2018 (8) TMI 329 - AT - Service Tax

Extended period of Limitation - demand on reconciliation of documents carried out during the course of departmental audit - invocation of proviso to Section 73 of the Finance Act, 1994 - Held that - Absolutely no justification has been given in the SCN for supporting the allegation of suppression. The tax demand has been raised only as a result of the discrepancy noticed at the time of audit - the invocation of extended time limit is without any justification - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Discrepancy in service tax payment
- Justification for invoking extended time limit
- Penalty imposition on partial payment

Analysis:

Discrepancy in service tax payment:
The appellant received transport services and paid service tax on a reverse charge basis. A departmental audit revealed a shortfall in service tax payment, leading to a Show Cause Notice demanding additional tax along with interest. The appellant contested the demand, arguing that the allegations of suppression were unjustified as the demand was based solely on a reconciliation by audit officers. The Tribunal noted the discrepancy between ST-3 returns and the freight ledger, resulting in the tax demand. Despite partial payment by the appellant, the Tribunal found the invocation of extended time limit without proper justification, ultimately setting aside the demand.

Justification for invoking extended time limit:
The Show Cause Notice invoked the extended time limit under the proviso to Section 73 of the Finance Act, 1994. However, the Tribunal observed that no valid justification for alleging suppression was provided in the notice. The tax demand arose solely from the audit's findings, indicating a lack of justification for extending the time limit. Consequently, the Tribunal held that the demand under the extended period could not be sustained due to the absence of proper reasoning supporting the allegation of suppression.

Penalty imposition on partial payment:
The appellant had paid a significant portion of the demanded tax before the issuance of the Show Cause Notice. The Department argued against waiving the penalty due to the partial payment. However, the Tribunal, after considering both sides, set aside the impugned order and allowed the appeal, emphasizing that the demand based on the extended time limit lacked justification. The decision highlighted the importance of providing valid reasons for invoking extended time limits and the inappropriateness of imposing penalties on demands lacking proper justification.

This judgment underscores the necessity for tax authorities to establish valid justifications for invoking extended time limits in tax demands and the importance of proper reasoning to support allegations of suppression. It also clarifies the implications of partial payments on penalty imposition in tax disputes.