued after investigation covered the period up to 10th August 2010. They issued the summons on 18.07.2014 for getting the figures for the balance period of 2010-11 to 2013-14. The officers have shown lethargic attitude even in seeking the figures for the subsequent period for raising the demand as they took almost 2 years from the date of first show cause notice to issue summons. They cannot be allowed to hide lethargic attitude under the guise of extended period of limitation. It is agreed with the contention of the appellant that once show cause notice has been issued invoking extended period of limitation subsequent show cause notice cannot be issued by invoking larger period. Therefore demand for the larger period does not survive. On merits it is seen that the appellant have given services to either Government or Governmental authorities and therefore they are entitled to the benefit of relevant notification subject to fulfilment of specified conditions. The contention of the appellant regarding extending the benefit of threshold exemption and cum duty benefit also agreed upon. It is deemed fit to remit the matter to the adjudicating authority for re-determination of demand keeping the above directions in view if any for the normal period. Conclusion - The demand based on the second show cause notice invoking extended limitation is quashed. The appellant s services to government authorities are recognized as exempt from Service Tax under the relevant provisions and judicial precedents. Appeal disposed off by way of remand.

Summary

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

1. Whether the issuance of a second show cause notice invoking an extended period of limitation, after a prior show cause notice had already been issued for an overlapping period under extended limitation, is legally sustainable.

2. Whether the appellant's activities of construction, repair, and maintenance services performed for various State Government authorities and government-created entities attract Service Tax under the category of "Commercial or Industrial Construction Service" and "Construction of Complex Service," or whether they fall outside the taxable ambit due to their nature and beneficiary.

3. Whether the appellant is entitled to exemption under the threshold exemption Notification No. 06/2005-ST and cum-duty benefit under Notification No. 01/2006-ST, given the nature of their services and the use of raw materials.

4. Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994, can be invoked in the present case, considering the appellant's conduct and disclosure of taxable value.

5. The correctness of the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue 1: Validity of Second Show Cause Notice Invoking Extended Limitation Period

Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 allows for the demand of service tax beyond the normal limitation period if there is evidence of suppression or fraud. The Supreme Court judgment in the case of Nizam Sugar Factory (2006) ELT 465 was cited, which prohibits multiple show cause notices invoking extended limitation for the same issue.

Court's Interpretation and Reasoning: The Tribunal observed that the first show cause notice dated 23.04.2012 already invoked the extended period for the period up to 12.08.2010. The second show cause notice dated 24.08.2015 sought to invoke extended limitation again for the subsequent period 2010-11 to 2013-14. However, the department delayed issuing summons to collect information for the later period, taking nearly two years after the first notice. The Tribunal held that such procedural lethargy cannot justify invoking extended limitation anew.

Application of Law to Facts: Since the first notice already invoked extended limitation, issuing a second notice for an overlapping or subsequent period on the same grounds was found impermissible. The Tribunal concluded that the demand based on the second show cause notice invoking extended limitation does not survive.

Conclusion: The Tribunal ruled that the second show cause notice invoking the extended period of limitation was not sustainable, thereby restricting the demand to the normal limitation period for the subsequent period.

Issue 2: Taxability of Services Rendered to Government and Governmental Authorities

Legal Framework and Precedents: Service Tax liability on construction services is governed by the Finance Act, 1994 and relevant notifications. The Tribunal referred to several precedents including Khurana Engineering Ltd. (2011), East Coast Constructions & Industries Ltd., and other CESTAT decisions, which held that construction services provided for personal use of government departments or for non-commercial purposes do not attract Service Tax.

Court's Interpretation and Reasoning: The appellant's work involved construction, repair, and maintenance for State Government bodies such as Vadodara Municipal Corporation, Gujarat State Police Housing Corporation Limited, Food Corporation of India, and Sabarmati Jail. The Tribunal noted that these services were for government use, often for residential quarters or office premises, and not for commercial exploitation.

Key Findings: The Tribunal agreed with the appellant that the services were essentially for government use and thus eligible for exemption under relevant notifications. The Tribunal also acknowledged the appellant's reliance on departmental Circular No. 80/10/2004-ST and various judicial decisions supporting non-taxability in such contexts.

Application of Law to Facts: Given that the activities were for government authorities and not for commercial benefit, the Tribunal held that the appellant was entitled to exemption from Service Tax, subject to fulfillment of conditions.

Treatment of Competing Arguments: The department argued that the appellant's activities were profit-oriented and thus taxable. However, the Tribunal found no evidence of profit motive or commercial exploitation and emphasized the nature of the beneficiaries (governmental authorities) as decisive.

Conclusion: The Tribunal held that the appellant's services fall within the exemption scope and do not attract Service Tax as commercial construction services.

Issue 3: Entitlement to Threshold Exemption and Cum-Duty Benefit

Legal Framework and Precedents: Notification No. 06/2005-ST provides threshold exemption to small service providers, and Notification No. 01/2006-ST extends cum-duty benefit where substantial raw materials are used. The appellant invoked these notifications, supported by judicial decisions interpreting Sections 65(25b)(c) and 65(30a)(b) of the Finance Act.

Court's Interpretation and Reasoning: The Tribunal agreed with the appellant that the benefit of threshold exemption and cum-duty benefit should be extended, particularly since substantial raw materials were used in the course of the works, and the services were not limited to finishing services alone.

Application of Law to Facts: The appellant's failure to initially claim these benefits was noted, but the Tribunal directed the adjudicating authority to reconsider the demand in light of these benefits.

Conclusion: The appellant is entitled to threshold exemption and cum-duty benefit subject to verification and fulfillment of conditions.

Issue 4: Invocation of Extended Period of Limitation

Legal Framework and Precedents: Extended limitation under Section 73(1) is invokable only upon evidence of suppression or fraud. The Tribunal relied on the judgment in Lanxess ABS Ltd. and other decisions emphasizing that extended limitation cannot be invoked where legal interpretation is unclear or where there is no clear evidence of suppression.

Court's Interpretation and Reasoning: The Tribunal found that the appellant had neither obtained registration nor filed returns, which justified the department's initial investigation. However, the department's delay and failure to promptly seek information for the subsequent period weakened the case for extended limitation. Moreover, no evidence was produced to show intent to evade tax or suppression of facts for the period post the first show cause notice.

Application of Law to Facts: The Tribunal held that invocation of extended limitation for the later period was not justified and that the demand should be restricted to the normal period.

Conclusion: Extended limitation is not invokable for the subsequent period beyond the first show cause notice period.

Issue 5: Penalties Imposed under Sections 76, 77, and 78

Legal Framework: Sections 76, 77, and 78 of the Finance Act, 1994 provide for penalties in cases of failure to pay service tax, suppression of facts, or fraudulent conduct.

Court's Interpretation and Reasoning: The Tribunal did not specifically delve into the penalty provisions in detail but by virtue of remanding the matter for re-determination of demand on merits and limitation grounds, the penalty imposition was implicitly affected.

Conclusion: The penalties imposed are subject to reconsideration in light of the remand and re-determination of the demand.

Significant Holdings:

"We therefore agree with the contention of the appellant that once show cause notice has been issued invoking extended period of limitation, subsequent show cause notice cannot be issued by invoking larger period."

"The officers have shown lethargic attitude even in seeking the figures for the subsequent period for raising the demand as they took almost 2 years from the date of first show cause notice to issue summons. They cannot be allowed to hide lethargic attitude under the guise of extended period of limitation."

"On merits, it is seen that the appellant have given services to either Government or Governmental authorities and therefore, they are entitled to the benefit of relevant notification subject to fulfilment of specified conditions."

"We also agree with the contention of the appellant regarding extending the benefit of threshold exemption and cum duty benefit."

"We, therefore deem it fit to remit the matter to the adjudicating authority for re-determination of demand keeping the above directions in view, if any, for the normal period."

The Tribunal's final determination was to allow the appeal by remanding the matter to the adjudicating authority for re-assessment of the demand within the normal limitation period, considering the exemption notifications and threshold benefits, and to reconsider penalties accordingly. The demand based on the second show cause notice invoking extended limitation was quashed. The appellant's services to government authorities were recognized as exempt from Service Tax under the relevant provisions and judicial precedents.