2025 (7) TMI 76 - AT - Service Tax

Refund of service tax - rejection on the ground of unjust enrichment - time limitation - HELD THAT - It is found from the records that SCN dated 20.4.2021 has been issued on audit objection invoking extended period wherein the objection is that the Appellant has provided the taxable services to MES Roorkee Garrison Sarsawa Garrison Dehradun MES Roorkee Garrison MES and vide Notification No.6/2015-ST dated 1.3.2015 the entry 12 items (a) (c) and (f) of the Notification No.25/2012-ST dated 20.6.2012 has been omitted therefore service provided by Appellant to the Government are liable to service tax. There are force in the arguments of the learned Counsel that since they have taken service tax registration in June 2015 deposited service tax and filed ST-3 returns therefore Appellant s activity was in the knowledge of the Department. Further the Appellant has also filed refund claim of service tax on 9.11.2016 and submitted documents viz. ST-3 return contract/agreement with the Defence (Air-force/Army) and the claim was rejected vide Order dated 22.5.2017 on the ground of unjust enrichment this shows that all the information of Appellant s activity of work contract service provided to Government was in the knowledge of the service tax department and in such a situation Show Cause Notice issued on 20.4.2021 invoking extended period is barred by limitation. The appeal filed by the Appellant succeeds on limitation - Appeal allowed.

Summary

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

1. Whether the service tax demand raised on the appellant for work contract services provided to various Government entities post 1.3.2015 is valid and sustainable.

2. Whether the exemption under Notification No. 25/2012-ST (and its amendments) applies to the appellant's work contract services provided to Government prior to 1.3.2015, despite payments being made in subsequent financial years.

3. Whether the Show Cause Notice (SCN) dated 20.4.2021, invoking the extended period for service tax demand, is barred by limitation given the appellant's prior registration, payment of service tax, filing of returns, and earlier refund claim.

4. Whether penalties under Sections 77(1)(c) and 78 of the Finance Act, 1994, along with interest, are justified in the facts of the case.

Issue-wise Detailed Analysis:

1. Validity of Service Tax Demand on Work Contract Services Post 1.3.2015

Legal Framework and Precedents: The relevant legal provisions include Notification No. 25/2012-ST dated 20.6.2012, which exempted certain work contract services provided to Government, and Notification No. 6/2015-ST dated 1.3.2015, which omitted specific entries (12(a), (c), and (f)) from the exemption list, thereby making such services taxable. The Finance Act, 1994, and associated penalty provisions under Sections 77 and 78 are also pertinent.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant provided work contract services to various Government departments including Military Engineering Services and Garrison units. Post 1.3.2015, the exemption entries were omitted, rendering such services taxable. The audit findings and SCN were based on this legislative change.

Key Evidence and Findings: The audit report and SCN identified taxable services rendered during 2015-16 to June 2017. The appellant had obtained service tax registration in June 2015 and filed ST-3 returns, paying service tax on work contracts granted after 1.4.2015.

Application of Law to Facts: The Tribunal accepted that services provided after the omission of exemption entries attracted service tax liability. The appellant's compliance via registration and payment for contracts post 1.4.2015 was acknowledged.

Treatment of Competing Arguments: The appellant contended that the services were not liable to tax as they were for Government use and not commerce or industry, relying on the exemption notification and a Tribunal precedent. The Tribunal, however, emphasized the amendment removing the exemption and the consequent taxability.

Conclusion: The demand for service tax on work contract services provided after 1.3.2015 is legally sustainable.

2. Applicability of Exemption for Work Contracts Granted Prior to 1.3.2015 but Paid Afterward

Legal Framework and Precedents: Notification No. 25/2012-ST provided exemption for certain work contract services to Government prior to 1.3.2015. The appellant relied on this exemption and a Tribunal decision in Banna Ram Choudhary Vs CCE, which supported exemption for such services.

Court's Interpretation and Reasoning: The appellant submitted a chart and correspondence signed by the Executive Engineer showing that contracts were granted before 1.3.2015, though payments were made in 2015-16. The contention was that the exemption applies as the work contracts originated prior to the date of amendment.

Key Evidence and Findings: The appellant produced documentary evidence including contracts, payment details, and correspondence with Government authorities to substantiate the timeline.

Application of Law to Facts: The Tribunal acknowledged the appellant's evidence but did not explicitly rule on the exemption's applicability on this ground, focusing more on limitation and knowledge of the department.

Treatment of Competing Arguments: While the appellant argued exemption based on contract dates, the Revenue maintained taxability due to payments and completion falling after the amendment.

Conclusion: Although the appellant's evidence supports exemption claims for pre-1.3.2015 contracts, the Tribunal's final decision did not rest on this issue but rather on limitation grounds.

3. Limitation and Validity of Show Cause Notice Issued in 2021

Legal Framework and Precedents: The Finance Act, 1994, prescribes limitation periods for issuing SCNs. The extended period can be invoked only under specific circumstances. The Tribunal relied on a precedent in M/s Vacmet India Limited Vs CCE, Ujjain, which held that once the department has knowledge of the activity and the appellant has filed returns and refund claims, issuing SCN invoking extended period is barred by limitation.

Court's Interpretation and Reasoning: The Tribunal found that the appellant had obtained registration in June 2015, deposited service tax, filed ST-3 returns, and had made a refund claim in November 2016 with supporting documents. The refund claim was rejected in May 2017 on unjust enrichment grounds. This sequence demonstrated that the department was fully aware of the appellant's activities.

Key Evidence and Findings: The appellant's registration, ST-3 returns, refund application, and rejection order were critical evidence. The absence of any objection or query from the department upon receipt of returns was also noted.

Application of Law to Facts: Given the department's prior knowledge and the appellant's compliance, the Tribunal held that issuing the SCN in April 2021 invoking extended period was barred by limitation.

Treatment of Competing Arguments: The Revenue argued for dismissal of the appeal and upheld the SCN. The Tribunal, however, gave greater weight to the appellant's prior disclosures and the principle of limitation.

Conclusion: The SCN dated 20.4.2021 is barred by limitation and cannot be sustained.

4. Justification for Penalties and Interest

Legal Framework and Precedents: Penalties under Sections 77(1)(c) and 78 of the Finance Act, 1994, are imposed for failure to pay service tax and for suppression of facts or misdeclaration. Interest is payable on delayed payments.

Court's Interpretation and Reasoning: Since the Tribunal allowed the appeal on limitation grounds, it did not delve into detailed analysis of penalty justification or interest calculation.

Key Evidence and Findings: The penalties were imposed based on the confirmed demand in the original and appellate orders.

Application of Law to Facts: With the SCN and demand set aside on limitation, penalties and interest based on that demand also stand invalidated.

Treatment of Competing Arguments: The appellant challenged penalties as unjustified; the Revenue supported their imposition.

Conclusion: Penalties and interest confirmed in the impugned orders are set aside consequent to the appeal's success on limitation.

Significant Holdings:

"Since the appellant had taken service tax registration in June 2015, deposited service tax and filed ST-3 returns, the appellant's activity was in the knowledge of the Department. Further, the appellant filed refund claim of service tax on 9.11.2016 and submitted documents viz. ST-3 return, contract/agreement with the Defence (Air-force/Army) and the claim was rejected vide Order dated 22.5.2017 on the ground of unjust enrichment. This shows that all the information of appellant's activity of work contract service provided to Government was in the knowledge of the service tax department and in such a situation, Show Cause Notice issued on 20.4.2021 invoking extended period is barred by limitation."

Core principles established include:

• The extended period for issuing a Show Cause Notice cannot be invoked where the department has full knowledge of the appellant's activities through registration, returns, and refund claims.
• Service tax exemption notifications must be interpreted in light of subsequent amendments, and tax liability arises accordingly.
• Limitation is a substantive bar that overrides merits where invoked appropriately.

Final determinations:

• The service tax demand and penalties confirmed by the lower authorities are set aside on the ground of limitation.
• The appellant's appeal is allowed with consequential relief.