2025 (6) TMI 1358 - AT - Service Tax

Valid service of SCN or not - non-receipt og SCN dated 16.04.2019 until 30.12.2022 - demand of Service Tax raised based solely on data from Form 26AS and Profit Loss Account without detailed investigation or verification - eligibility for exemption under the N/N. 25/2012-S.T. - demand by invoking extended period of limitation. Valid service of SCN or not - HELD THAT - The Show Cause Notice is to be affixed in the Notice Board only after the efforts as mentioned in clauses (a) and (b) of Section 37C(1) are unsuccessful. Only after failure to serve the Notice through Postal Authorities and even by sending an Officer in person the Notice could be affixed in the Notice Board for service - The evidences indicate that the Postal Authorities had returned the Show Cause Notice in question undelivered only on 24.04.2019. Therefore it is seen that even before the Show Cause Notice was returned by the Postal Authorities as undelivered the Department has attempted service of the same through the Departmental Officer and affixed the same on the Notice Board which is not as per the methods of service envisaged in the Section 37C. The facts available on record indicate that the Show Cause Notice was served to the appellant only on 30.12.2022. It is observed that the appellant has been registered with GST and their address details are available in the GSTN portal. The authorities could have verified the GSTN Portal and found out the current address of the appellant and communicated the Show Cause Notice prior to 30.12.2022 but it was done only on 30.12.2022. In this case admittedly the period covered by the Show Cause Notice is from 2012-13 to 2015-16 while the said Show Cause Notice has been served to the appellant only on 30.12.2022 which is beyond the period of five years as prescribed under proviso to Section 73(1) of the Finance Act 1994. Consequently the Show Cause Notice itself is rendered void ab initio and thus the demands raised in the Show Cause Notice are not sustainable - the demands confirmed against them in the impugned order on the basis of the said Show Cause Notice are unsustainable. Demand of Service Tax raised based solely on data from Form 26AS and Profit Loss Account - HELD THAT - The Department has taken the data from the Income Tax Returns and Form 26AS of the appellant and assumed that the entire amount shown therein has been received as consideration received on account of taxable services rendered. The ld. adjudicating authority has merely confirmed the demand based on such a presumption. It is observed that there is no investigation or verification conducted before issue of the Notice to ascertain as to whether the entire consideration had been received on account of rendering of any taxable service by the appellant or not. In view of the above the demand confirmed on the basis of the data available in the Income Tax returns and 26AS statements of the Appellant is legally not sustainable. The demand confirmed only on the basis of the details available in the Income Tax Returns and Form 26AS without any investigation is not sustainable. This Tribunal in the case of M/s. Luit Developers Pvt. Ltd. v. Commissioner of C.G.S.T. Central Excise Dibrugarh 2022 (3) TMI 50 - CESTAT KOLKATA wherein this Tribunal has held that a demand cannot be raised merely on the basis of the data available in the Income Tax Returns or Profit Loss Account alone; there must be corroborative evidence to substantiate the non-payment of Service Tax. Thus the demand of Service Tax of Rs.5, 54, 77, 142/- confirmed in the impugned order along with interest is not sustainable and accordingly the same is set aside. Demand raised by invoking the extended period of limitation - HELD THAT - It is a fact on record that the appellant has been registered with the Service Tax Department and has been filing their Service Tax Return for the period from October 2013 to March 2014 claiming nil rate of duty. No objections were raised by the Department when the appellant filed such Returns. In case the Departmental entertained any objection regarding the nil rate of duty claimed by the appellant it could have called for information as and when such Returns were filed by the appellant. In these circumstances there is no suppression of fact with intent to evade payment of Service Tax established against the appellant in this case. Accordingly the demand confirmed by invocation of the extended period of limitation is not sustainable. Penalty u/s 78 of Finance Act 1994 - HELD THAT - No penalty is imposable on the appellant under Section 78 of the Finance Act 1994. Penalties u/s 77(1)(c)(ii) Section 77(1)(c)(iii) and Section 77(2) of the Finance Act 1994 - HELD THAT - It is a fact on record that the appellant has filed their Return for the period from October 2013 to March 2014 but not filed their statutory Returns for the subsequent period under the impression that they were eligible for the benefit under the Notification No. 25/2012-S.T. dated 20.06.2012. Even if the appellant is eligible for the said exemption they were liable to file nil Returns during the relevant period. As the appellant has failed to file the periodical returns after March 2014 it is not required to interfere with the penalties imposed u/s 77(1)(c)(ii) 77(1)(c)(iii) and 77(2) of the Act. Conclusion - i) The demand of Service Tax of Rs. Rs.5, 54, 77, 142/- along with interest confirmed in the impugned order is set aside. ii) The penalty imposed on the appellant under Section 78 of the Finance Act 1994 is also set aside. iii) The penalties imposed on the appellant under Sections 77(1)(c)(ii) 77(1)(c)(iii) and 77(2) of the Finance Act 1994 are upheld. Appeal disposed off.

Summary

Issues Presented and Considered

1. Whether the Show Cause Notice (SCN) dated 16.04.2019 was validly served on the appellant in accordance with the provisions of Section 37C of the Central Excise Act, 1944, and whether the delay in service renders the SCN void ab initio.

2. Whether the demand of Service Tax raised based solely on data from Form 26AS and Profit & Loss Account without detailed investigation or verification is sustainable.

3. Whether the appellant is entitled to exemption under clauses 12, 13(a), and 14 of the Mega Exemption Notification No. 25/2012-S.T. dated 20.06.2012 for the works contract services rendered.

4. Whether the demand confirmed invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994 is sustainable, considering the period of limitation and the appellant's conduct.

5. Whether the penalties imposed under Sections 78, 77(1)(c)(ii), 77(1)(c)(iii), and 77(2) of the Finance Act, 1994 are justified.

Issue-wise Detailed Analysis

1. Validity of Service of Show Cause Notice

Legal Framework and Precedents: Section 37C(1) of the Central Excise Act, 1944 (applicable to Service Tax via Section 83 of the Finance Act, 1994) prescribes the modes of service of decisions, orders, summons, or notices. The sequence is: (a) by tender or registered post with acknowledgment, (b) if not served by (a), by affixing a copy at the place of business or residence, and (c) if not served by (a) or (b), by affixing a copy on the notice board of the concerned authority.

Court's Interpretation and Reasoning: The Court examined the dispatch records and found that the SCN was sent by registered post on 16.04.2019 but was returned undelivered only on 24.04.2019. Despite this, the Department simultaneously attempted delivery through an Inspector and affixed the SCN on the notice board on 16.04.2019 itself. This sequence violated the prescribed order of service under Section 37C, which requires exhaustion of prior modes before affixing on the notice board.

The Court noted that affixing on the notice board on the same day as dispatch and prior to the postal return was procedurally incorrect and thus the SCN was not validly served on the appellant on 16.04.2019.

Key Evidence and Findings: The returned postal envelope dated 24.04.2019, the Panchnama drawn by the Inspector indicating locked premises, and the dispatch register showing simultaneous actions on 16.04.2019.

Application of Law to Facts: Since the SCN was not validly served on 16.04.2019, the Court considered the actual date of service as 30.12.2022, when the SCN was finally communicated via e-mail as per the GSTN portal details.

Conclusions: The SCN was served beyond the five-year limitation period prescribed under the proviso to Section 73(1) of the Finance Act, 1994, rendering the SCN void ab initio and the subsequent demand unsustainable on this ground.

2. Sustainability of Demand Based Solely on Form 26AS and Profit & Loss Account

Legal Framework and Precedents: The Court relied on precedents including the Tribunal's decision in M/s. Luit Developers Pvt. Ltd. v. Commissioner, which held that figures in Form 26AS or Income Tax Returns cannot be used as sole basis for Service Tax demand without corroborative evidence showing taxable services were rendered.

Court's Interpretation and Reasoning: The Department assumed that all amounts reflected in Form 26AS and the Profit & Loss Account represented consideration for taxable services without any detailed investigation or verification. The Court found this presumption legally untenable.

Key Evidence and Findings: Absence of any inquiry into the nature of income or verification of exemption claims before issuing the SCN.

Application of Law to Facts: The demand confirmed merely on the basis of data from Income Tax Returns and Form 26AS, without any corroborative evidence or investigation, was held unsustainable.

Treatment of Competing Arguments: The Revenue contended that the appellant failed to furnish details despite opportunities, justifying reliance on available data. The Court, however, emphasized the necessity of investigation beyond such data.

Conclusions: The demand confirmed on this basis was set aside.

3. Entitlement to Exemption under Mega Exemption Notification No. 25/2012-S.T.

Legal Framework: Clauses 12, 13(a), and 14 of the Notification exempt certain works contract services related to government projects.

Court's Interpretation and Reasoning: The appellant claimed exemption under these clauses, submitting work orders and contending that the amounts received were exempt. The Department did not investigate or verify these claims before confirming the demand.

Key Evidence and Findings: Work orders submitted by the appellant; lack of Departmental scrutiny into the nature of services.

Application of Law to Facts: Since the Department failed to examine the exemption claims, the demand confirmation without such inquiry was flawed.

Conclusions: The appellant's claim to exemption was validly raised but not properly considered; however, the Court's primary decision to set aside the demand on limitation and procedural grounds rendered this issue secondary.

4. Invoking Extended Period of Limitation under Section 73(1)

Legal Framework: Section 73(1) prescribes a five-year limitation period for issuing SCNs, with extended period applicable only in cases of suppression of facts with intent to evade tax.

Court's Interpretation and Reasoning: The Court found that the appellant was registered and filed returns, including nil returns for part of the period, under bona fide belief of exemption. No suppression or malafide intention was established by the Department. The Department also failed to raise objections during return scrutiny.

Key Evidence and Findings: Filing of nil returns, absence of any positive evidence of suppression, and the appellant's cooperation.

Application of Law to Facts: Since no suppression was found, the extended period of limitation could not be invoked.

Conclusions: The demand confirmed invoking extended limitation was unsustainable.

5. Penalties under Sections 78, 77(1)(c)(ii), 77(1)(c)(iii), and 77(2)

Legal Framework: Section 78 imposes penalty equal to tax evaded; Section 77 prescribes penalties for various defaults including failure to file returns.

Court's Interpretation and Reasoning: Penalty under Section 78 was linked to the demand which was set aside; hence, it was also set aside. However, penalties under Sections 77(1)(c)(ii), 77(1)(c)(iii), and 77(2) related to failure to file statutory returns after March 2014 were upheld as the appellant had not filed returns during this period despite claiming exemption.

Key Evidence and Findings: Filing of nil returns only up to March 2014, subsequent non-filing of returns.

Application of Law to Facts: Failure to file returns attracts penalties independent of tax demand.

Conclusions: Penalties under Section 78 set aside; penalties under Section 77 upheld.

Significant Holdings

"The dispatch of the Show Cause Notice through Post, sending of the Officer for dispatch and display in the Notice Board, are all happened on the same date, i.e., 16.04.2019, which is legally not correct... resorting to delivery of the Notice by display in the Notice Board on 16.04.2019 itself establishes that the department has not followed the methods of dispatch as prescribed under Section 37C of the Central Excise Act, 1944."

"Since the notice has been affixed on the notice board also, as per provisions of the law it shall be deemed to have been served on the date on which the notice is affixed on the notice board... However, the Postal Authorities had returned the Show Cause Notice undelivered only on 24.04.2019. Therefore, it is seen that even before the Show Cause Notice was returned by the Postal Authorities as undelivered, the Department has attempted service of the same through the Departmental Officer and affixed the same on the Notice Board, which is not as per the methods of service envisaged in the Section 37C."

"The Show Cause Notice was served to the appellant only on 30.12.2022... the said Show Cause Notice has been served to the appellant only on 30.12.2022, which is beyond the period of five years as prescribed under proviso to Section 73(1) of the Finance Act, 1994. Consequently, we find that the Show Cause Notice itself is rendered void ab initio and thus, the demands raised in the Show Cause Notice are not sustainable."

"The demand confirmed only on the basis of the details available in the Income Tax Returns and Form 26AS without any investigation, is not sustainable."

"No suppression of fact with intent to evade payment of Service Tax established against the appellant in this case. Accordingly, we hold that the demand confirmed by invocation of the extended period of limitation is not sustainable."

"Penalties imposed under Sections 77(1)(c)(ii), 77(1)(c)(iii) and 77(2) of the Act are upheld due to failure to file statutory returns, whereas penalty under Section 78 is set aside."

Core Principles Established

- Service of SCN must strictly comply with the sequential modes prescribed under Section 37C; premature affixing on notice board before exhausting other modes invalidates service.

- Demand of Service Tax cannot be based solely on Income Tax data such as Form 26AS or Profit & Loss Account without corroborative evidence or investigation.

- Extended limitation period under Section 73(1) applies only where suppression of facts with intent to evade tax is established; mere non-payment or non-filing is insufficient.

- Penalties linked to tax demand are dependent on the validity of the demand; penalties for procedural defaults such as failure to file returns stand independently.

Final Determinations on Each Issue

(i) The Show Cause Notice dated 16.04.2019 was not validly served as per Section 37C; actual service occurred on 30.12.2022, beyond limitation period; SCN is void ab initio.

(ii) The demand of Service Tax of Rs.5,54,77,142/- along with interest, confirmed solely on Form 26AS and Profit & Loss Account data without investigation, is unsustainable and set aside.

(iii) The appellant's exemption claims under the Mega Exemption Notification were not properly examined; however, this issue became moot due to setting aside of demand on limitation and procedural grounds.

(iv) Invocation of extended limitation period was improper as no suppression with intent to evade tax was established; demand confirmed on this basis is set aside.

(v) Penalty under Section 78 is set aside as demand is quashed; penalties under Sections 77(1)(c)(ii), 77(1)(c)(iii), and 77(2) for failure to file returns are upheld.