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2014 (1) TMI 459 - HC - Service TaxJurisdiction u/s 73 - Bar of limitation - Whether the show cause notices issued to the respondents, seeking to recover service tax under Section 73(1A) of the Finance Act, 1994, as amended with effect from 10.9.2004, for failure to pay service tax and file return as required by the proviso to Section 68(1) and 71A of the Finance Act, 1994, read with Rule 7A of the Service Tax Rules, 1994, could be sustained as within the period of limitation - Held that - by virtue of the amendment to the word assessee in Section 65(5) and the amendment to Section 66(3), the liability to pay the tax is not on the person providing the taxable service but, as far as the service provided by clearing and forwarding agents and goods transport operators are concerned, on the person who pays for the services - even the amended Section 73 of the Act covered only those assessees who were liable to file returns under Section 70 of the Act and in the case of availers of Goods Transport Service, the liability to file return was under Section 71A of the Act and the class of persons coming under Section 71A of the Act were not brought under the service tax net under Section 73 of the Act - Revenue has necessary jurisdiction under Section 73 of the Act, particularly with reference to the limitation prescribed thereunder. Considering the limited purpose for which Section 71A of the Act was introduced to cover the period of six months and in terms of Sub-section (1) of Section 73 of the Act where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the proper officer, within one year from the relevant date, is entitled to serve notice, requesting the assessee to show cause why he should not pay the amount specified in the notice. For the purposes of Section 73 of the Act, relevant date has been defined under Sub-section (6) of Section 73 of the Act. Therefore, the contention of the assessee that Section 71A of the Act is just a procedural provision and hence there could be no jurisdiction on the Authority to pass an assessment, is a plea to be stated only to be rejected. In order to levy penalty under Section 78 of the Act, it is necessary to establish that Service Tax had not been paid by reason of fraud or collusion or wilful mis-statement or suppression of fact or contravention of any of the provisions of the Act, with an intent to evade payment of Service Tax - there is no such finding against the assessee of it being guilty of wilfully not paying tax by reason of any of the matters provided in clauses (a) to (e) of Section 78(1) of the Act. Furthermore, Section 80 of the Act, which starts with a non-obstante clause, states that notwithstanding anything contained in the provisions of Sections 76, 77 and first proviso to Sub-section (1) of Section 78 of the Act, no penalty shall be imposable for any failure referred to in the said Provision viz., for failure to pay service tax, for contravention of Rules and Provisions of the Act, or for suppression of facts etc., if the assessee proves that there was reasonable cause for such failure. There was wilful evasion to pay tax or not to comply with the provisions of the Act. As may be seen from the preceding paragraphs, the assessees appeared to have been under the bona fide belief that they are not liable to pay Service Tax and in support of their claim - there was no justification for imposition of penalty, especially when there was no allegation of fraud, mis-representation, etc., Accordingly, the penalty imposed on the respondents/assesees shall stand deleted - Decided partly in favour of Revenue.
Issues Involved:
1. Validity of show cause notices issued under Section 73(1A) of the Finance Act, 1994. 2. Applicability of Sections 68, 71(A), and 73 of the Finance Act, 1994, and Rule 6 and Rule 7(A) of the Service Tax Rules. 3. Effect of the Supreme Court decisions in L.H. Sugar Factories Ltd. and Gujarat Ambuja Cements Ltd. 4. Limitation period for issuing show cause notices. 5. Imposition of penalty and interest under Sections 75 and 78 of the Finance Act, 1994. Detailed Analysis: 1. Validity of Show Cause Notices: The appeals were filed by the Revenue challenging the order passed by the Customs, Excise, and Service Tax Appellate Tribunal (Tribunal). The primary question was whether the show cause notices issued under Section 73(1A) of the Finance Act, 1994, and the consequential demands issued by the jurisdictional Commissioner were valid. The Tribunal had relied on the decision in the case of L.H. Sugar Factories Ltd., which was confirmed by the Supreme Court, to hold that the show cause notices were not maintainable. The High Court, however, found that the notices were valid as they were issued within the prescribed limitation period and under the amended provisions of Section 73. 2. Applicability of Sections 68, 71(A), and 73 of the Finance Act, 1994, and Rule 6 and Rule 7(A) of the Service Tax Rules: Service Tax was introduced under Chapter V of the Finance Act, 1994. The relevant provisions at the time included Sections 66, 68, 69, 70, 71, 72, 73, and 74, which dealt with the levy, collection, and assessment of service tax. Section 68 was amended to include the liability of service recipients, and Section 71A was inserted to require certain customers to file returns. The amendments aimed to nullify the effect of the Supreme Court's decision in Laghu Udyog Bharati, which had struck down certain provisions of the Service Tax Rules. The High Court held that the amendments were valid and applicable. 3. Effect of Supreme Court Decisions in L.H. Sugar Factories Ltd. and Gujarat Ambuja Cements Ltd.: The Supreme Court in L.H. Sugar Factories Ltd. had held that the show cause notices were not maintainable under the unamended Section 73. However, the Finance Act, 2004, amended Section 73 to include persons covered under Section 71A. The Supreme Court in Gujarat Ambuja Cements Ltd. upheld the legislative competence of the amendments and validated the levy and collection of service tax for the period between 16.11.1997 and 02.06.1998. The High Court followed these decisions and held that the amended provisions were applicable. 4. Limitation Period for Issuing Show Cause Notices: Section 73 of the Finance Act, 1994, as amended, allowed the issuance of show cause notices within one year from the relevant date. The relevant date was defined as the date on which the service tax was to be paid. The High Court found that the show cause notices issued in the present cases were within the limitation period, as they were issued before 12.11.2004, which was within one year from the last date for filing returns (13.11.2003). 5. Imposition of Penalty and Interest: The High Court examined the imposition of penalties under Sections 75 and 78 of the Finance Act, 1994. It held that there was no justification for imposing penalties as there was no finding of fraud, misrepresentation, or wilful evasion of tax. The assessees had a bona fide belief that they were not liable to pay service tax based on the Tribunal's decision in Laghu Udyog Bharati. However, the High Court upheld the levy of interest under Section 75, as it was compensatory in nature for the delayed payment of service tax. Conclusion: The High Court allowed the appeals filed by the Revenue, holding that the show cause notices were valid and within the limitation period. The penalties imposed on the respondents/assessees were deleted, but the levy of interest was upheld. The decision emphasized the applicability of the amended provisions of the Finance Act, 1994, and the retrospective validation of service tax levies.
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