2025 (1) TMI 145 - AT - Service Tax

Demand for service tax paid under a different registration number - barred by time limitation - short payment of service tax - short payment of Swachh Bharat Cess (SBC) - service tax on liquidated damages/penalties. Time limitation - Payment of service tax of Rs. 5,68,451/- for November, 2015 through challan mentioning Service Tax Registration of Regional Unit belonging to Appellant - Short payment of service tax of Rs. 42,188/- for the period from June 2015 to September 2015 - Short payment of Swacch Bharat Cess (SBC) of Rs. 22,344/- from November 2015 to March 2016 - HELD THAT - It is also clearly apparent that those demands pertains to the year 2015-2016 and were proposed to be recovered vide show cause notice dated 9.10.2019. The entire period under three of these issues is therefore, beyond the normal period prescribed under Section 73 of Finance Act, 1994 / 11AC of Central Excise Act, 1944. Both these observations and that there is no other evidence except appellant s own document to prove the alleged act of suppression on part of appellant, we hold that the aforesaid provisions have wrongly been invoked while issuing the show cause notice. Therefore, the show cause notice is held to be barred by them. Conscious and deliberate withholding of the information manufacturer is necessary for invoking the extended period. If the department had full knowledge or the manufacturer had reasonable belief that he is not required to give a particular information, only normal period of limitation i.e. one year is applicable. Resultantly, the demand of these issues is held purely barred by period of limitation. The demand on three of the issues are liable to be set aside. Service Tax of Rs. 2,10,11,500/- on Liquidated Damages/Penalty for the period April 2014 to June 2017 - HELD THAT - Declared service, otherwise, has first to be a service which in terms of Section 65(B)(44) of Finance Act, 1944 is any activity carried by a person for another for consideration. The term consideration is defined in explanation (a) to Section 67 of the Act to mean any amount that is payable for the taxable service. Section 2(b) of Indian Contract Act, 1872 also defines consideration as when at the desire of the promisor the promise or any other person has done or abstained from doing, or does or abstains from doing or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise. In the present case there is no agreement nor any intention to breach the terms of the agreement. The appellant herein has simply agreed to be compensated by deducting charges from the bills for any loss or admitted cause to them from the breach of contract on part of the contractor. Resultantly, the recovery of liquidated damages/penalty from the other parties cannot be called as service and the amount so received cannot be called as the amount of consideration. The activity of receiving such an amount of penalty is wrongly alleged to be an amount towards rendering the declared services. The act of receiving such an amount/liquidated damages is otherwise covered under Section 73 and 74 of the Contract Act - the demand on this ground has been wrongly confirmed. Conclusion - The demand held to be purely barred by period of limitation. The act of receiving such an amount/liquidated damages is otherwise covered under Section 73 and 74 of the Contract Act. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions:

Whether the demand for service tax of Rs. 5,68,451/- for November 2015, paid under a different registration number, is valid and whether it is time-barred.
Whether the short payment of service tax of Rs. 42,188/- for the period June 2015 to September 2015 is justified and time-barred.
Whether the short payment of Swachh Bharat Cess (SBC) of Rs. 22,344/- from November 2015 to March 2016 is justified and time-barred.
Whether the service tax demand of Rs. 2,10,11,500/- on liquidated damages/penalties for the period April 2014 to June 2017 is valid under the declared services provision.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Payment of service tax of Rs. 5,68,451/- for November 2015

Relevant legal framework and precedents: The issue revolves around the legality of utilizing a challan meant for a different registration number. The CBEC Circular No. 58/7/2003-ST was referenced regarding adjustments of wrong accounting codes.
Court's interpretation and reasoning: The Tribunal noted that the payment was made, albeit under a different registration, and there was no evasion of tax. The demand was considered time-barred as it was issued beyond the normal period prescribed under Section 73 of the Finance Act, 1994.
Key evidence and findings: The appellant provided evidence that the payment was not utilized by the other unit, and hence, the tax was duly paid.
Application of law to facts: The Tribunal applied the limitation period and found the demand to be time-barred.
Treatment of competing arguments: The Department argued that the payment under a different registration is impermissible, but the Tribunal found no legal provision to support this claim.
Conclusions: The demand was set aside as time-barred.

Issue 2: Short payment of service tax of Rs. 42,188/-

Relevant legal framework and precedents: The issue concerned the revised service tax rate effective from June 2015.
Court's interpretation and reasoning: The Tribunal found that the tax was already paid and the demand was time-barred.
Key evidence and findings: The appellant's documents were the basis for the demand, and no additional evidence of suppression was presented by the Department.
Application of law to facts: The Tribunal applied the limitation period and found the demand to be time-barred.
Treatment of competing arguments: The Department's claim of suppression was not supported by evidence, leading to the Tribunal's decision.
Conclusions: The demand was set aside as time-barred.

Issue 3: Short payment of Swachh Bharat Cess (SBC) of Rs. 22,344/-

Relevant legal framework and precedents: The issue involved the SBC rate applicable during the period in question.
Court's interpretation and reasoning: The Tribunal found that the tax was already paid and the demand was time-barred.
Key evidence and findings: The appellant's documents were the basis for the demand, and no additional evidence of suppression was presented by the Department.
Application of law to facts: The Tribunal applied the limitation period and found the demand to be time-barred.
Treatment of competing arguments: The Department's claim of suppression was not supported by evidence, leading to the Tribunal's decision.
Conclusions: The demand was set aside as time-barred.

Issue 4: Service Tax of Rs. 2,10,11,500/- on Liquidated Damages/Penalty

Relevant legal framework and precedents: The issue involved the interpretation of 'declared services' under Section 66E(e) of the Finance Act, 1994.
Court's interpretation and reasoning: The Tribunal found that the liquidated damages/penalties did not constitute a service as there was no agreement to tolerate an act for consideration.
Key evidence and findings: The Tribunal relied on past decisions, including those in the appellant's own cases, where similar demands were set aside.
Application of law to facts: The Tribunal found that the liquidated damages were not a consideration for a service.
Treatment of competing arguments: The Department's interpretation of declared services was rejected based on established legal principles.
Conclusions: The demand was set aside as the liquidated damages did not qualify as a taxable service.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The act of receiving such an amount/liquidated damages is otherwise covered under Section 73 and 74 of the Contract Act."
Core principles established: The Tribunal emphasized the importance of the correct application of the limitation period and the proper interpretation of 'declared services' under the Finance Act.
Final determinations on each issue: All demands were set aside, with the Tribunal ruling that the extended period was wrongly invoked and that liquidated damages did not constitute a taxable service.

The Tribunal's decision underscores the necessity for the Department to adhere to statutory limitations and accurately interpret service definitions under tax law. The appeal was allowed, and the demands were dismissed. The appellant, however, chose not to seek a refund for the amounts already deposited.

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