2016 (2) TMI 691 - HC - Service Tax

Extended period of limitation - willful intention to evade service tax or not - the stance taken by the petitioner all along is that the petitioner has been submitting its Service Tax returns regularly by showing the details and particulars of the exemption availed of by them, which were within their knowledge and further that the respondent No. 3, while issuing the impugned order, has failed to consider the relevant fact that in terms of the Letter of Award, the burden of Service Tax was on the Service Receiver and the component of Service Tax paid by the Service Receiver was realized from the petitioner as Service Provider, which clearly indicates that it had nothing to gain by evading payment of the Service Tax. Held that - the respondent No. 3 did not record any findings regarding the allegation of the petitioner as to whether the burden of service tax was on the Service Receiver or whether the component of service tax paid by the Service Receiver was realized from the petitioner as Service Provider or whether the submissions of service tax returns regularly showing all the details and particulars are indicative of the fact that these facts are within the knowledge of the respondent authorities. These are vital facts which, if duly considered by the respondent No. 3, would have enabled him to come to the correct conclusions. The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the section, the burden shifts and then applicability of the proviso has to be construed liberally. When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. - Matter remanded back for fresh decision.

Summary

Issues Involved:
1. Validity of the show cause notices and orders demanding Service Tax and penalties.
2. Allegation of willful suppression of facts by the petitioner to evade Service Tax.
3. Applicability of the extended period of limitation under Section 73(1) of the Finance Act, 1994.

Detailed Analysis:

1. Validity of the Show Cause Notices and Orders:
The petitioner, a private engineering firm, challenged the validity of show cause notices and subsequent orders demanding Service Tax, Education Cess, and penalties. The notices in question were issued by the respondent requiring the petitioner to show cause for non-payment of Service Tax and related cesses, totaling approximately Rs. 23,05,054/-, Rs. 23,48,934/-, and Rs. 5,25,018/- in three separate writ petitions.

The petitioner argued that it had been regularly submitting Service Tax returns, detailing exemptions availed, and that the burden of Service Tax was on the Service Receiver, as per the Letter of Award. The petitioner contended that the Service Tax component paid by the Service Receiver was realized from them, indicating no intent to evade tax.

2. Allegation of Willful Suppression of Facts:
The petitioner maintained that there was no willful suppression of facts. The respondent's order alleged that the petitioner suppressed material facts to evade Service Tax, invoking the extended period of limitation for recovery under Section 73(1) of the Finance Act, 1994. The petitioner countered that all facts were disclosed in regular returns, and the burden of proof for willful suppression lay with the Revenue.

3. Applicability of the Extended Period of Limitation:
The court referred to the Supreme Court's interpretation in Sarabhai M. Chemicals v. Commissioner of Central Excise, which clarified that the extended period of limitation under Section 11-A(1) of the Central Excise Act, analogous to Section 73(1) of the Finance Act, 1994, requires proof of willful suppression of facts with intent to evade duty. The court emphasized that mere omission or failure to pay duty without intent does not justify invoking the extended period.

The court found that the respondent failed to consider whether the burden of Service Tax was on the Service Receiver and whether the petitioner had disclosed all relevant facts in its returns. The respondent's findings lacked application of mind and did not differentiate between reopening approvals/assessments and raising demands for the extended period.

Conclusion:
The court quashed the impugned orders and show cause notices, remanding the case for fresh consideration by the respondent in light of the Supreme Court's interpretation. The petitioner was directed to appear before the respondent for fresh proceedings in accordance with the law. No order as to costs was made.