2025 (7) TMI 1137 - AT - Service Tax

Levy of service tax - Manpower Recruitment and Supply Agency Service - reimbursement of salary which was paid by Delphi Singapore to the seconded employee - wilful misstatement or suppression on the part of the appellant - Invocation of extended period of limitation - HELD THAT - The entire demand is barred by limitation because the demand pertains to year 2006-07 and 2007-08 and the SCN was issued on 23.10.2009. As the department has not brought any material on record to show that there was a fraud wilful misstatement or suppression on the part of the appellant. Further the issue involved in the present case was under litigation and finally the Hon ble Supreme Court in the case of Commr vs. M/s Northern Operating Systems Pvt Ltd 2022 (5) TMI 967 - SUPREME COURT has settled the issue. The Hon ble Supreme Court in the said judgment has also dropped the demand beyond the normal period of limitation and various benches of the Tribunal after following the said judgment of Hon ble Supreme Court have also dropped the demand of service tax for extended period in various cases. Moreover the demand was raised on the basis of audit and it is a settled law that extended period cannot be invoked when the demand is based on the audit. The present case is squarely covered by various decisions on limitation - the impugned order is set aside and the appeal is allowed on limitation.

Summary

ISSUES:

Whether the demand of service tax on reimbursed salary under 'Manpower Recruitment and Supply Agency Service' is barred by limitation.Whether extended period of limitation under Section 73(1) of the Finance Act, 1994 can be invoked in absence of evidence of fraud, wilful misstatement, or suppression.Whether audit-based demand justifies invocation of extended period of limitation.Whether the issue of service tax liability on reimbursed salary was subject to bona fide dispute and litigation affecting limitation.

RULINGS / HOLDINGS:

The demand of service tax for the period 2006-07 and 2007-08 is barred by limitation as the Show Cause Notice (SCN) was issued beyond the one-year time limit from the relevant date, without any evidence of fraud, wilful misstatement, or suppression.The extended period of limitation under Section 73(1) cannot be invoked in the absence of proof of fraud, wilful misstatement, or suppression by the appellant.The demand raised on the basis of audit does not justify invocation of the extended period of limitation, as it is a settled legal position that extended period cannot be invoked when demand is based on audit.The issue involved was under bona fide dispute and litigation, which attained finality only with the Supreme Court judgment in Commissioner vs. M/s Northern Operating Systems Pvt Ltd, and thus limitation cannot be extended.Following the ratios of multiple Tribunal decisions and the Supreme Court ruling, the demand is set aside on limitation grounds without adjudicating merits.

RATIONALE:

The Court applied the limitation provisions under the Finance Act, 1994, specifically Sections 73(1), 75, 77, and 78, and the statutory time limits for issuance of SCNs based on the due date of filing half-yearly returns.The Court relied on the principle that extended limitation period under Section 73(1) is invokable only upon proof of fraud, wilful misstatement, or suppression of facts, which was not established.The Court referenced the Supreme Court judgment in Commissioner vs. M/s Northern Operating Systems Pvt Ltd, which clarified the limitation and extended period applicability, and held that demands beyond normal limitation period were to be dropped in absence of fraud or suppression.The Court noted that demands raised solely on audit findings do not qualify for extended limitation period invocation, consistent with settled legal precedent.The Court acknowledged multiple Tribunal decisions following the Supreme Court's ruling, reinforcing the limitation bar on similar demands.No dissent or doctrinal shift was indicated; the Court followed established statutory interpretation and precedent.