TMI Blog2023 (4) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income - merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. Undisputedly, the act of transferring radio frequencies now falls within declared service by virtue of clause (j) of Section 66E of the Act. There would be no reason for the Parliament to amend Section 66E of the Act to specifically include the assignment of the right to use radio frequency spectrum or its transfer as a separate declared service if the same was covered under Section 66E(e) of the Act - the assignment by the Government of the right to use radio frequency spectrum or its subsequent transfer does not constitute declared service under Clause (e) of Section 66E of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pensation is a declared service under Section 66E(e) of the Act and is thus chargeable to service tax. 5. MTNL seeks to assail the impugned show cause notice, essentially, on four fronts. First, it claims that the show cause notice has been issued beyond the period stipulated under Section 73(1) of the Act. It claims that the extended period of limitation in terms of the proviso to Section 73(1) of the Act is unavailable as it has not made any willful misstatement or suppressed any material fact to evade service tax. 6. Second, it is contended that the impugned show cause notice has been issued without the mandatory pre-consultation. 7. Third, that the compensation received for surrender of frequency is not a taxable service under Section 66E(e) of the Act. The transactions regarding assignment to use radio frequency spectrum and subsequent transfers were specifically included as a declared service by insertion of Clause (j) in Section 66E of the Act by the Finance Act, 2016 with effect from 14.05.2016. MTNL claims that the insertion of a specific clause covering the service clearly establishes that it was not a declared service prior to enactment of the Finance Act, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CDMA spectrum in 800 MHz band. A similar order dated 16.06.2016 was issued for payment of the balance amount of ₹29,09,00,000/-. 14. Respondent no.2 issued summons dated 14.09.2016 and 23.09.2016 under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Act, to the officers of MTNL with respect to an enquiry case regarding evasion of service tax and contravention of the provision of the Act and the Rules made thereunder. By a letter dated 23.09.2016, MTNL filed its response to the said summons. It provided documents relating to the surrender of 800 MHz CDMA and the details of the payments received for the same. 15. Thereafter, respondent no. 2 sent a letter dated 23.09.2016 to MTNL stating that it appeared that MTNL was liable to pay service tax for providing taxable service by way of surrender of Spectrum Rights to the DoT and seeking a time frame within which MTNL would discharge its service tax liability. 16. On the same date, that is, 23.09.2016, the officers of respondent no.2 recorded the statement of one Mr. S.S. Banjara, Deputy General Manager, MTNL. However, according to MTNL, Mr. Banjara was neither summoned nor had dealt with the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; the CDMA spectrum be returned to the Government of India; and in lieu of the same, MTNL may demand reimbursement/compensation equivalent to the value of spectrum for the remaining period of license i.e. upto 09-10-2017 at the rate of auction determined price of 800 MHz spectrum. Following the aforesaid recommendation, the management of MTNL communicated to the DoT that it may be reimbursed compensation equivalent to the value of the spectrum for the remaining period of license at the auction determined price of 800 MHz spectrum. 23. On 23.07.2015, the DoT communicated to MTNL that the entire spectrum held by MTNL in 800 MHz band was put to auction and the payment of compensation would be dealt with separately. MTNL was required to provide the date for vacating the carriers in the given spectrum for the purpose of determining the period of use of the spectrum by the successful bidder. 24. Subsequently, by a letter dated 18.08.2015, the DoT communicated the Cabinet s approval for the proposal for payment of compensation of ₹458.05 crores to MTNL for surrendering of 800 MHz CDMA carriers. This was followed by communications dated 28.03.2016 and 16.06.2016 issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable with the Service Tax or his agent, the provisions of this sub-section shall have effect, as if, for the words one year , the words five years had been substituted. Explanation Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of eighteen months or five years, as the case may be. 28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n acting with common prudence. However, it is apparent from the statements of various employees of MTNL that MTNL did not believe that the amount of compensation was chargeable to service tax and therefore, there was no requirement for seeking clarifications. Further, there is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious. 33. It is also important to note that MTNL had declared the receipt of compensation as income in its books of accounts. The final accounts of MTNL are in public domain. In the circumstances, the allegation that MTNL had suppressed any material facts from the Service Tax Department is wholly without any basis. 34. Mr. Harpreet Singh, learned counsel appearing for the respondents, submitted that the allegation that MTNL had suppressed material facts was based on non-disclosure of the receipt of compensation in its service tax returns. However, he did not contest the contention that there is no provision in the Act to disclose receipt of any funds in the service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve done, does not render it suppression. (emphasis supplied) 36. The aforesaid decision was followed by the Supreme Court in its later decision in Anand Nishikawa Co. Ltd. v. Commissioner of Central Excise, Meerut (2005) 7 SCC 749. 37. In Cosmic Dye Chemical v. Collector of Central Excise, Bombay (1995) 6 SCC 117, the Supreme Court had, in the context of the proviso to Section 11A of the Central Excise and Salt Act, 1944, which is similarly worded as the proviso to Section 73(1) of the Act, held It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful. 38. In Uniworth Textiles Limited v. Commissioner of Central Excise, Raipur (2013) 9 SCC 753, the Supreme Court referred to the earlier decision in Cosmic Dye Chemical3 and explained that non-declaration would not establish any willful withholding of information if the assessee was in a bona fide belief that the item not disclosed did not attract tax. The relevant extract of the said decision is set out below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost relevance while construing the earlier expression regarding the misstatement or suppression of facts contained in the proviso. Reading the proviso as a whole the Court held that intent to evade duty was essentially before the proviso could be invoked. 55. Though it was sought to be contended that Section 28 of the Customs Act is in pari materia with Section 11-A of the Excise Act, we find there is one material difference in the language of the two provisions and that is the words with intent to evade payment of duty occurring in proviso to Section 11-A of the Excise Act which are missing in Section 28(1) of the Customs Act and the proviso in particular 56. The proviso to Section 28 can inter alia be invoked when any duty has not been levied or has been short-levied by reason of collusion or any wilful misstatement or suppression of facts by the importer or the exporter, his agent or employee. Even if both the expressions misstatement and suppression of facts are to be qualified by the word wilful , as was done in the Cosmic Dye Chemical case while construing the proviso to Section 11-A, the making of such a wilful misstatement or suppression of facts would att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. 42. We agree with the contention that the impugned show cause notice was issued beyond the period of limitation and is, thus, liable to be set aside. 43. In view of the above, it is not necessary for this Court to address the other issues raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrender/ surrendering of the spectrum by MTNL, inter alia, meant that MTNL had to forbear using the CDMA platform, leading to opportunity cost and to making alternative arrangements for customer migration, as also to give up even before the allotted time of tenure was over, its right. Accordingly, it appears that the act of agreeing to surrender the spectrum before time is a service, as also a declared service under sub section (e) section 66E of the Act. It is apparently carried out by MTNL for another person for a consideration. It also appears that the definition of consideration in Explanation (a) of Section 67 of the Act is inclusive, and it includes any amount that is payable for the taxable services provided or to be provided. It means everything, received or recoverable in return for a provision of service, provided or to be provided. Thus, it appears that above said agreeing to surrender/surrendering of spectrum by MTNL was against consideration received by them in the form of monetary compensation or financial support and MTNL appears liable to Service Tax under section 66B of the Act. MTNL were therefore, required to discharge the Service Tax liability on the said con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a Chairperson or a Member or a Director in a body established by the Central Government or State Governments or local authority and who is not deemed as an employee before the commencement of this section. Explanation 2.- For the purposes of this clause, the expression transaction in money or actionable claim shall not include (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out- (a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998; (b) by a foreman of chit fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d spectrum, the Government of India had decided to provide financial support on MTNL vacating the spectrum. It would be a stretch to construe this as forbearance of an act or tolerating an act. 51. It is also relevant to refer to Clause (j) of Section 66E of the Act, as introduced by the Finance Act, 2000. The said clause specifically declares the assignment of the right to use radio frequency or subsequent transfer thereof as a declared service. Clause (j) of Section 66E of the Act reads as under: 66E. Declared Services. The following shall constitute declared services, namely:- *** *** *** (j) assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof. 52. Undisputedly, the act of transferring radio frequencies now falls within declared service by virtue of clause (j) of Section 66E of the Act. There would be no reason for the Parliament to amend Section 66E of the Act to specifically include the assignment of the right to use radio frequency spectrum or its transfer as a separate declared service if the same was covered under Section 66E(e) of the Act. 53. In Balaji Enterprises, Madras v Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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