2025 (6) TMI 14 - AT - Service Tax

Demand barred by time limitation or not - appellant is an intermediary as defined in Rule 2(f) of the Place of Provision of Services Rules 2012 ( POPS Rules) or not - Export of Services as per Rule 6A of the Service Tax Rules 1994. Whether the Demand is wholly barred by limitation as contended by the Appellant? - HELD THAT - From a perusal of sub-section (1) of section 73 of the Finance Act it can be seen that where any service tax has not been levied or paid the Central Excise Officer may within thirty months from the relevant date serve a notice on the person chargeable with the service tax which has not been levied or paid requiring him to show cause why he should not pay amount specified in the notice - The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax by the person chargeable with the service tax the provisions of the said section shall have effect as if for the word thirty months the word five years has been substituted. The appellate authority has conceded that the appellant has declared the income under export of service. Thus the appellant s contention that it is regularly filing the returns with such declaration of income under export of service remains uncontroverted and on the contrary stands conceded. The responsibility of the jurisdictional departmental officers to scrutinize the returns filed reflecting the information of amounts charged against export service provided and declarations of deductions claimed and service tax payable that has been so declared by the appellant and the abject failure to take up the information for scrutiny is not to be held to the detriment of the appellant by invoking of the extended period of limitation. In view of the mandatory responsibilities cast on the jurisdictional officers by various circulars they cannot abdicate responsibility more so when there is complete absence of any evidence that they have indeed embarked on such a scrutiny and called for the necessary information and that the assessee has not responded to their letters seeking such information. In the show cause notice too there is no whisper of any finding that the returns that the appellant has so regularly filed have been scrutinized and a subsequent allegation that the appellant had not furnished any information that has been sought for consequent to such scrutiny - the mandate of the statute as laid down in Section 14 of the Central Excise Act 1944 made applicable under Section 83 of the Finance Act 1994 in relation to service tax as they apply in relation to a duty of excise empowers the jurisdictional range officers to issue summons requiring any person to give evidence or produce records etc. and can be resorted to by the said officers in the course of performance of their official duties as per extant Departmental instructions if it so becomes necessary. In the instant case the extended period sought to be invoked is from October 2014 to June 2017 and hence even before the present SCN issued on 23-06-2020 pursuant to investigations commenced on 09-05-2019 there was ample opportunity for the jurisdictional range officers to carry out their mandated responsibility and detect any irregularities if at all any. In the light of the ratio of the decisions stated supra when the knowledge of the fact that the appellant has been claiming the said amounts received as towards export of service duly reflecting them in the returns was already known to the Department the learned adjudicating authority has egregiously erred in finding that the invoking of the extended period of limitation was tenable. In the present case the service tax returns were all filed well before January 2018 and the period under dispute is also only upto June 2017. Thus the confirmation of the demand of service tax in the instant case which was for the period from 01.10.2014 to 30.06.2017 was entirely barred by limitation and is therefore wholly unsustainable and is liable to be set aside. Given the findings above that the extended period of limitation was not invokable and that the demand was wholly barred by limitation it is disinclined to now go into the merits of the dispute for more reasons than one. Firstly a finding on merits is rendered inconsequential as the demands are even otherwise unsustainable being wholly barred by limitation. Secondly there is no question of such a demand under Chapter V of the Finance Act 1994 recurring in respect of the appellant. Thirdly with the advent of the GST regime the Finance Act 1994 has been amended and by virtue of Section 173 of the CGST Act 2017 Chapter V of the Finance Act 1994 has been omitted of course subject to the repeal and savings as provided under Section 174 of the GST Act ibid and for the proceedings initiated in respect of the appellant for the subsequent period under the prevailing GST Tax regime it is seen that the Departmental Adjudicating Authority itself has dropped the proceedings rendering a finding in favour of the appellant on merits as evidenced by the Order in Original No.21/2025-DGGI (ADC) dated 17.01.2025 of the Additional Commissioner of GST Central Excise Chennai and nothing has been brought to notice to show that the order has not attained finality Last but not the least having found in favour of the appellant on limitation it is now forbidden from rendering a finding on merits as per the binding judicial precedents. Conclusion - Given the findings that the demand is wholly barred by limitation for the reasons stated adhering to judicial discipline and respectfully following the binding judicial precedents of the Honourable Apex Court and High Courts it is refrained from delving into the merits of the matter and rendering a finding on merits. Appeal allowed.

Summary

The primary legal issues considered by the Tribunal in this appeal are twofold: (A) whether the demand for service tax raised against the appellant is barred by limitation, and (B) if not barred by limitation, whether on merits the appellant's services qualify as intermediary services under the relevant statutory provisions and whether the services rendered by the appellant can be treated as export of services under the Service Tax Rules, 1994.

Regarding issue (A) on limitation, the Tribunal examined the provisions of Section 73(1) of the Finance Act, 1994, which governs recovery of service tax not levied or paid. The section prescribes a limitation period of thirty months from the relevant date for issuance of a show cause notice, with an extended period of five years applicable only where non-payment arises due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of the provisions with intent to evade payment. The "relevant date" is defined in Section 73(6), primarily as the date of filing of the return showing particulars of service tax paid.

The Tribunal carefully analyzed judicial precedents, including a detailed review of the Supreme Court's interpretation of similar limitation provisions under the Customs Act and Central Excise Act, emphasizing that invocation of the extended limitation period requires proof of deliberate intention to evade tax, such as wilful misstatement or suppression of facts. Mere non-payment or omission does not suffice. The Tribunal further noted that the appellant had regularly filed service tax returns during the disputed period, consistently declaring the amounts received as export of services, and had responded to departmental inquiries in prior years, thereby negating any claim of suppression or wilful misstatement.

Moreover, the Tribunal underscored the statutory responsibility of departmental officers to scrutinize returns filed by assessees and to initiate timely inquiries if discrepancies are suspected. The failure of the department to scrutinize the appellant's returns or to raise queries within the prescribed period undermined the justification for invoking the extended limitation period. The Tribunal relied on several authoritative decisions holding that when the department neglects its duty to scrutinize returns, extended limitation cannot be invoked against an assessee who has made full disclosures.

Consequently, the Tribunal concluded that the show cause notice issued in June 2020, relating to the period October 2014 to June 2017, was beyond the normal limitation period of thirty months from the date of filing of the last return for that period (August 2017). Since the extended period was not invokable due to lack of evidence of wilful suppression or intent to evade tax, the entire demand was barred by limitation and unsustainable.

Turning to issue (B) on merits, the Tribunal noted that since the demand was barred by limitation, it was not necessary to adjudicate the substantive questions. However, the matter involved whether the appellant's services constituted intermediary services and whether they qualified as export of services under Rule 6A of the Service Tax Rules, 1994.

The appellant contended that it rendered accounting and payroll services on a principal-to-principal basis to its foreign associated enterprise, which was a separate legal entity and not merely an establishment of the same person. The appellant relied on the service agreements, which detailed the scope of services, and submitted that these services were independent and not mere facilitation or arrangement of services, thus not meeting the definition of intermediary services under Rule 2(f) of the Place of Provision of Services Rules, 2012. The appellant further argued that the services were provided outside the taxable territory and consideration was received in foreign convertible currency, fulfilling the conditions for export of services under Rule 6A.

The appellant supported its position by citing judicial precedents, including a recent Supreme Court decision affirming that services rendered on a cost-plus basis without direct nexus to the underlying supply do not constitute intermediary services. It also relied on various GST regime decisions and circulars clarifying the concept of intermediary services, emphasizing that sub-contracting for a service is not intermediary service. The appellant highlighted that the department had accepted refund claims under the GST regime for similar services, reinforcing their export of services claim.

The department, on the other hand, argued that the appellant acted as an intermediary, facilitating services between the foreign service recipient and vendors or ship owners. It pointed to contractual clauses indicating that the appellant acted "on behalf of" the foreign entity, and submitted that the appellant and the foreign enterprise were merely establishments of the same persons, thus falling within the ambit of "distinct persons" under Explanation 3(b) of Clause (44) of Section 65B of the Finance Act. The department maintained that the place of provision of intermediary services was in India, making the services taxable and not exportable.

The Tribunal noted the conflicting interpretations but refrained from deciding on merits due to the limitation bar. It emphasized that the appellant's bona fide belief, supported by consistent declarations in returns and prior departmental correspondence, negated any wilful misstatement or suppression of facts. The Tribunal also observed that the appellant's submissions and cited precedents presented a tenable legal view on the nature of services and export classification.

In conclusion, the Tribunal held that the impugned order upholding the demand, interest, and penalty was unsustainable as the entire demand was barred by limitation. The Tribunal set aside the demand along with the interest and penalty. It declined to adjudicate the merits of intermediary classification and export of services given the overriding limitation issue and the changes in law with the advent of GST. The appeal was allowed with consequential relief.

Significant holdings from the judgment include the following verbatim excerpt emphasizing the limitation principle:

"We find that the appellant has duly provided all the information sought in the mandatory returns prescribed... When the knowledge of the fact that the appellant has been claiming the said amounts received as towards export of service duly reflecting them in the returns, was already known to the Department, we are of the view that the learned adjudicating authority has egregiously erred in finding that the invoking of the extended period of limitation was tenable."

And further:

"When the appellant held a bona fide belief that its services were not liable to tax being export of services and had in fact declared the amounts received as towards export of service provided, there cannot be a finding of wilful misstatement or suppression of facts with intent to evade payment of duty attributable to the Appellant."

Also, the Tribunal adhered to the principle that once a demand is held barred by limitation, adjudication on merits is unnecessary and impermissible, citing:

"Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue."

Core principles established include:

• The extended limitation period under Section 73(1) proviso applies only when there is clear evidence of fraud, collusion, wilful misstatement, or suppression of facts with intent to evade tax.
• Regular filing of returns with declarations of export of services and absence of departmental scrutiny negates the applicability of extended limitation.
• Failure of the department to scrutinize returns or initiate timely inquiry cannot be used to the detriment of the assessee by invoking extended limitation.
• Bona fide interpretation of taxability and classification of services, supported by consistent declarations and absence of malafide, precludes invocation of extended limitation and penalty.
• Once a demand is barred by limitation, the adjudicatory authority must refrain from deciding on merits.