2006 (3) TMI 758 - AT - Service Tax

Summary

Issues:
1. Whether the demand for pre-deposit of Service Tax and penalties is valid.
2. Whether the extended period for demand is barred by limitation.
3. Whether there was full disclosure of facts justifying the invocation of a larger period.

Analysis:

Issue 1:
The appellants were required to pre-deposit Service Tax and penalties. The Commissioner acknowledged the awareness of the department regarding the appellants' taxable activity four years before the show cause notice. Despite this, the department did not react to the appellants' claim of exemption, leading to a finding that the demand of an extended period is hit by limitation. The Commissioner noted the department's inaction and inability to defend it, ultimately allowing the stay application unconditionally and granting a full waiver of pre-deposit.

Issue 2:
The learned Counsel argued that once the Department was aware of the appellants' taxable activity before the show cause notice, there should be no claim of suppression of facts or misdeclaration. The Counsel emphasized that the Revenue is accountable for its actions and cited various judgments supporting the appellants' position on the time-bar issue. The Commissioner's finding that primary facts were not disclosed, despite the department's awareness of the taxable activity, supported the appellants' contention that the demands were time-barred and not recoverable.

Issue 3:
The Commissioner's order lacked clarity on the primary facts required to be disclosed and did not specify the basis for invoking a larger period for demand. The Revenue's awareness of the appellants' service activity should have prompted timely action through a show cause notice to prevent the demands from becoming time-barred. As a result, the stay application was allowed, granting a waiver of pre-deposit and staying the recovery. The matter was scheduled for an expedited final hearing to address the time-bar issue conclusively.

In conclusion, the judgment highlighted the significance of timely action by the Revenue based on awareness of taxable activities to prevent demands from becoming time-barred. The appellants' arguments, supported by legal precedents, successfully established the time-bar issue, leading to the grant of a full waiver of pre-deposit and a stay on recovery pending a final hearing.