2025 (1) TMI 543 - AT - Service Tax

Invocation of Extended period of limitation - suppression of facts or not - Classification of service - works contract service or not - Elgibility for the benefits of Works Contract composition scheme and also for cum tax benefit - HELD THAT - It is observed that the period of dispute is 2010-11 to 2011-12 and the show cause notice is dated 29.01.2016. Hence, the entire period of demand is beyond the normal period of limitation. The proviso to Section (1) of Section 11A and 11AC of Central Excise Act which are pari-materia to Section 73(1) and Section 78 of the Finance Act, 1994 use the expressions by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of this act or of the rules made thereunder with intent to evade the payment of duty as the conditions that would extend the normal period of one year to five years and as would also attract the imposition of penalty. The adjudicating authority below has justified the invocation of extended period holding that there is a suppression of facts on part of the appellant. Conscious and deliberate withholding of the information by manufacturer is necessary for invoking the extended period. If the department had full knowledge or the manufacturer had reasonable belief that he is not requested to give a particular information, only normal period of limitation i.e. 1 year is applicable. Conclusion - The extended period has wrongly been invoked while issuing the impugned show cause notice. The show cause notice is held barred by time. Any confirmation of demand also gets hit by the technicality of limitation. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily revolves around the following core legal issues:

• Whether the service provided by the appellant should be classified as 'Works Contract Service' under Section 65(105)(zzzza) of the Finance Act, 1994.
• Whether the extended period of limitation was rightly invoked by the department for issuing the show cause notice.
• Whether the appellant's actions constituted suppression of facts with intent to evade tax, justifying the imposition of penalties and extended limitation period.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Service

• Relevant Legal Framework and Precedents: The service in question was evaluated under Section 65(105)(zzzza) of the Finance Act, 1994, which pertains to Works Contract Service. The appellant's service involved a composite contract, including civil work for pollution control and construction activities.
• Court's Interpretation and Reasoning: The court agreed with the department's classification of the appellant's service as Works Contract Service, acknowledging the composite nature of the contract.
• Key Evidence and Findings: The appellant paid VAT/sales tax on the contract, indicating the transfer of property in goods, a key characteristic of Works Contract Service.
• Application of Law to Facts: The court applied Section 65(105)(zzzza) and confirmed the classification, as the contract involved both service and goods components.
• Treatment of Competing Arguments: The appellant did not contest the classification in the current proceedings, focusing instead on the limitation period and penalties.
• Conclusions: The service was correctly classified as Works Contract Service, and the appellant was liable for service tax under this category.

Issue 2: Invocation of Extended Period of Limitation

• Relevant Legal Framework and Precedents: The invocation of the extended period of limitation is governed by the proviso to Section 73(1) of the Finance Act, 1994, which requires evidence of fraud, collusion, willful misstatement, or suppression of facts with intent to evade tax.
• Court's Interpretation and Reasoning: The court noted that the extended period could only be invoked if there was a deliberate act of suppression or misstatement. The confusion in the industry regarding the classification of services during the relevant period was acknowledged.
• Key Evidence and Findings: The court found no evidence of deliberate suppression by the appellant. The appellant had recorded transactions in statutory records and paid taxes promptly when pointed out.
• Application of Law to Facts: The court applied the principles from precedents like Chemphar Drugs & Liniments and Bharat Hotels Ltd., emphasizing the need for a positive act of suppression to justify the extended period.
• Treatment of Competing Arguments: The department argued that nondisclosure in returns amounted to suppression; however, the court found this insufficient without evidence of intent to evade tax.
• Conclusions: The extended period of limitation was wrongly invoked, as there was no deliberate suppression by the appellant.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "Misstatement or suppression of facts does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty."
• Core Principles Established: The court reinforced the principle that the extended period of limitation requires evidence of intentional suppression or misstatement, not mere nondisclosure or confusion.
• Final Determinations on Each Issue: The court upheld the classification of the service as Works Contract Service but set aside the demand for tax and penalties due to the improper invocation of the extended limitation period.

The court concluded by allowing the appeal, determining that the show cause notice was time-barred, and the demand for tax and penalties was invalid due to the lack of evidence for deliberate suppression.