2019 (10) TMI 1109 - AT - Service Tax

Belated registration - security services - new levy of service tax on the said service during relevant period - intent to evade/suppression of facts or not - extended period of limitation - HELD THAT - The very levy of service tax on security service was a new subject in the year 1998. The said service was made taxable only w.e.f. 16.10.1998 i.e. the very date from which the impugned demand has been made. The submission of the appellant that the error in filing of ST-3 returns is based upon a certain understanding of the appellant and hence the same should not be the only basis of alleging suppression of facts, more so, when the same was communicated and made known to the Department, is reasonable and not devoid of merit - we are unable to agree with the contention of the Revenue that in absence of disclosure in returns regarding the total billings, the assessee has willfully suppressed, particularly in view of the fact that the assessee has duly communicated to the Department about their understanding regarding the tax liability. The Addl. Commissioner s letter dated 24.08.2012, issued after more than 2 years of the issue of impugned order dated 16.03.2010, is a communication from an Officer below the rank of Commissioner cannot be entertained at this stage, since not disowned by the Ld. Commissioner himself. In any case, the very fact that the Ld. Commissioner on being satisfied that tax amount could not be recovered by appellants from its clients, he reduced the tax demand. Further, the very applicability of tax on security service being a new subject, the conduct of assessee could not be doubted - the Department cannot allege suppression on the part of the assessee to justify invocation of extended period of limitation. In view of the statutory legal provisions as applicable during the period from 16.10.1998 to 31.03.2004 involved in this case and the discussions made, we are of the view that the impugned Show Cause Notice dated 17.01.2005 could not be legally issued and therefore, the demand of service tax, interest and penalty cannot sustain - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Applicability of extended period of limitation for issuing Show Cause Notice (SCN).
2. Allegation of willful suppression of information by the appellant.
3. Legality of demand based on figures from the Profit & Loss Account.
4. Validity of demand for the normal period of limitation when extended period is not upheld.
5. Imposition of penalties under Sections 76 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Applicability of Extended Period of Limitation:
The appellant contested the extended period of limitation invoked in the SCN dated 17.01.2005. They argued that they had informed the department about their practice of depositing service tax only when reimbursed by clients through letters dated 07.02.2000 and 14.06.2001. The Tribunal noted that similar cases had established that extended period could not be invoked if the department was informed of the practice followed by the assessee. The Tribunal cited several precedents, including *Purna Plastics Industries vs. CCE, Calcutta* and *ITW India Ltd. vs. CC, Hyderabad*, to support this view. The Tribunal concluded that the extended period of limitation was not applicable as the appellant had informed the department of their practice.

2. Allegation of Willful Suppression:
The appellant argued that there was no willful suppression as they had communicated their understanding and practice to the department. The Tribunal found that the levy of service tax on security services was new in 1998, and errors in filing ST-3 returns were based on the appellant's understanding and not willful suppression. The Tribunal referenced the Supreme Court's decision in *Price Waterhouse Coopers (P) Ltd vs. Commissioner of Income Tax*, which held that human error in filling returns could not be considered willful suppression. The Tribunal concluded that there was no willful suppression by the appellant.

3. Legality of Demand Based on Figures from Profit & Loss Account:
The demand was initially raised based on the difference between figures in the Profit & Loss Account and the service tax returns. The appellant contended that demand could not be raised solely on this basis. The Tribunal noted that the SCN was issued based on audited financial statements, and the appellant had informed the department about their practice of depositing tax only when reimbursed. The Tribunal found that the department could not allege suppression based on this difference alone.

4. Validity of Demand for Normal Period of Limitation:
The appellant argued that if the extended period of limitation was not upheld, the demand could not be enforced for the normal period of limitation. The Tribunal referred to the amendment in Section 73 of the Finance Act, 1994, which inserted sub-section (2A) only w.e.f. 10.05.2013, and the decision of the Chhattisgarh High Court in *Engineers India Technical Services v. Commr. C.Ex & ST, Raipur*. The Tribunal also cited the Supreme Court's decision in *CCE Jaipur vs. Alcobex Metals*, which held that a notice issued for the extended period could not be treated as valid for the normal period. The Tribunal concluded that the demand for the normal period was invalid.

5. Imposition of Penalties:
Given the findings that there was no willful suppression and the extended period of limitation was not applicable, the Tribunal found that the imposition of penalties under Sections 76 and 78 of the Finance Act, 1994, was not justified. The Tribunal noted that the appellant had communicated their practice to the department and there was no intent to evade tax.

Conclusion:
The Tribunal held that the SCN dated 17.01.2005 was not legally sustainable, and the demand of service tax, interest, and penalties could not be upheld. The appeal was allowed with consequential relief as per law.

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