2014 (4) TMI 505 - HC - Service Tax

Confirmation of demand by the tribunal on merit after concluding that extended period of limitation cannot be invoked - valuation - tribunal concluded that that since storage of goods in the cold storage was an essential part of the clearing and forwarding operations of the assessee, cold storage charges are required to be added in the taxable value of services rendered. - Held that - the Supreme Court has held that the burden of proof of proving mala fide conduct under the proviso to Section 28 of the Customs Act, 1962, which is an equivalent provision, is on the Revenue and specific averments must be made in the show cause notice for initiation of an action under the proviso. In the present case, the Tribunal was justified in coming to the conclusion that the facts had been duly disclosed by the assessee to the Department and were within the knowledge of the Department in 2002. - Decided against Revenue. Tribunal having came to the conclusion that the extended period of limitation could not have been validly applied, acted outside its jurisdiction in entering upon the merits of the dispute on whether the demand for duty should be confirmed. Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue. - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the show cause notice issued by the Revenue is barred by limitation.
2. Whether the Tribunal acted outside its jurisdiction by deciding the merits of the case after holding that the demand was time-barred.

Issue-wise Detailed Analysis:

1. Limitation Period for Show Cause Notice:

The primary issue in the appeal by the Revenue was whether the Tribunal was correct in holding that the show cause notice issued was barred by limitation. The show cause notice was issued on 21 July 2006, demanding service tax from the assessee for the period between 2001-02 and 2004-05. The Tribunal held that the extended period of limitation of five years under Section 73 of the Finance Act, 1994 could not be invoked as there was no suppression of facts by the assessee. The Tribunal found that the Department was aware of the facts as early as 2002, and thus, the extended period could not be applied. The Tribunal's reasoning was based on the fact that the assessee had communicated with the Department about the cold storage charges, and the Department had knowledge of the agreement between the assessee and Hindustan Lever Limited (HLL). The Tribunal relied on precedents from the Supreme Court, which clarified that mere non-payment of duties does not equate to suppression of facts unless there is a deliberate intention to evade duty. The High Court upheld the Tribunal's decision, stating that the extended period of limitation was not warranted and that the notice was issued beyond the original period of one year from the relevant date.

2. Tribunal's Jurisdiction on Merits:

The second issue in the appeal by the assessee was whether the Tribunal committed an illegality by deciding the merits of the case after holding that the demand was time-barred. The Tribunal had concluded that the demand by the Revenue was beyond the period of limitation and thus time-barred. Despite this, the Tribunal proceeded to decide on the merits of the case, concluding that the cold storage charges should be included in the taxable value of services rendered by the assessee. The High Court held that once the Tribunal determined that the demand was time-barred, it should not have entered into the merits of the case. The High Court referenced the Supreme Court's decision in State Bank of India Vs. B.S. Agricultural Industries (I), which stated that deciding on merits after finding a complaint time-barred amounts to an illegality. Consequently, the High Court affirmed that the Tribunal acted outside its jurisdiction by addressing the merits after declaring the demand time-barred.

Conclusion:

The High Court dismissed the Revenue's appeal, upholding the Tribunal's decision that the extended period of limitation was not applicable. It also allowed the assessee's appeal, setting aside the Tribunal's findings on the merits of the case, as it had already concluded that the demand was time-barred.