2023 (2) TMI 832 - HC - Service Tax

Invocation of Extended period of limitation - no intent to evade payment of service tax - whether there is any error apparent on the face of the record to review the judgment? - HELD THAT - Admittedly, Service Tax was paid by the individual branches till 31.03.2007 and from 01.04.2007, centralised registration was taken. It is an admitted fact that the assessee has not fully disclosed the value of taxable service for the period from 10.09.2004 to 31.07.2007 in the ST 3 Returns. The case of the assessee is that it is due to system failure that the entire amount was not paid. The intelligence report points out that the short levy was from 10.09.2004 to 31.07.2007, and only on a reference by the department after the intelligence report on 02.08.2007, the bank had remitted the differential amounts. The period from 2004 to 2007, around three years, the bank cannot contend that due to system failure, they were not able to remit the Service Tax - the argument of the review petitioner that, there is no finding that there has been suppression of any information and not intended to evade payment of Service Tax does not hold good. Another ground raised by the review petitioner is that there has been a mistake in paragraph 19 of the judgment, only when the department issued a show cause notice, the bank remitted the amount of tax. The said contention is valid for the fact that going by the order in the original as well as the show cause notice, it can be seen that the intelligence report was on 02.08.2007 and the amounts were paid on 22.08.2007, 16.11.2007, 07.12.2007, and 12.12.2007 and the show cause notice was issued on 03.09.2008. Therefore, the statement that the remittance was only after the show cause notice is an error of fact in the narration and needs to be reviewed and it is held that the payment was before the show cause notice, however after the intelligence report on 02.08.2007. When the correct figures are not brought to the notice of the department and when the suppression is unearthed through an intelligence report, the failure of the bank in remitting the amounts thereafter i.e., nearly three years can be brought under the words wilful suppression . The time for which default occasioned is equally important. Therefore, there is no error apparent on the face of the record, and also there are no grounds to review the judgment, therefore the review petition stands disposed of.

Summary

Issues:
- Review of judgment based on error apparent on the face of the record
- Invocation of extended period of limitation under Section 73 of the Finance Act
- Wilful suppression with intent to evade payment of Service Tax
- Compliance with payment of Service Tax and disclosure requirements
- Interpretation of relevant case laws regarding wilful misstatement or suppression
- Timing of remittance of tax in relation to show cause notice
- Consideration of system failure as a defense for non-payment of Service Tax

1. Review of Judgment:
The respondent filed a Review Petition challenging a judgment based on the alleged error apparent on the face of the record. The primary issue was whether there was a valid ground for reviewing the judgment dated 29.07.2022. The petitioner contended that the extended period of limitation invoked by the Department was set aside, and the penalty under Section 78 of the Finance Act was waived due to reasonable cause for failure to pay Service Tax. The Tribunal accepted the petitioner's contention that there was no intention to evade payment of service tax, leading to the invocation of the extended period of limitation being deemed unavailable.

2. Invocation of Extended Period of Limitation:
The core question revolved around the invocation of the extended period of limitation under Section 73 of the Finance Act. The Tribunal had set aside the invocation based on the finding that there was no wilful suppression with intent to evade payment of Service Tax. The petitioner argued that the bank's non-payment of Service Tax was unintentional, attributed to system failure, and not a deliberate attempt to evade tax. The court examined the necessity of intent to evade duty for invoking the extended period of limitation and whether the Tribunal's decision was justified in this context.

3. Wilful Suppression and Compliance:
The case involved analyzing whether there was wilful suppression with the intent to evade payment of Service Tax. The petitioner cited precedents emphasizing the requirement of wilful misstatement or suppression for invoking the extended period of limitation. The court deliberated on the bank's assertion of non-payment due to system failure, the timing of remittance post intelligence report, and the Commissioner's findings on suppression and penalty imposition under Section 76.

4. Interpretation of Case Laws:
The judgment also delved into interpreting relevant case laws such as the Rajasthan High Court and the Apex Court decisions, which emphasized the need for wilful suppression or misstatement with the intent to evade duty. The court assessed the applicability of these precedents to the present case and whether the non-payment of Service Tax due to system failure could be deemed wilful suppression.

5. Timing of Remittance and Compliance:
Another aspect scrutinized was the timing of tax remittance concerning the issuance of the show cause notice. The petitioner argued that the remittance was made before the notice, challenging the court's narration in paragraph 19. The court examined whether the timing of payment, even before the notice, could absolve the bank from wilful non-compliance with payment obligations and disclosure requirements.

6. System Failure Defense:
Lastly, the defense of system failure for non-payment of Service Tax was evaluated. The court considered whether the bank's claim of system failure as the reason for non-remittance of tax over three years could be justified, especially when the suppression was unearthed through an intelligence report. The court concluded that there was no error apparent on the face of the record and dismissed the review petition, emphasizing the importance of timely compliance and disclosure in tax matters.