2025 (6) TMI 1011 - AT - Service Tax

Recovery of service tax with interest and penalty - short-payment/non-payment of service tax - service tax demand raised for the financial year 2014-15 based on data received from the Income Tax Department - demand for the period March 2014 to September 2014 for which the return was due and filed in the month of October 2014 has been made beyond the period of 5 years as the show cause notice has been issued on 30.12.2020 - extended period of limitation - HELD THAT - As per proviso to sub section (1) to Section 73 off the Finance Act 1994 the relevant date for computing the period of limitation starts from the date of filing of return. Once ST-3 return was filed on 23.10.2014 the 5 year period from that date would be on 22.10.2019 and no notice invoking even extended period of limitation could have been issued for making demand for this period. Thus the submissions made by the Counsel for appellant is agreed upon that demand for this period being beyond 5 years period is barred by limitation. For the period from October 2014 to March 2015 the demand could have been made within 5 years from the due date for filing the return in present case. It is observed that appellant had for this period not filed any return. On account of the extraordinary circumstances/situations from 15th March 2020 Hon ble Supreme Court has sustained the period of limitations for all the proceedings vide order made in the Suo-moto Writ Petition No.3 of 2020 2021 (3) TMI 497 - SC ORDER wherein it has been held that In computing the period of limitation for any suit appeal application or proceeding the period from 15.03.2020 till 14.03.2021 shall stand excluded. In terms of para 2(2) of the above order the period of limitation would have been 90 days from 15.03.2021. Thus there are no merits in his submissions made in this regard. The reliance placed by the appellant on the circular dated 20.07.2021 wherein it was clarified that Supreme Court decision may not apply. However there are no merits in the said submission because Government vide Section 6 of Taxation and Law Acts 2020 read with Notification No.450/61/2020-Cus.IV(Part-I) dated September 30 2020 had clarified that only on 31.12.2020 in all such cases and show cause notices in the present case has admittedly served upon the appellant on 30.12.2020. So for the period from October 2014 to March 2015 the show cause notice has been rightly issued within the period of limitation as prescribed read alongwith the decision of Hon ble Supreme Court and Taxation and other Laws 2020. Thus it is evident that appellant was provided services on which 50% of the taxes were being paid by the service receiver and appellant was required to pay service tax of only 50%. All these facts should have been taken into account while demanding the tax liability for the period from October 2014 to March 2015 Commissioner (Appeals) have taken note of these documents but has not render any findings nor he has given any relief to the appellant in this regard. For the purpose of examining these documents and re-determining the tax liability in accordance with the above invoices and circular the matter is remanded back to the Original Authority for rendering suitable findings in this regards. The appellant had provided all these documents to his advocate/accountant for filing the return in due time which has due to ignorance of advocate/accountant not filed by the said advocate/accountant in time. This is a fit case where such ignorance would not be made a reason for imposition of penalty on the appellant under Section 78 of the Act and the same is set aside 0 the late fee imposed on the appellant under Section 70 of the Finance Act 1994 reduced to Rs 10, 000/-. Conclusion - i) The service tax demand based on Income Tax data is sustainable and valid. ii) The extended period of limitation and penalty under Section 78 are validly invoked and imposed. iii) Interest on the service tax demand is rightly imposed. iv) Late fees and penalty for non-filing are valid but reduced in amount; penalty under Section 78 is set aside due to mitigating circumstances. v) The limitation period extension due to COVID-19 applies and the show cause notice was timely issued. The matter is remanded back to Original Authority for re-determination of the tax liability - Appeal is partly allowed and matter is remanded back to Original Authority.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

- Whether the service tax demand raised for the financial year 2014-15 based on data received from the Income Tax Department is sustainable, particularly in light of the limitation period prescribed under the Finance Act, 1994.

- Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 is invokable in the facts of the case, given the appellant's alleged suppression or concealment of facts.

- Whether penalty under Section 78 of the Finance Act, 1994 is justifiable for failure to pay service tax and non-submission of requisite documents.

- Whether interest under Section 75 of the Finance Act, 1994 is payable on the service tax demand.

- Whether late fees under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 are properly imposed for delayed or non-filing of ST-3 returns.

- Whether the appellant's contention regarding the applicability of the Supreme Court's suo-motu writ petition decision on limitation during the COVID-19 pandemic is applicable to the present case.

- Whether the appellant is entitled to any abatement or relief in tax liability based on the nature of services provided and payments made by service recipients.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of Service Tax Demand Based on Income Tax Data

Legal Framework and Precedents: The data sharing mechanism between the Central Board of Direct Taxes (CBDT) and Central Board of Indirect Taxes and Customs (CBIC) is governed by Memoranda of Understanding (MOU), initially signed in 2015 and subsequently updated in 2020, facilitating inter-departmental exchange of information to detect tax evasion. The Finance Act, 1994 and related notifications empower the tax authorities to raise demands based on such data.

Court's Interpretation and Reasoning: The Tribunal observed that the appellant had received Rs. 59,85,579/- as consideration for declared services during 2014-15 as per Income Tax Returns (ITR) and Form 26AS, but had not declared or paid service tax accordingly. The appellant failed to produce supporting documents such as contracts, bills, or records to substantiate the nature or classification of services provided or to justify non-payment or lesser payment of service tax.

Key Evidence and Findings: The appellant's failure to submit any contract or bills, and the absence of ST-3 returns for the relevant period, supported the conclusion of non-payment. The appellant's claim that records were with their advocate who failed to preserve them was rejected, as the law casts responsibility on the registered person to maintain and produce records.

Application of Law to Facts: The Tribunal held that the demand based on third-party data was valid and that the appellant's failure to provide evidence or records amounted to suppression of facts, justifying the demand for service tax on the full value at applicable rates.

Treatment of Competing Arguments: The appellant's argument that the demand was baseless as it relied solely on Income Tax data was rejected, with the Tribunal affirming the legality of data sharing under the MOU and the Department's reliance on such data to detect evasion.

Conclusion: The service tax demand based on Income Tax data is sustainable and valid.

Issue 2: Invokability of Extended Period of Limitation under Proviso to Section 73(1)

Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994 prescribes a five-year limitation period for raising service tax demands, with a proviso allowing extension beyond five years if there is suppression of facts with intent to evade tax. The Tribunal relied on several precedents including INOX Leisure Limited, Cairn Energy India Pvt. Ltd., Lakhan Singh & Co., and Prathyusha Associates Shipping Pvt. Ltd. that uphold the extended limitation period where suppression or concealment is established.

Court's Interpretation and Reasoning: The Tribunal found that the appellant had shown nil value in ST-3 returns for part of the period but had paid some service tax, evidencing incomplete disclosure. The failure to submit contracts or bills and non-filing of returns for a significant part of the financial year indicated willful suppression. The appellant's conduct was held to be with a clear motive to evade service tax.

Key Evidence and Findings: The absence of records, incomplete returns, and reliance on third-party data pointed to concealment. The Tribunal also noted that the appellant's plea that the relaxation under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 was not invoked in the show cause notice was untenable, as the provisions were linked to Section 73 and were rightly applied.

Application of Law to Facts: The extended period of limitation was rightly invoked since suppression was established. The penalty under Section 78 was also justified on this basis.

Treatment of Competing Arguments: The appellant's contention that the demand was barred by limitation was rejected. The Tribunal also dismissed the argument that ignorance or failure of the advocate/accountant to file returns could absolve the appellant of liability.

Conclusion: The extended period of limitation and penalty under Section 78 are validly invoked and imposed.

Issue 3: Interest Liability under Section 75

Legal Framework: Section 75 of the Finance Act, 1994 mandates interest on delayed payment of service tax from the date it was due.

Court's Reasoning: Since the appellant failed to pay the service tax on time, interest liability was confirmed as per settled law.

Conclusion: Interest on the service tax demand is rightly imposed.

Issue 4: Late Fees and Penalty for Non-Filing of ST-3 Returns

Legal Framework: Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules, 1994 prescribes late fees for delayed filing of returns, capped at Rs. 20,000. Section 77 provides for penalty for contravention of provisions related to returns.

Court's Interpretation and Findings: The appellant filed the ST-3 return for April to September 2014 within the prescribed time, so no late fees were chargeable for this period. However, the return for October 2014 to March 2015 was not filed, attracting late fees of Rs. 20,000 and penalty of Rs. 10,000 under Section 77 for contravention.

Application of Law to Facts: The Tribunal reduced the late fee from Rs. 40,000 to Rs. 10,000 and confirmed penalty for non-filing.

Treatment of Competing Arguments: The appellant's contention that the advocate's failure should excuse penalty was rejected for the service tax penalty but accepted in part for penalty under Section 78, which was set aside considering the advocate's ignorance.

Conclusion: Late fees and penalty for non-filing are valid but reduced in amount; penalty under Section 78 is set aside due to mitigating circumstances.

Issue 5: Applicability of Supreme Court's COVID-19 Limitation Extension Order

Legal Framework: The Supreme Court suo-motu writ petition extended limitation periods from 15.03.2020 to 14.03.2021, with further directions for computing limitation thereafter.

Court's Reasoning: The Tribunal found that the show cause notice was issued on 30.12.2020, within the extended limitation period under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and corresponding notifications. The appellant's reliance on CBIC circular limiting the Supreme Court order's applicability to GST cases was rejected as the present case falls under service tax provisions.

Conclusion: The limitation period extension due to COVID-19 applies, and the show cause notice was timely issued.

Issue 6: Entitlement to Abatement or Relief on Tax Liability

Legal Framework: Under service tax law, certain abatements are available for works contract services where part of the tax is paid by the service recipient.

Court's Findings: The appellant produced documents indicating that 50% of service tax was paid by the service recipient for services rendered to M/s TRF Limited. However, the Commissioner (Appeals) did not render any findings or relief based on these documents.

Decision and Directions: The Tribunal remanded the matter to the Original Authority to examine these documents and re-determine the tax liability accordingly.

3. SIGNIFICANT HOLDINGS

- "The data sharing between the CBIC and CBDT is in terms of approved policy of the Government of India... it is on the basis of the subject data received from the Income Tax Department that the subject non-payment of service tax came to the notice of the Department."

- "The registered person is responsible for keeping record safely and to produce before the officer as and when called for."

- "The conduct of the appellant is soiled with suppression/concealment of material fact, and such omissions and commissions on their part are with clear motive to evade payment of Service Tax."

- "The extended period of time limitation to raise subject demand intrinsically in the facts of subject case and consequently the imposition of penalty under Section 78 can't be faulted."

- "Interest under section 75 is for delay in payment of tax from the date when it was due."

- "The show cause notice issued on 30.12.2020 is well within statutory time limit extended by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020."

- "Penalty under Section 78 is set aside considering that the appellant had provided documents to their advocate/accountant who failed to file returns timely."

- "Late fee for non-filing of ST-3 return for the period October 2014 to March 2015 is payable, but reduced to Rs. 10,000/-."

- "The matter is remanded to the Original Authority for re-determination of tax liability in light of documents evidencing 50% tax paid by service recipients."