2025 (1) TMI 680 - AT - Service Tax

Invocation of extended period of limitation - demand confirmed for the Financial Year 2013-14 is beyond the period of 5 years so as to be time barred or not - extended period of limitation upto five years beyond the normal period of thirty months could have been invoked. Whether the demand confirmed for the Financial Year 2013-14 is beyond the period of 5 years so as to be time barred? - HELD THAT - It needs to be noted that out of the total confirmed demand of Rs. 2,40,96,546/-, the demand of Rs. 2,24,43,944/- is with respect to the Financial Year 2013-14. For the respective half yearly periods for the Financial Year 2013-14, the period of five years would expire on 25.10.2018 and 25.04.2019. The show cause notice that was issued on 11.10.2019 was clearly beyond the period of five years - The service tax demand of Rs. 2,24,43,944/- is clearly barred by limitation and, therefore, could not have been confirmed - the demand of interest and penalty for the amount of service tax confirmed for the Financial Year 2013-14 is beyond the period of limitation. Whether the extended period of limitation upto five years beyond the normal period of thirty months could have been invoked in the facts and circumstances of the case? - HELD THAT - It is noticed that after excluding the service tax liability confirmed for the period 2013-14, only the service tax liability for the periods 2016-17 and 2017-18 would be within the normal period of limitation. - There has to be a deliberate attempt to evade payment of excise duty. The show cause notice must specifically deal with this aspect and the adjudicating authority is also obliged to examine this aspect in the light of the facts stated by the assessee in reply to the show cause notice. In Easland Combines, Coimbatore vs. Collector of Central Excise, Coimbatore 2003 (1) TMI 107 - SUPREME COURT the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation. In the present case, the show cause notice merely alleges that as the appellant did not disclose proper value of taxable services in the ST-3 returns, payment of service tax amounting to Rs. 2,40,96,546/- escaped assessment resulting in contravention of various provision of the Finance Act and the Rules with intention to evade payment of service tax. Mere suppression of facts is not enough to invoke the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act. The suppression has to be with an intent to evade payment of service tax and for this purpose the show cause notice must specifically allege why the assessee has suppressed facts with intent to evade payment of service tax - The extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act, therefore, could not have been invoked in the facts and circumstances of the case. The demand for service tax on legal services of Rs. 3,105/- was upheld, while other demands were set aside. Conclusion - Mere suppression of facts is not enough to invoke the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act - The extended limitation period requires evidence of intent to evade tax; corporate guarantees without consideration are not taxable. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment primarily addresses the following legal issues:

• Whether the demand for service tax for the Financial Year 2013-14 is barred by limitation.
• Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act, 1994, could be invoked in this case.
• Whether the service tax demand on corporate guarantees is sustainable in view of the Supreme Court decision in Edelweiss Financial Services Ltd.
• Whether the demand for service tax on advances received from customers and legal services under the reverse charge mechanism is justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on Service Tax Demand for FY 2013-14

• Legal Framework and Precedents: Section 73(1) of the Finance Act, 1994, stipulates a normal limitation period of thirty months for issuing a show cause notice, extendable to five years in cases of fraud, collusion, or suppression of facts.
• Court's Interpretation and Reasoning: The court found that the demand of Rs. 2,24,43,944/- for FY 2013-14 was time-barred as the show cause notice was issued beyond the five-year limitation period.
• Key Evidence and Findings: The relevant dates for filing returns and issuing the show cause notice were analyzed, confirming that the notice was issued after the permissible period.
• Application of Law to Facts: The court applied section 73(1) and determined that the demand could not be sustained due to the expiration of the limitation period.
• Treatment of Competing Arguments: The appellant argued the demand was time-barred, which the court upheld, rejecting the department's position.
• Conclusions: The demand for FY 2013-14 was deemed time-barred and could not be confirmed.

Issue 2: Invocation of Extended Limitation Period

• Legal Framework and Precedents: The extended period under section 73(1) requires evidence of deliberate suppression or intent to evade tax.
• Court's Interpretation and Reasoning: The court emphasized that mere suppression without intent to evade is insufficient for invoking the extended period.
• Key Evidence and Findings: The court noted the absence of specific allegations or evidence of intent to evade tax in the show cause notice.
• Application of Law to Facts: The court found that the appellant's cooperation during the investigation negated any inference of deliberate suppression.
• Treatment of Competing Arguments: The department's reliance on self-assessment was rejected; the court held that proper officer scrutiny is essential.
• Conclusions: The extended period was inapplicable due to lack of evidence of intent to evade tax.

Issue 3: Service Tax on Corporate Guarantees

• Legal Framework and Precedents: The Supreme Court in Edelweiss Financial Services Ltd. held that corporate guarantees without consideration are not taxable.
• Court's Interpretation and Reasoning: The court applied the Supreme Court's decision, finding no consideration for the corporate guarantees.
• Key Evidence and Findings: The absence of monetary or non-monetary consideration was established.
• Application of Law to Facts: The court concluded that the demand for service tax on corporate guarantees was unsustainable.
• Treatment of Competing Arguments: The appellant's reliance on the Supreme Court decision was accepted, and the department's position was rejected.
• Conclusions: The demand for service tax on corporate guarantees was set aside.

Issue 4: Service Tax on Advances and Legal Services

• Legal Framework and Precedents: The Finance Act and relevant rules govern the assessment of service tax on advances and legal services.
• Court's Interpretation and Reasoning: The court found errors in the calculation of service tax on advances and legal services.
• Key Evidence and Findings: The court noted that the demand on advances was incorrectly calculated on closing balances and that legal services were already taxed under the reverse charge mechanism.
• Application of Law to Facts: The court determined that the demand for legal services was valid only for Rs. 3,105/- for the period 2016-17.
• Treatment of Competing Arguments: The appellant's breakdown of legal services was accepted, and the department's assumptions were rejected.
• Conclusions: The demand for service tax on legal services was partially upheld, while the demand on advances was set aside.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes: "Mere suppression of facts is not enough to invoke the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act."
• Core Principles Established: The extended limitation period requires evidence of intent to evade tax; corporate guarantees without consideration are not taxable.
• Final Determinations: The demand for service tax on legal services of Rs. 3,105/- was upheld, while other demands were set aside.

The judgment provides a detailed analysis of the limitations and conditions under which the extended period for service tax demands can be invoked, emphasizing the necessity for clear evidence of intent to evade tax. It also clarifies the non-taxability of corporate guarantees without consideration, aligning with the Supreme Court's decision in Edelweiss Financial Services Ltd.