2011 (8) TMI 1036 - HC - Service Tax

Service tax demand - also interest as envisaged under Section 75 of the Finance Act, 1994 and penalty in terms of Section 78 of the said Act - Held that - An activity which amounted manufacture having been excluded from the definition of business auxiliary services there may have been doubt as to whether conversion of coke into coal on behalf of clients constituted taxable service. Moreover, Service Tax Authorities were also not sure of the exact Clause of Section 65(19) into which the activity of conversion of coke into coal on behalf of clients would fall at the material time, and accordingly did not specify the clause. The correspondence on record reveals that there was also confusion with regard to intra-port service. Sometimes the authorities contended that intra-port services constituted cargo handling services . At other times they contended that the services constituted port services . The services did not fit into the definition of port-services prior to its amendment with effect from 2010 or into the definition of cargo handling services . In the impugned show cause notice it is claimed that the activities constituted business auxiliary service. If the services clearly fell within the ambit of business auxiliary service, there would be no need to amend the definition of port-services. In any case there was some confusion. If there was any confusion or doubt which had to be cleared by amendment, it cannot be said that there was wilful suppression or contravention of Chapter V to evade payment of Service Tax, so as to attract the proviso to Section 73(1) of the Finance Act, 1994.It is immaterial that the petitioner is registered in Kolkata but explanation had been given to the authorities of Paradeep, Ranchi and Dhanbad. If the queries were answered, it cannot be said that there was wilful suppression. It appears that the concerned authorities initially accepted the explanation of the assessee, but later proceeded to issue the impugned show cause notice upon change of opinion. The impugned show cause notice is barred by limitation. The show cause notice is thus set aside.

Issues Involved:
1. Validity of the show cause notice dated 30th March, 2010.
2. Limitation period for issuing a show cause notice under Section 73(1) of the Finance Act, 1994.
3. Jurisdiction of the Commissioner of Service Tax to issue the show cause notice.
4. Invocation of the extended period of limitation under the proviso to Section 73(1).
5. Classification of services rendered by the petitioner.

Detailed Analysis:

1. Validity of the Show Cause Notice:
The writ petition challenges the show cause notice dated 30th March, 2010, demanding service tax of Rs. 1,10,08,867/- for the period from 2004-2005. The petitioner contends that the notice is barred by limitation as per Section 73(1) of the Finance Act, 1994. The notice includes demands for various services, such as conversion of coal into coke, intra-port transportation of ores, and processing of pyroxenite.

2. Limitation Period for Issuing a Show Cause Notice:
Section 73(1) of the Finance Act, 1994, stipulates that a show cause notice must be issued within one year from the relevant date unless fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax is involved, in which case the period extends to five years. The demand for Rs. 71,394/- for intra-port transportation of ores in FY 2004-2005 is clearly barred by limitation as it exceeds the five-year period.

3. Jurisdiction of the Commissioner of Service Tax:
The Commissioner of Service Tax lacks the authority to issue a show cause notice after the expiry of the limitation period prescribed under Section 73(1). The notice must be issued within one year from the relevant date, or within five years if fraud or similar misconduct is involved. The court emphasizes that jurisdiction to issue a notice after one year but before five years requires a finding of fraud, collusion, willful misstatement, or suppression of facts.

4. Invocation of the Extended Period of Limitation:
The extended period of limitation under the proviso to Section 73(1) can only be invoked if there is evidence of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax. The impugned show cause notice lacks specific allegations or evidence of such misconduct. The court notes that mere failure to declare does not amount to willful suppression, and there must be a positive act on the part of the assessee.

5. Classification of Services Rendered by the Petitioner:
The petitioner argues that the conversion of coal into coke amounts to manufacture and is thus exempt from service tax under the proviso to Section 65(19) of the Finance Act, 1994. The court agrees that the definition of 'business auxiliary service' excludes activities amounting to manufacture. Furthermore, the petitioner contends that intra-port transportation services were not taxable as 'port services' before the amendment of Section 65(105)(zn) in 2010. The court acknowledges the confusion regarding the classification of services and notes that the authorities themselves were unsure whether the services constituted 'cargo handling services' or 'port services'.

Conclusion:
The court concludes that the impugned show cause notice is barred by limitation and lacks jurisdiction. The notice fails to provide sufficient particulars of alleged fraud, collusion, or willful misstatement necessary for invoking the extended period of limitation. The court sets aside the show cause notice and disposes of the writ application accordingly.

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