2024 (2) TMI 1160 - AT - Service Tax

Demand of service tax - Commercial Training or Coaching Services - Franchise Services against Forward Charge - Franchise Services against Reverse Charge - Business Auxiliary Services - Management or Business Consultant Services - Wrong computation of the proposed demands due to invocation of Best Judgment Assessment instead of actual value on accrual basis - Whether demand could not have been confirmed on merits? - invocation of Extended period of Limitation - levy of penalties u/s 76, 77 and 78 of the Finance Act - Inordinate delay in adjudication. Inordinate delay in adjudication - HELD THAT - Appellant placed reliance upon the provisions of section 73(4B) of the Finance Act to contend that the order passed by the Commissioner should be set aside as it was passed beyond the period prescribed in the said section. This ground which is both factual and legal was not taken by the appellant in reply to the show cause notice. Section 73(4B) provides that the Central Excise Officer shall determine the amount of service tax within one year from the date of notice, where it is possible to do so. In the absence of such a ground having been taken in the reply to the show cause notice, it was not considered by the Commissioner. It would, therefore, in the absence of the factual aspect having been brought on record, not be appropriate to decide this issue. Extended Period of Limitation - HELD THAT - The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word one year , the word five years has been substituted. It would be seen from the show cause notice that the extended period of limitation has been invoked by alleging that facts had been suppressed with intent to evade payment of service tax merely because the appellant did not pay service tax for certain services. The show cause notice also mentions that had the investigation not been conducted by the department, non payment of service would not have come to the notice of the department. The Commissioner, in the impugned order, also after noticing that the appellant had not paid service tax correctly and had failed to bring the correct facts to the knowledge of the department observed that in the era of self-assessment great trust is placed on the assessee by the department, but this trust had been breached by the appellant - The Commissioner, therefore, concluded that the onus for proper assessment and discharge of service tax was on the appellant and as the appellant had failed to discharge the said burden, the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act was correctly invoked. Whether the extended period of limitation can be invoked merely because service tax is not paid for some services? - HELD THAT - In the present case, the contention of the appellant is that service tax was not paid as the appellant believed that it was not liable to pay service - It has been repeatedly held by the Supreme Court and the Delhi High Court that mere suppression of facts is not enough. Suppression has to be wilful with 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. Mere suppression of facts is not enough and there must be a deliberate and wilful attempt on the part of the assessee to evade payment of tax. In the absence of any intention to evade payment of service tax, which intention should be evident from the materials on record or from the conduct of the assessee, the extended period of limitation cannot be invoked. Thus, mere non disclosure of the receipts in the service tax returns would not mean that there was an intent to evade payment of service tax. In the present case, all that has been stated in the impugned order is that since the appellant suppressed facts, the provisions of the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act would be applicable since such suppression of facts was with an intent to evade payment of service tax. The extended period of limitation could not, in view of the aforesaid decisions, have been invoked in the present case even if the returns were self assessed. Management consultancy service - HELD THAT - The entire demand confirmed under this head falls within the extended period of limitation. It has been held that the extended period of limitation could not have been invoked. The confirmation of demand under this head, therefore, deserves to set aside. Franchise service (forward charge) - HELD THAT - The appellant has challenged only the amount confirmed for the extended period of limitation. As held above, the extended period of limitation could not have been invoked. The demand of Rs. 5,02,168/- for the normal period is, therefore, confirmed. Merits commercial coaching and training services - HELD THAT - Out of the amount of Rs. 2,11,42,021/-, an amount of Rs. 1,81,41,040/- was set aside as service tax could not be levied. The finding recorded by the Commissioner does not suffer from any error and the learned authorised representative appearing for the department has also not been able to point out any specific error in the finding. It is, because of the discussion on the extended period of limitation, also barred by limitation - Though an amount of Rs. 25,95,804/- has been set aside in the operative part of the order, but while calculating the amount it has included this amount. This is a calculation error and, therefore, the demand for this amount has to be set aside. Out of the total amount of Rs. 40,71,261/-, the demand of Rs. 28,92,043/- upto February 2010 has been set aside because of the Notification dated 10.09.2004. It is also barred by limitation. The amount of Rs. 4,05,174/- for the period March 2010 is also barred by limitation. Regarding the remaining demand of Rs. 7,74,044/- for the period from April 2010 to March 2011, learned counsel for the appellant stated that the appellant agrees to pay this demand. Since the demand of Rs. 28,92,043/- and Rs. 4,05,174/- is barred by limitation the appeal filed by the department to assail this finding, for the reasons stated while discussing the limitation issue, deserves to be dismissed. So far as the amount of Rs. 7,74,044/- is concerned, payment of this amount is admitted by the appellant. Franchise service (reverse charge) - HELD THAT - The franchise service was not provided by the appellant since the agreement in question is a mere revenue sharing agreement - In the present appeal, there is no fixed amount specified to be paid to Centennial College, Canada. Instead for every student enrolled in a course, Centennial College, Canada gets a specified amount as a share of the fees. This is a typical revenue sharing model and in view of the aforesaid decision of the Tribunal in Niraj Prasad, there is no element of service involved. The appellant is, therefore, justified in submitting that franchise service (reverse charge) was not rendered by the appellant since the agreement was a mere revenue sharing agreement. - the appellant was not required to pay any service tax on franchise service on a reverse charge basis. Penalty under section 78 - HELD THAT - The Commissioner has imposed penalty under section 78 of the Finance Act for the reason that the ingredients for imposing penalty under this section and for invoking the extended period of limitation are same. It has been found that the extended period of limitation could not have been invoked. Thus, the penalty under section 78 of the Finance Act deserves to be set aside. Penalty under section 77 - HELD THAT - Penalty of Rs. 10,000/- has been imposed upon the appellant for the reason that the appellant had contravened the provisions of section 70 of the Finance Act as the correct periodical ST-3 returns had not been filed. The appellant has very fairly stated that it is liable to pay an amount of Rs. 7,74,044/- towards service tax against commercial coaching and training service for the normal period. It has also been found that the demand towards franchise service (forward charge) for the normal period has to be confirmed. Major portion of the demand has been set aside only for the reason that the extended period of limitation could not have been invoked. The penalty under section 77 of the Finance Act has, therefore, been correctly imposed. Appeal disposed off.

Summary

Issues Involved:
1. Inordinate delay in adjudication.
2. Extended period of limitation.
3. Merits of demand under various service categories: Commercial Coaching and Training Services, Franchise Services (Forward Charge), Franchise Services (Reverse Charge), and Management Consultancy Service.
4. Penalties under sections 77 and 78 of the Finance Act.

Summary:

Inordinate Delay in Adjudication:
- The appellant contended that the order passed by the Commissioner should be set aside due to inordinate delay in adjudication, violating the time limit prescribed in section 73(4B) of the Finance Act. However, this ground was not raised in the reply to the show cause notice, and thus, it was not considered by the Commissioner. The Tribunal found it inappropriate to decide this issue without factual aspects on record.

Extended Period of Limitation:
- The appellant argued that the extended period of limitation under section 73(1) of the Finance Act could not be invoked as there was no willful suppression of facts with intent to evade tax. The Tribunal agreed, citing several judicial precedents that mere non-payment of service tax does not justify invoking the extended period unless there is deliberate suppression with intent to evade tax. Consequently, demands for periods beyond the normal limitation period were set aside.

Merits of Demand:

Commercial Coaching and Training Services:
- The Commissioner set aside the demand of Rs. 59,18,282/- due to wrong computation based on 'Best Judgment Assessment' instead of actual value on 'accrual basis'.
- Degree courses affiliated with Punjab Technical University were held to be outside the purview of service tax as they constitute education, not commercial training.
- The demand for diploma courses from Centennial College, Canada was partly set aside as they were exempt under Notification No. 24/2004-ST till February 2010. The remaining demand was either barred by limitation or agreed to be paid by the appellant.

Franchise Services (Forward Charge):
- The appellant challenged the amount confirmed for the extended period of limitation. The Tribunal confirmed the demand of Rs. 5,02,168/- for the normal period as the extended period could not be invoked.

Franchise Services (Reverse Charge):
- The demand of Rs. 12,66,956/- was set aside as it was based on 'Best Judgment Assessment' and not on actual value. Moreover, the agreement between the appellant and Centennial College, Canada was a revenue-sharing model, not a franchise service. Thus, no service tax was payable under reverse charge.

Management Consultancy Service:
- The entire demand confirmed under this head fell within the extended period of limitation, which could not be invoked. Hence, the demand was set aside.

Penalties:

Penalty under section 78:
- The penalty was imposed on the same grounds as the extended period of limitation. Since the extended period could not be invoked, the penalty under section 78 was set aside.

Penalty under section 77:
- A penalty of Rs. 10,000/- was imposed for not filing correct periodical ST-3 returns. The Tribunal maintained this penalty as the appellant conceded to certain service tax liabilities and major portions of the demand were set aside only due to limitation issues.

Order:
- The demand of service tax of Rs. 7,74,044/- towards 'commercial coaching and training service' and Rs. 5,02,168/- towards franchise service (forward charge) with interest was confirmed. The rest of the demand confirmed in the impugned order was set aside. The penalty under section 78 was set aside, while the penalty under section 77 was maintained. Service Tax Appeal No. 51788 of 2022 was allowed to the extent indicated above with consequential relief(s). Service Tax Appeal No. 52294 of 2022 was allowed to the extent indicated above. Service Tax Cross Objection No. 50300 of 2023 stood disposed of.