2023 (8) TMI 660 - AT - Service Tax

Levy of Service Tax - Business Support Services - appellant undertook promotional activities pursuant to the contract - coming within the scope of service or not - invocation of the extended period of limitation - suppression of facts or not - HELD THAT - There is substance in the contention advanced by the learned counsel for the appellant that mere suppression of fact is not enough as it has also to be conclusively established that suppression is wilful with an intent to evade payment of service tax - It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be wilful since wilful precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression wilful before suppression of facts under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be wilful and there should also be an intent to evade payment of service tax. In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY 1995 (3) TMI 100 - SUPREME COURT , the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppression of facts has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. A perusal of the judgment of the Delhi High Court in MAHANAGAR TELEPHONE NIGAM LTD. VERSUS UNION OF INDIA AND ORS. 2023 (4) TMI 216 - DELHI HIGH COURT reveals that when an assessee believes that the amount received was not chargeable to service tax, there is no requirement for seeking clarification, more particularly when the Finance Act also does not contemplate any procedure for seeking clarification from the jurisdictional service tax authority. The Delhi High Court also emphasised that it is only when an assessee knowingly and deliberately with an intent to evade payment of service tax, which it was aware would be leviable, suppresses receipt of consideration for rendering a taxable service, that the extended period of limitation can be invoked. Thus, it has to be held that it was not necessary for the appellant to seek a clarification from the department. The extended period of limitation could not, therefore, have been invoked. This apart, in the absence of any allegation in the show cause notice that suppression was with an intent to evade payment of service tax, the extended period of limitation could also not have been invoked. Thus, the entire demand has been confirmed by invoking the extended period of limitation. As the extended period of limitation could not have been invoked in the present case, the demand deserves to be set aside. Appeal allowed.

Summary

Issues Involved:

1. Classification of the services provided by the appellant.
2. Applicability of the extended period of limitation.
3. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

Summary of Judgment:

1. Classification of Services Provided by the Appellant:

The appellant, a professional cricketer, was engaged by Knight Riders to play in the IPL. The department alleged that the payments received by the appellant were for 'business support services' and 'brand promotion services,' making them taxable under the Finance Act, 1994. The Commissioner, in the impugned order dated 29.10.2015, confirmed part of the demand for service tax by attributing 20% of the consideration to promotional activities and 80% to playing cricket. However, the Tribunal found that the appellant was employed by Knight Riders to play cricket, which is not a taxable service. The Tribunal referred to previous decisions, including Yusuf Khan M Pathan and Irfan Khan Pathan, which held that similar contracts were employment contracts and not taxable. The Tribunal concluded that the appellant's activities did not constitute 'business support services' or 'brand promotion services' as defined under the Finance Act.

2. Applicability of the Extended Period of Limitation:

The Commissioner invoked the extended period of limitation under section 73(1) of the Finance Act, citing suppression of facts by the appellant. The Tribunal, however, found no evidence of willful suppression with an intent to evade payment of service tax. Citing Supreme Court decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd., the Tribunal emphasized that suppression must be deliberate and with an intent to evade tax. The Tribunal also referred to the Delhi High Court's decision in Mahanagar Telephone Nigam Ltd., which stated that mere non-disclosure of a receipt believed to be non-taxable does not constitute suppression. The Tribunal concluded that the extended period of limitation could not be invoked in this case.

3. Imposition of Penalties:

The Tribunal found that penalties under sections 76, 77, and 78 of the Finance Act could not be imposed as the demand itself was unsustainable. The Tribunal emphasized that the appellant's belief that the services were not taxable and the absence of any intent to evade tax negated the imposition of penalties.

Conclusion:

The Tribunal set aside the impugned order dated 29.10.2015, allowing the appeal filed by the appellant and dismissing the appeal filed by the department. The entire demand raised by invoking the extended period of limitation was quashed.