2025 (6) TMI 1847 - AT - Service Tax

Recovery of service tax with interest and penalty - suppression of facts or not - invocation of extended period of limitation - HELD THAT - The appellant was fully aware of liabilities and obligations under the Finance Act 1994. They were aware that service tax was required to be paid by them on the advances received by them but they deliberately did not pay the service tax due by the due date. From the table produced it is quite evident that appellant was regularly every month collecting advances from the customer on which he was required to pay the service as has been admitted by Shri Akhil Sharma Director of the appellant. Director also admitted that he was aware that service was required to be paid on these amounts. Thus their can be no reason or bonafide in nonpayment of the tax by the due date and reflecting the same in ST-3 returns filed periodically. Hence there are no merits in the submissions of the appellant vis a vis the invocation of extended period of limitation and penalty imposed under Section 78 of Finance Act 1994. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(i) Whether the gross amount of advances received by the appellant for providing taxable services (construction of residential complex) should be treated as inclusive of Service Tax under Section 67 of the Finance Act, 1994, and consequently, whether the demand for Service Tax on such advances is justified.

(ii) Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994, can be invoked in this case due to willful suppression of facts by the appellant with intent to evade payment of Service Tax.

(iii) Whether the penalties imposed under Sections 77, 78, and 80 of the Finance Act, 1994 are justified, including the imposition of penalty for willful suppression of facts and the refusal to waive penalties under Section 80.

(iv) Whether the interest under Section 75 of the Finance Act, 1994 on the delayed payment of Service Tax is correctly levied.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Treatment of Gross Amount of Advances as Inclusive of Service Tax

The relevant legal framework includes Section 67 of the Finance Act, 1994, which defines the valuation of taxable services, and Rule 6 of the Service Tax Rules, 1994, which governs valuation for Service Tax purposes. The appellant contended that the gross amount received as advances should be treated as inclusive of Service Tax and not as the taxable value itself.

The Tribunal examined the facts and found that the appellant had received advances amounting to Rs. 3,79,48,710 from customers for construction services during the period from July 2010 to September 2011. The adjudicating authority and the Commissioner (Audit) had accepted that the amount collected was the gross amount. Importantly, there was no evidence that the appellant had separately collected Service Tax from customers over and above this amount.

In light of a catena of judicial precedents referred to by the appellant, the Tribunal held that the gross amount received from customers is to be treated as inclusive of Service Tax as per Section 67. This means that the taxable value includes the Service Tax component, and the appellant cannot reduce the taxable value by excluding Service Tax from the gross amount received.

Thus, the Tribunal upheld the demand of Service Tax on the gross advances received, applying the legal principle that the gross amount received for taxable services is inclusive of Service Tax unless separately indicated.

Issue (ii): Invocation of Extended Period of Limitation under Section 73(1)

Section 73(1) of the Finance Act, 1994, permits the recovery of Service Tax beyond the normal limitation period of one year if there is willful suppression of facts with intent to evade tax. The appellant challenged the invocation of the extended period on the ground that there was no suppression or evasion.

The Tribunal relied heavily on the statement of the appellant's Director recorded on 30.09.2011, wherein he admitted receipt of advances totaling Rs. 3,79,48,710 and acknowledged awareness of the liability to pay Service Tax on these amounts. However, the appellant had not paid the full Service Tax due by the prescribed dates and had not disclosed these advances to the department.

The Tribunal observed that the appellant deliberately did not pay the Service Tax and suppressed material facts regarding receipt of advances, thereby evading tax. The monthly details of advances received, as tabulated in the order, demonstrated a continuous pattern of non-disclosure and non-payment.

Applying the legal standard for invocation of extended limitation, the Tribunal concluded that the extended period was rightly invoked due to willful suppression of facts and intent to evade tax.

Issue (iii): Penalties under Sections 77, 78, and 80 of the Finance Act, 1994

Section 77 authorizes imposition of penalty for failure to pay Service Tax, Section 78 penalizes willful suppression of facts with intent to evade tax, and Section 80 provides for waiver of penalty at the discretion of the authority.

The Tribunal confirmed the imposition of penalty of Rs. 10,000 under Section 77 and Rs. 9,77,179 under Section 78, finding that the appellant had willfully suppressed facts and evaded tax. The Tribunal referred to a precedent from the High Court, Chennai, which upheld imposition of maximum penalty where no acceptable cause was shown for non-payment of tax or waiver of penalty.

The appellant failed to provide any acceptable cause or financial hardship to justify waiver of penalty under Section 80. The Tribunal noted that even after four years from the adjudication order, the appellant had not deposited the full amount of Service Tax along with interest.

Accordingly, the Tribunal rejected the appellant's plea for waiver and upheld the penalties imposed.

Issue (iv): Interest under Section 75 of the Finance Act, 1994

Section 75 prescribes interest on delayed payment of Service Tax. The appellant did not dispute the liability to pay interest but sought relief on other grounds.

The Tribunal confirmed the demand of interest at the appropriate rate for the relevant period until payment of Service Tax was made, consistent with statutory provisions.

3. SIGNIFICANT HOLDINGS

The Tribunal's key legal conclusions include the following:

"I find that the gross amount is to be treated as being inclusive of Service Tax as per Section 67 of the Finance Act, 1994."

"Since no acceptable cause or reason had been shown by the appellant for waiving the penalty under Section 80 of the Finance Act 1994, no relief can be allowed on this count."

"The appellant was fully aware of liabilities and obligations under the Finance Act, 1994. They were aware that service tax was required to be paid by them on the advances received by them but they deliberately did not pay the service tax due by the due date."

"Hence I do not find much merits in the submissions of the appellant vis a vis the invocation of extended period of limitation and penalty imposed under Section 78 of Finance Act, 1994."

The Tribunal thus established the principle that where an assessee receives advances for taxable services and does not separately indicate Service Tax, the gross amount is inclusive of Service Tax for valuation purposes. Further, deliberate non-payment and non-disclosure of such amounts justify invocation of extended limitation and imposition of penalties under the Finance Act, 1994.

On each issue, the Tribunal upheld the demand of Service Tax including interest, confirmed the extended period invocation, and sustained penalties, dismissing the appeal in its entirety.