2024 (11) TMI 208 - AT - Service Tax

Non payment of service tax on sale of development rights - Invoking Extended period of limitation - Intentional and wilful suppression of facts or not? department felt that the transfer of development rights became a service with effect from 1.7.2012 as per section 65B (44) of the Finance Act, 1994 and therefore, it was taxable - whether the transaction of transfer of development rights is a service under section 65B(44) read with section 65B(51) of the Finance Act ? - Invoking Extended period of limitation - HELD THAT - The issue in the instant case involves interpretation of legal provisions. Whether TDR is a transaction in immovable property or a service is a debatable issue. In such a situation allegations in the SCN that the Noticee suppressed the value of taxable services seems to be a far stretched one. The issue that extended period of limitation in cases involving interpretation of law is not invokable is a settled issue and it has been held by the judicial forums that extended period of limitation in not sustainable in such cases. There is no other ground on which the extended period of limitation can be invoked. Evidently, fraud, collusion, wilful misstatement and violation of Act or Rules with an intent all have the mens rea built into them and without the mens rea, they cannot be invoked. Suppression of facts has also been held through a series of judicial pronouncements to mean not mere omission but an active suppression with an intent to evade payment of service tax. In other words, without an intent being established, extended period of limitation cannot be invoked. Thus, the central excise officer has an obligation to make his best judgment if either the assessee fails to furnish the returns or, having filed the return, fails to assess tax in accordance with the Act and Rules. Thus, although all assessees self-assess tax, the responsibility of taking action if they do not assess and pay the tax correctly squarely rests on the central excise officer, i.e., the officer with whom the Returns are filed. It is incorrect to say that had the audit not been conducted, the allegedly ineligible CENVAT credit would not have come to light. It would have come to light if the central excise officer had discharged his responsibility under section 72. This legal position that the primary responsibility for ensuring that correct amount of service tax is paid rests on the officer even in a regime of self-assessment was clarified by the Central Board of Excise and Customs CBEC in its Manual for Scrutiny of Service Tax Returns. Therefore, it is incorrect to say that had the audit not been conducted, the alleged non-payment of service tax would not have come to light is neither legally correct nor is it consistent with the CBEC s own instructions to its officers. CBEC took a conscious decision that detailed scrutiny of the Returns should be done only in some cases selected based on some criteria. In those Returns, where detailed scrutiny is not done by the officers some tax may escape assessment which may not be discovered within the normal period of limitation. Such loss of Revenue, needless to say, is a risk which is taken as a matter of policy by the CBEC. Thus to sum-up a) The respondent assessee was required to file the ST 3 Returns which it did. Unless the Central Excise officer calls for documents, etc., it is not required to provide them or disclose anything else. b) It is the responsibility of the Central Excise Officer with whom the Returns are filed to scrutinise them and if necessary, make the best judgment assessment under section 72 of the Finance Act and issue an SCN under Section 73 of the Finance Act within the time limit. If the officer does not do so, and any tax escapes assessment, the responsibility for it rests on the officer. c) Although the Central Excise Officer is empowered to scrutinise all the Returns and if necessary, make the best judgment assessment, if, as per the instructions of CBIC, the officer does not conduct a detailed scrutiny of the Returns and as a result is unable to discover any short payment of tax within the period of limitation, neither the assessee nor the officer is responsible for such loss of revenue. Such a loss of Revenue is the risk taken by the Board as a matter of policy. d) Extended period of limitation cannot be invoked unless there is evidence of fraud or collusion or wilful misstatement or suppression of facts or violation of the provisions of the Finance Act or Rules with an intent. e) Intentional and wilful suppression of facts cannot be presumed because (a) the appellant was operating under self-assessment or (b) because the appellant did not agree with the audit or (c) because the officer did not conduct a detailed scrutiny of the Returns and the escapement of tax was discovered only during audit. We, therefore, find in favour of the respondent on the question of limitation. It is therefore, not necessary to examine the merits of the case.

Summary

Issues Involved:

1. Whether the transaction of 'transfer of development rights' constitutes a service under section 65B(44) of the Finance Act, 1994, and is taxable.
2. Determination of the relevant date for service tax liability in the case of transfer of development rights.
3. Applicability of the extended period of limitation for the demand of service tax.

Issue-wise Detailed Analysis:

1. Nature of 'Transfer of Development Rights':

The Revenue argued that the 'transfer of development rights' became a taxable service with the introduction of section 65B(44) of the Finance Act, 1994, effective from 1.7.2012. The department contended that this transaction should be classified as a service, and accordingly, service tax was payable. The Show Cause Notice (SCN) issued to the respondent proposed a demand for service tax, interest, and penalties. However, the respondent countered that the service was rendered prior to the introduction of the negative list on 1.7.2012, and therefore, was not taxable under the provisions post-1.7.2012. The Commissioner, in the original order, did not uphold the demand, considering the transaction as non-taxable during the relevant period.

2. Relevant Date for Service Tax Liability:

The Revenue asserted that the liability for service tax arises on the date of providing the service, which is the date of invoice or payment receipt, rather than the date of signing the agreement. The Commissioner, however, considered the date of the agreement as the date of service rendition, leading to the dropping of the demand. The Revenue sought either a remand for re-adjudication or modification of the impugned order.

3. Extended Period of Limitation:

The Tribunal focused on the issue of limitation, noting that the SCN was issued on 15.11.2016 for the period 2012-13, which was beyond the normal limitation period under section 73 of the Finance Act. The extended period can only be invoked in cases involving fraud, collusion, willful misstatement, suppression of facts, or violation of provisions with intent to evade tax. The SCN alleged that the respondent suppressed material facts by not disclosing the transaction in their ST-3 returns, leading to escapement of service tax. However, the Tribunal found that the issue involved interpretation of legal provisions, and suppression could not be presumed in such cases. The Tribunal cited several judicial precedents supporting the non-invocation of the extended period in cases of legal interpretation disputes. It emphasized that the primary responsibility for ensuring correct tax payment rests with the Central Excise Officer, who should scrutinize returns and make assessments as necessary. The Tribunal concluded that the extended period of limitation was not applicable, and therefore, the demand was unsustainable on this ground.

Conclusion:

The Tribunal dismissed the appeal filed by the Revenue, upholding the Commissioner's order that dropped the demand on the grounds of limitation. It found in favor of the respondent, determining that the extended period of limitation could not be invoked due to the absence of intent to evade tax and the issue being one of legal interpretation. Consequently, it was unnecessary to examine the merits of the case further. The cross-objections filed by the respondent were also disposed of.