2025 (6) TMI 520 - 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 or not - Export of Services as per Rule 6A of the Service Tax Rules 1994. HELD THAT - The question of limitation goes to the root of the matter and involves a question of jurisdiction to raise the demand itself in the first instance. This in turn is premised on the provisions of law that prescribe the situations as well as the attendant ingredients thereto that attract its application. The findings of fact on the question of jurisdiction would be a jurisdictional fact. Such a jurisdictional question therefore needs to be examined and is to be determined having regard to both the facts and law involved therein. To appreciate whether the demand is wholly barred by limitation it would therefore be appropriate to reproduce section 73(1) of the Finance Act, 1994 as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. 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. Allowing the assessee to self-assess the tax is a mere facility extended to the assessee. That in no way detracts or dilutes the statutory responsibility of the jurisdictional central excise officers to ensure correctness of the assessment exemptions claimed and duty payments made. In the instant case on a perusal of the ST-3 returns available as part of the Appeal records we find that in the ST-3 returns filed regularly the Appellants have under PART B titled VALUE OF TAXABLE SERVICE AND SERVICE TAX PAYABLE against B1.8 titled the amounts charged against export of service provided or to be provided duly indicated the amounts in respect of each month in the appropriate place provided for such declaration - 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. There is a catena of decisions in similar vein wherein various High Courts as well as this Tribunal have consistently held that when the assessee is registered and filing returns regularly the range officer had a duty to scrutinize returns and detect any irregularity and to raise pertinent queries in this regard and that in the light of any negligence or failure to do so the allegation of suppression by the assessee cannot be countenanced. When the appellant held a bonafide 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. On a perusal of the ST-3 returns available as part of the Appeal records we have found that in the ST-3 returns filed regularly the Appellants have duly indicated therein the amounts charged against export of service provided in the appropriate place provided for such declaration. The appellant has also indicated the consequent net taxable value as well as the service tax payable pursuant to the said particulars indicated in the ST 3 returns. The present matter covers the dispute period from October 2014 to June 2017 whereas the SCN was issued only on 29.06.2020. The appellant had filed Service Tax returns for this period on 21.07.2015 20.10.2015 22.04.2016 24.10.2016 25.04.2017 and 11.08.2017 respectively as is evidenced by the ST-3 returns - when the invoking of extended period of limitation was not available to the Department considering the fact that the appellant had declared the amounts received as towards export of service in the ST 3 returns and the said fact was in the knowledge of the department therefore the SCN issued on 29-06-2020 is beyond the normal period of limitation and the entire demand is barred by limitation. The normal period of thirty months when calculated in the reverse from the date of issuance of the SCN which is on 29-06-2020 which could at best have been covered is only if there was a demand for the period from January 2018 onwards alone. 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. 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 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. Conclusion - i) The appellant had declared the amounts received as towards export of service in the ST-3 returns filed with the Department and the said fact was in the knowledge of the department. Therefore the SCN issued on 29-06-2020 is beyond the normal period of limitation and the entire demand is barred by limitation. ii) Once the demand is held barred by limitation there is no occasion to adjudicate the merits of the dispute. Appeal allowed.

Summary

The primary issues considered by the Tribunal in this appeal are twofold: first, whether the demand for service tax raised against the appellant is barred by limitation; and second, if not barred, whether the appellant's services qualify as intermediary services under the relevant statutory provisions and whether the services rendered to the foreign associated enterprise can be treated as export of services under the Service Tax Rules, 1994.

Regarding the limitation issue, the relevant legal framework is Section 73(1) of the Finance Act, 1994, which prescribes a normal limitation period of thirty months from the "relevant date" for issuance of a show cause notice demanding service tax not levied or paid. The proviso to this section extends the limitation period to five years if the non-payment is due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade tax. The "relevant date" is defined under Section 73(6) and generally corresponds to the date of filing of the relevant return.

The appellant contended that it had regularly filed service tax returns declaring the amounts received as export of services and that the demand relates to the period from October 2014 to June 2017, whereas the show cause notice was issued on 29.06.2020, beyond the normal limitation period. The appellant further argued that there was no wilful suppression or intent to evade tax, but rather a bona fide belief that the services rendered were export of services and hence not taxable. The appellant relied on multiple judicial precedents including a detailed analysis of the Supreme Court's interpretation of "wilful misstatement" and "suppression of facts" as requiring deliberate intent to evade tax, and that mere non-payment or omission does not suffice to invoke extended limitation.

The Tribunal examined the authorities and found that the appellant had declared the export of service in its returns, which were duly filed within the prescribed period. The departmental officers failed to scrutinize these returns or initiate any inquiry within the normal limitation period. The Tribunal held that such failure on the part of the department cannot be held against the appellant to justify invocation of the extended limitation period. The Tribunal also noted that the appellant's bona fide belief was supported by its consistent declarations and submissions during investigation. The Tribunal relied on authoritative decisions holding that invocation of extended limitation requires proof of deliberate intention to evade tax, which was absent here.

Consequently, the Tribunal concluded that the demand was barred by limitation as the extended period was not invokable. It further held that once limitation is established as a bar to the demand, it is not necessary to decide the merits of the case. The Tribunal cited binding precedents which prohibit adjudication on merits once a demand is held time-barred, to avoid illegality and jurisdictional error.

On the merits, the appellant contended that the services rendered by it to the foreign associated enterprise were in the nature of ERP development, installation, and maintenance, and not intermediary services. The appellant submitted that it provided services on a principal-to-principal basis with no contractual relationship with the ultimate clients of the foreign enterprise. The appellant relied on the cost-plus pricing method and judicial precedents which held that services charged on cost-plus basis do not qualify as intermediary services. It was further argued that the appellant and the foreign enterprise are separate legal entities and not merely establishments of a distinct person as defined under Section 65B(44) of the Finance Act, 1994, and hence the services qualify as export of services under Rule 6A of the Service Tax Rules, 1994.

The appellant also highlighted that under the GST regime, which succeeded the service tax regime, the same services were accepted as export of services by the authorities, with refunds granted accordingly. The appellant relied on circulars clarifying the meaning of "intermediary" and judicial decisions distinguishing ERP development services from intermediary services. It was submitted that sub-contracting of services is not intermediary service and that the appellant's services were independent and not mere facilitation of the foreign enterprise's services.

The department, on the other hand, argued that the appellant's services fall within the definition of intermediary services as the appellant acted on behalf of the foreign enterprise in liaising with vendors and port agents, and performed functions integral to the foreign enterprise's provision of ship management services. The department relied on contract clauses evidencing the appellant's obligation to act "on behalf of" the foreign enterprise and submitted that the appellant and the foreign enterprise are merely establishments of the same persons, thus failing the condition under Rule 6A(1)(f) for export of services. The department contended that the place of provision of intermediary services is the location of the service provider, i.e., India, making the services taxable in India.

While the Tribunal did not proceed to decide the merits due to the limitation bar, it noted the competing arguments and the extensive reliance on judicial precedents and circulars by both sides. The appellant's submissions emphasized the independent nature of the ERP development service and the legal distinction between intermediary and principal-to-principal services. The department's submissions emphasized the contractual obligations and common control to argue for the intermediary classification and consequent tax liability.

In conclusion, the Tribunal held that the demand for service tax for the period October 2014 to June 2017 was barred by limitation as the show cause notice was issued beyond the normal limitation period and the extended period was not invokable in the absence of proved wilful misstatement or suppression with intent to evade tax. The Tribunal set aside the impugned order to the extent it upheld the demand, interest, and penalty. The appeal was allowed with consequential relief.

The significant holdings of the Tribunal include the following:

"The appellant had declared the amounts received as towards export of service in the ST-3 returns filed with the Department, and the said fact was in the knowledge of the department. Therefore, the SCN issued on 29-06-2020 is beyond the normal period of limitation and the entire demand is barred by limitation."

"Invocation of the extended period is tenable only if there is proof of fraud, collusion, wilful misstatement, suppression of facts or contravention of provisions with intent to evade tax. Mere non-payment or omission does not suffice."

"When the appellant has duly provided all the information sought in the mandatory returns prescribed, it would be the duty of the jurisdictional officers to scrutinize the returns and detect any irregularity. Failure to do so cannot be held against the appellant."

"Once the demand is held barred by limitation, there is no occasion to adjudicate the merits of the dispute."

These findings affirm the core principles that limitation is a jurisdictional bar which must be strictly complied with, that extended limitation requires positive proof of intentional evasion, and that self-assessment by the appellant coupled with departmental failure to scrutinize returns cannot justify extended limitation or penalties. The judgment also underscores the legal distinction between intermediary services and independent service provision, though it refrains from adjudicating on this point due to the limitation bar.