2025 (6) TMI 453 - AT - Service Tax

Short payment of service tax - Business Auxiliary Service - short payment based on the difference of consideration shown in annual balance sheet vis a vis statutory ST-3 returns - invocation of extended period of limitation. Extended period of limitation - HELD THAT - The appellant is a State Government undertaking which is the central procurement agency for the Government departments. The appellant provides procurement inspection testing services to the State Government departments. It is seen that the Department has raised the said demand consequent to an audit conducted by the AGMP Gwalior on the grounds that the appellant had shown less receipts in their ST-3 returns as compared to the actual receipts as per their books of account in respect of Business Auxiliary Services Renting of Immovable property and Technical Inspection and Certification services. The non-payment of tax was detected during the audit of the records of the appellant. This evidences the fact that the appellant was registered and was filing his returns with the department. We note that the impugned order has held that as the appellant did not inform the department regarding the correct amount of consideration received in their ST-3 returns as compared to the amount reflected in their Books of Accounts and had suppressed the correct value of the taxable service provided by them with an intent to evade payment of service tax. Such a finding recorded that suppression of facts is enough to invoke the extended period of limitation under the proviso to section 73 (1) of the Finance Act and there is no necessity of any intent to evade payment of service tax is against the well settled principles - the demand for the extended period cannot be sustained in the instant case. Demand made on the basis that there is difference between the figures shown in the statutory returns on which tax was paid and the figures indicated in the annual balance sheet - HELD THAT - The show cause notice does not give any reason to allege short levy except the difference between balance sheet and the ST-3 returns. In the present case neither the notice nor the lower authorities have justified the demand for short levy or short payment of tax with any cogent reason. The burden of explaining the difference amount being not taxable income has been shifted to the appellant. This will be against the very basis of tax levy. It is the Department which alleged short payment and at least basic preliminary supporting evidence of such short payment has to be made so that the appellant can defend their case. This Tribunal vide its Final Order in M/S. SUNCITY SHEETS PVT LTD. M/S. JINDAL STAINLESS LTD. VERSUS DESIGNATED AUTHORITY DIRECTORATE GENERAL OF ANTI-DUMPING AND ALLIED DUTIES/MINISTRY OF FINANCE 2018 (3) TMI 780 - CESTAT NEW DELHI and in MP LAGHU UDYOG NIGAM LIMITED VERSUS PRINCIPAL COMMISSIONER OF CUSTOMS CENTRAL EXCISE SERVICE TAX BHOPAL 2023 (5) TMI 607 - CESTAT NEW DELHI in identical set of facts had set aside the demand holding that mere booking of income by the appellant as service charge in their balance sheet would not render any meaning that the entire amount can be ascribed to a single activity under Business Auxiliary Services . Conclusion - i) The demand of Rs. 28, 53, 129/- along with interest is not sustainable due to lack of cogent evidence establishing tax liability on the differential receipts and failure of the Department to discharge the burden of proof. ii) The extended period of limitation cannot be invoked in the absence of wilful suppression of facts and intent to evade payment of tax especially considering the appellant s status as a State Government undertaking and the absence of any positive act of concealment. The impugned order is set aside - appeal allowed.

Summary

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

1. Whether the demand of Rs. 28,53,129/- along with interest is liable to be upheld against the appellant for alleged short payment of service tax based on discrepancies between the ST-3 returns and ledger accounts?

2. Whether the extended period of limitation can be invoked by the Department under the proviso to Section 73(1) of the Finance Act, 1994, in the absence of established wilful suppression or intent to evade payment of service tax?

Issue-wise Detailed Analysis

1. Legitimacy of the Demand for Service Tax and Interest

Relevant Legal Framework and Precedents: The demand arises under the Finance Act, 1994, specifically invoking provisions relating to service tax liability, interest under Section 75 for delayed payment, and penalties under Section 78. The appellant was engaged in taxable services defined under Sections 65(19), 65(90a), and 105(zzi), covering Business Auxiliary Services, Renting of Immovable Property, and Testing & Inspection Services.

Precedents cited by the appellant include multiple Tribunal decisions where similar demands based on discrepancies between ledger accounts and statutory returns were set aside, notably in appeals involving the same appellant for earlier periods. These decisions emphasized the Department's failure to establish taxability of the differential amounts and the absence of cogent evidence of short payment.

Court's Interpretation and Reasoning: The Tribunal noted that the show cause notice and impugned order primarily relied on the difference between receipts declared in ST-3 returns and those recorded in the appellant's ledger accounts. However, the notice failed to provide a reasoned analysis or cogent evidence to establish that the differential amount was taxable income or that there was any short levy or short payment of service tax. The Tribunal underscored the principle that the burden of proof lies on the Department to establish the tax liability and that mere differences in accounting entries without substantiation cannot sustain a demand.

Key Evidence and Findings: The appellant's financial records were audited by the AGMP, Gwalior, which detected discrepancies. However, the appellant responded to audit queries and provided explanations. The adjudicating authority partially dropped part of the demand, acknowledging that some income recorded as service charges comprised non-taxable activities. The Tribunal observed that the Department failed to analyze transactional documents in light of statutory provisions to justify the demand.

Application of Law to Facts: The Tribunal applied the principle that a show cause notice must articulate allegations with supporting evidence and legal basis. Mere bald allegations or accounting differences do not constitute sufficient grounds for confirming a demand. The appellant's position that the differential amount was not taxable and that the Department failed to discharge its burden was accepted.

Treatment of Competing Arguments: The Department argued that the appellant had concealed taxable income and deliberately suppressed facts to evade tax. The appellant countered that all relevant information was disclosed during audit and that discrepancies arose from accounting treatments. The Tribunal found the Department's allegations unsubstantiated and unsupported by positive evidence of tax evasion or suppression.

Conclusions: The demand for service tax and interest was not sustainable due to lack of cogent evidence and failure to establish taxability of the differential receipts. The interest liability, being corollary to tax demand, also fell away.

2. Invocation of Extended Period of Limitation

Relevant Legal Framework and Precedents: Under the proviso to Section 73(1) of the Finance Act, 1994, the Department may invoke an extended period of limitation beyond three years if there is wilful suppression of facts or intent to evade tax. The Supreme Court, in Pushpam Pharmaceuticals Company vs Commissioner of Central Excise, clarified that "suppression of facts" must be deliberate and accompanied by an intent to escape payment of duty. Mere non-declaration without wilful intent does not justify extended limitation.

Tribunal precedents including Rajasthan Housing Board vs Commissioner of Central Excise and Centre for Entrepreneurship Development vs CCE have held that for public sector undertakings or government instrumentalities, malafide intent or wilful suppression cannot be presumed, and extended period invocation is generally not sustainable.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant was a State Government undertaking engaged in procurement and inspection services for government departments. The appellant was registered and filing returns regularly. The Department's allegation of suppression was based solely on discrepancies in declared receipts versus ledger entries. The Tribunal emphasized that suppression must be a positive act with intent to evade tax, which was not demonstrated.

The impugned order's finding that suppression alone, without intent, suffices to invoke extended period was held to be contrary to settled law. The Tribunal relied on Supreme Court and Tribunal rulings that wilful suppression and intent to evade are essential elements for extended limitation.

Key Evidence and Findings: The audit was conducted transparently, with the appellant responding to queries and providing documents. There was no evidence of concealment or deliberate misstatement. The appellant's status as a government entity further negated any presumption of malafide intent.

Application of Law to Facts: Applying the legal principles, the Tribunal found no basis to invoke extended limitation. The Department failed to prove wilful suppression or intent to evade tax, and the demand was therefore barred by limitation.

Treatment of Competing Arguments: The Department contended that suppression was deliberate and that the appellant concealed income. The appellant refuted these claims, highlighting prior Tribunal decisions setting aside similar demands and the absence of any positive act of concealment. The Tribunal sided with the appellant's submissions and precedents.

Conclusions: The extended period of limitation invoked by the Department was held to be unsustainable and the demand was barred by limitation.

Significant Holdings

"The impugned order has held that as the appellant did not inform the department regarding the correct amount of consideration received in their ST-3 returns, as compared to the amount reflected in their Books of Accounts, and had suppressed the correct value of the taxable service provided by them with an intent to evade payment of service tax. Such a finding recorded that suppression of facts is enough to invoke the extended period of limitation under the proviso to section 73 (1) and there is no necessity of any intent to evade payment of service tax, is against the well settled principles."

"Since 'suppression of facts' has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty."

"There has to be a positive act of suppression apparent on part of the appellant along with an apparent intention to evade the payment of tax and there has to be a wilful misstatement... The Department has failed to reflect any wilful misstatement. Appellant, admittedly, is an instrumentality of State Government. There cannot be an intent to evade the payment of tax."

"The show cause notice does not give any reason to allege short levy except the difference between balance sheet and the ST-3 returns... The burden of explaining the difference amount being not taxable income has been shifted to the appellant. This will be against the very basis of tax levy."

"Mere bald allegations in a notice are not enough to sustain the demand against the appellant."

Final determinations on each issue:

i. The demand of Rs. 28,53,129/- along with interest is not sustainable due to lack of cogent evidence establishing tax liability on the differential receipts and failure of the Department to discharge the burden of proof.

ii. The extended period of limitation cannot be invoked in the absence of wilful suppression of facts and intent to evade payment of tax, especially considering the appellant's status as a State Government undertaking and the absence of any positive act of concealment.