2025 (5) TMI 75 - HC - Service Tax

Extended period of limitation - suppression of facts or not - issuance of SCN is in consonance with the principles of natural justice or not - HELD THAT - This Court finds that after issuance of the show cause notice dated 17.10.2020 the petitioner responded to the said notice by filing a defence reply dated 12.02.2024. The copy of the defence reply has not been brought on record of the writ application by the petitioner. However learned Senior Counsel for the petitioner has contended that the Respondent No. 3 has not considered the submissions made in the written defence reply. The judgment of the Hon ble Supreme Court in the case of Northern Operating Systems Private Limited 2022 (5) TMI 967 - SUPREME COURT was relied upon earlier before this Court in the case of Ramnath Prasad 2025 (2) TMI 301 - PATNA HIGH COURT and this Court has held that the requirement to prove fraud and collusion is the extent to evade duty. This is a question of fact and may be properly adjudicated by either the Adjudicating Authority or the Appellate Authority. Prima-facie we find that the Adjudicating Authority has discussed this issue so we will have a glance over the same to satisfy over the same to satisfy oneself as to whether any jurisdictional error may be found in this regard in the impugned order. On going through the various judicial pronouncements as to the subject that what would constituent a fraud suppression or collusion this Court finds in the facts of this case that this petitioner having surrendered his service tax registration had not disclosed the transactions in ST-3. The Taxing Authority were not aware of this they were looking for cooperation on the part of the petitioner they called for relevant information and records during investigation but the petitioner did not provide those information to the Taxing Authority. In such circumstance if the Taxing Authority has taken a view that it is a case of suppression and the facts which have surfaced during investigation were not earlier known to them and they would not have come to know it if the investigation would not have taken place cannot be found fault with - This Court is therefore of the prima-facie view that no jurisdictional error has been committed by the respondent no. 2 or respondent no. 3 in invoking the extended period of limitation of five years under proviso to Sub-Section (1) of Section 73 of the Act of 1994. There are no reason to interfere with the demand-cum-show cause notice dated 17.10.2020 as contained in Annexure P-1 and the order dated 04.07.2024 as contained in Annexure P-4 on jurisdictional issues. Application disposed off.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the demand-cum-show cause notice dated 17.10.2020 and the subsequent order dated 04.07.2024 imposing service tax, penalty, and interest for the financial years 2015-16 and 2016-17 are barred by limitation under the relevant provisions of the Finance Act, 1994 (hereinafter 'Act of 1994').

2. Whether the extended period of limitation under proviso to Section 73(1) of the Act of 1994 was correctly invoked by the Respondent authorities on the ground of suppression of facts or willful evasion of service tax by the petitioner.

3. The proper interpretation and application of the limitation provisions under clause (b) of Sub-Section (4B) of Section 73 of the Act of 1994 concerning the time frame within which adjudication orders must be passed after issuance of show cause notices.

4. Whether the petitioner's liability for service tax should be computed on the gross value of services rendered or limited to the commission earned, as contended by the petitioner.

5. The validity and sufficiency of procedural compliance by the Respondent authorities in issuing notices and providing opportunities for hearing, including the impact of the petitioner's non-cooperation and non-response during the investigation.

6. The applicability and interpretation of relevant Supreme Court and High Court precedents, including the principles governing invocation of extended limitation periods in cases of fraud, willful misstatement, or suppression of facts.

7. The effect and relevance of the Circular Letter dated 13th December, 2023 issued by the Central Board of Indirect Taxes and Customs (CBIC) in guiding the application of limitation provisions and the requirement of evidencing fraud or willful suppression for extension of limitation.

Issue-wise Detailed Analysis

1. Limitation Period for Issuance of Demand Notice and Adjudication Order

Legal Framework and Precedents: The limitation for issuance of a demand-cum-show cause notice under Section 73(1) of the Act of 1994 is ordinarily 12 months from the relevant date. However, the proviso to Section 73(1) allows extension up to five years if the escaped service tax is due to fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. Clause (b) of Sub-Section (4B) of Section 73 prescribes a period for passing adjudication orders after issuance of show cause notices.

Supreme Court judgments such as Union of India v. Rajasthan Spinning and Weaving Mills and M/S Usha Rectifiers Corporation India Ltd. emphasize that extended limitation applies only when there is conscious wrongdoing with intent to evade tax. The Court in Cosmic Dye Chemical and Continental Foundation Joint Venture Holding held that suppression or misstatement must be willful to justify extended limitation.

Court's Interpretation and Reasoning: The Court found that the show cause notice dated 17.10.2020 was issued within the extended limitation period justified by the petitioner's failure to disclose taxable transactions and surrendering registration without proper compliance. The petitioner's non-cooperation during investigation, including failure to respond to multiple letters and non-appearance for hearings, supported the invocation of extended limitation.

Regarding the adjudication order dated 04.07.2024, the Court distinguished the facts from the precedent relied upon by the petitioner (Kanak Automobiles Private Limited), noting that the delay was due to the COVID-19 lockdown and that the petitioner was given multiple opportunities for personal hearing. The Court held that clause (b) of Sub-Section (4B) does not fix an absolute limitation period but requires authorities to take all possible steps to conclude proceedings expeditiously.

Key Evidence and Findings: The petitioner had left the registered address, letters sent to the new address and email were returned undelivered or ignored, and the petitioner failed to submit relevant documents. The petitioner's defence reply was filed late and not placed on record, limiting the Court's ability to examine merits.

Application of Law to Facts: The Court applied the principle that extended limitation is justifiable where suppression or willful misstatement is evident. The petitioner's conduct was found to amount to suppression of facts, justifying the extended limitation period and validating the issuance of the demand notice and adjudication order within that period.

Treatment of Competing Arguments: The petitioner argued that the demand notice and order were barred by limitation and that there was no willful evasion. The Court rejected this, relying on the petitioner's failure to cooperate and the legal principle that extended limitation applies where suppression is deliberate. The petitioner's reliance on the Kanak Automobiles judgment was distinguished on factual grounds and the Supreme Court's caution against mechanical application of precedents.

Conclusion: The Court upheld the validity of the demand-cum-show cause notice and the adjudication order with respect to limitation and extended limitation provisions.

2. Computation of Service Tax Liability on Gross Value vs. Commission

Legal Framework: Under the Finance Act, 1994, service tax liability is generally computed on the value of taxable services rendered. The petitioner contended that as a travel agent, tax liability should be limited to the commission earned, not the gross value of ticket sales, relying on the concept of abatement under notifications issued under the Act.

Court's Interpretation and Reasoning: The Court refrained from adjudicating on this substantive issue in writ jurisdiction due to the absence of the petitioner's written defence reply on record and the necessity for factual appraisal. The Court noted that such issues are better suited for adjudication before the appropriate Appellate Authority where evidence and documents can be properly examined.

Key Evidence: The petitioner's claim of being a travel agent entitled to abatement was not supported by cogent documentary evidence before the Court.

Application of Law to Facts: The Court left the question of taxability on gross value versus commission open for determination by the adjudicating authorities in appeal.

Treatment of Competing Arguments: The petitioner's submissions on taxability were acknowledged but not decided. The Respondents maintained that service tax is chargeable on gross taxable value under Section 66 of the Act.

Conclusion: No determination was made on this issue; it remains open for adjudication in statutory proceedings.

3. Procedural Compliance and Natural Justice

Legal Framework: Principles of natural justice require that a show cause notice be issued with sufficient particulars and that the affected party be given an opportunity to respond and be heard.

Court's Interpretation and Reasoning: The Court found that the Respondents issued multiple letters and show cause notices, provided opportunities for personal hearing, and allowed the petitioner to file a defence reply. The petitioner's failure to respond or cooperate was noted. The Court held that the issuance of the show cause notice and subsequent order complied with natural justice and procedural requirements.

Key Evidence: Letters dated 03.12.2019, 13.08.2020, 01.10.2020, and show cause notice dated 17.10.2020 were issued. The petitioner's non-response and failure to appear for hearings were documented.

Application of Law to Facts: The Respondents acted within their jurisdiction and followed due process. The petitioner's non-cooperation did not vitiate the proceedings.

Treatment of Competing Arguments: The petitioner contended that the show cause notice was invalid due to limitation and lack of proper consideration of defence submissions. The Court found no jurisdictional error or procedural irregularity.

Conclusion: Procedural compliance and principles of natural justice were satisfied.

4. Interpretation of Circular Letter dated 13th December, 2023 and Supreme Court Precedents on Fraud and Suppression

Legal Framework: The Circular Letter issued by CBIC reiterates that extended limitation under Section 74(1) of the CGST Act applies only where there is material evidence of fraud, willful misstatement, or suppression of facts to evade tax, and such evidence must be part of the show cause notice. The Supreme Court in Northern Operating Systems and Fiat India emphasized that each case depends on its own facts and that willful suppression or fraud must be clearly established.

Court's Interpretation and Reasoning: The Court applied these principles, noting that the petitioner's concealment of taxable transactions and failure to cooperate amounted to suppression of facts with intent to evade tax. The Court found no fault in the Respondents invoking extended limitation based on such conduct.

Key Evidence: The petitioner surrendered registration, did not declare taxable value, and did not provide information despite repeated requests.

Application of Law to Facts: The Court concluded that the facts disclosed a case of willful suppression justifying extended limitation and that the Circular's guidance was followed.

Treatment of Competing Arguments: The petitioner argued absence of fraud or willful suppression; the Court disagreed based on the record and legal standards.

Conclusion: The extended limitation was correctly invoked in accordance with legal principles and departmental guidelines.

5. Availability of Alternative Remedy

The Court noted that the petitioner has a statutory remedy of appeal under Section 85 of the Finance Act, 1995 against the impugned order. The petitioner was informed of this right and encouraged to pursue it within the prescribed time frame.

Significant Holdings

"Mere omission to give correct information is not suppression of facts unless it was deliberate to stop (sic evade) the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty."

"The expression 'suppression' has been used in the proviso to Section 11-A of the Act accompanied by very strong words as 'fraud' or 'collusion' and, therefore, has to be construed strictly... Misstatement or suppression of fact must be wilful."

"Each case depends on its own facts and a close similarity between one case and another is not enough because either a single significant detail may alter the entire aspect."

"Clause (b) of Sub-Section (4B) of Section 73 of the Act of 1994 is not providing an absolute period of limitation but requires the statutory authority to take all possible steps to conclude the proceedings expeditiously."

"In the present case, the petitioner having surrendered his service tax registration and not disclosed taxable transactions, coupled with non-cooperation during investigation, amounts to suppression of facts justifying invocation of extended limitation."

"The petitioner's contention that the demand notice and order are barred by limitation is rejected on the facts and law."

"The question of taxability on gross value versus commission is left open for adjudication before the Appellate Authority."