2025 (4) TMI 182 - AT - Service Tax

Invocation of extended period of limitation - intent to evade or not - appellant submits that the appellant is an autonomous unit under the Department of Science and Technology Govt. of India and they have no intention to evade payment of duty - interest and penalty - HELD THAT - The appellant has not collected any service tax from their clients for the services rendered by them. The Department has not brought in any evidence to establish that the appellant has intention to evade payment of tax and suppressed any information before the Department. Accordingly the demand confirmed by invoking the extended period of limitation is not sustainable and hence we set aside the same. Demand of Service Tax for the normal period - HELD THAT - The turnover of the appellant during the financial years 2006-07 and 2007-08 are Rs.3, 50, 085/- and Rs.4, 18, 370/- respectively. The value of turnover during these two financial years is less than the exemption limits of Rs.4, 00, 000/- and Rs.8, 00, 000/- available during the respective financial years. Thus the appellant is not liable to pay service tax during the normal period of limitation also since their turnover is less than the threshold exemption limit as provided under the respective Notifications issued during the relevant period. Interest - penalty - HELD THAT - As the demands itself are not sustainable the question of demanding interest and imposing penalties does not arise. Conclusion - i) The Department has not brought in any evidence to establish that the appellant has intention to evade payment of tax and suppressed any information before the Department. Accordingly the demand confirmed by invoking the extended period of limitation is not sustainable. ii) The appellant is not liable to pay service tax during the normal period of limitation also since their turnover is less than the threshold exemption limit as provided under the respective Notifications issued during the relevant period. The impugned order is set aside - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered by the Tribunal were:

1. Whether the appellant was liable to pay service tax for the services rendered during the period from 01.07.2003 to 31.03.2008, particularly in light of the extended period of limitation invoked by the Department.

2. Whether the appellant was eligible for exemption from service tax for the normal period of limitation based on the turnover during the financial years 2006-07 and 2007-08.

3. The applicability of interest and penalties under the Finance Act, 1994, given the findings on the primary issues.

ISSUE-WISE DETAILED ANALYSIS

1. Liability to Pay Service Tax and Extended Period of Limitation

Relevant legal framework and precedents: The Finance Act, 1994, governs the levy of service tax in India. The extended period of limitation can be invoked under certain conditions, such as willful misstatement or suppression of facts with intent to evade tax.

Court's interpretation and reasoning: The Tribunal noted that the appellant, being an autonomous research institute under the Department of Science and Technology, did not collect service tax from its clients. The Department failed to provide evidence of any intent to evade tax or suppression of information by the appellant.

Key evidence and findings: The Tribunal found no evidence of the appellant's intent to evade tax. The appellant's status as an autonomous government entity and the absence of service tax collection from clients supported their bona fide belief that their services were not taxable.

Application of law to facts: The Tribunal applied the legal principle that the extended period of limitation requires evidence of intent to evade tax. Since no such evidence was presented, the invocation of the extended period was deemed unsustainable.

Treatment of competing arguments: The appellant argued against the invocation of the extended period due to their bona fide belief and lack of intent to evade tax. The Department's position was not supported by evidence, leading to the Tribunal's decision in favor of the appellant.

Conclusions: The Tribunal set aside the demand for service tax for the period covered by the extended limitation, finding it unsustainable.

2. Eligibility for Exemption from Service Tax for Normal Period

Relevant legal framework and precedents: Notifications under the Finance Act, 1994, provided exemption limits for service tax based on turnover during specific financial years.

Court's interpretation and reasoning: The Tribunal observed that the appellant's turnover during the financial years 2006-07 and 2007-08 was below the exemption limits of Rs.4,00,000/- and Rs.8,00,000/- respectively.

Key evidence and findings: The turnover figures for the relevant years were Rs.3,50,085/- and Rs.4,18,370/-, both below the respective exemption limits.

Application of law to facts: The Tribunal applied the exemption limits to the appellant's turnover, concluding that the appellant was not liable to pay service tax during the normal period of limitation.

Treatment of competing arguments: The appellant's argument for exemption based on turnover was accepted, as it was supported by the turnover figures and applicable exemption limits. The Department did not effectively counter this argument.

Conclusions: The Tribunal held that the appellant was not liable for service tax during the normal period due to their eligibility for exemption.

3. Applicability of Interest and Penalties

Relevant legal framework and precedents: Interest and penalties under the Finance Act, 1994, are contingent upon the sustainability of the primary tax demand.

Court's interpretation and reasoning: Since the primary demands for service tax were found unsustainable, the Tribunal reasoned that the imposition of interest and penalties did not arise.

Key evidence and findings: The Tribunal's findings on the unsustainability of the tax demands directly impacted the decision on interest and penalties.

Application of law to facts: The Tribunal applied the principle that without a valid tax demand, interest and penalties cannot be imposed.

Treatment of competing arguments: The appellant's position that no interest or penalties should be imposed was accepted, as it logically followed from the Tribunal's findings on the tax demands.

Conclusions: The Tribunal concluded that no interest or penalties were applicable.

SIGNIFICANT HOLDINGS

The Tribunal held that:

"We find that the appellant has not collected any service tax from their clients for the services rendered by them. We also find that the Department has not brought in any evidence to establish that the appellant has intention to evade payment of tax and suppressed any information before the Department. Accordingly, we hold that the demand confirmed by invoking the extended period of limitation is not sustainable and hence, we set aside the same."

"We hold that the appellant is not liable to pay service tax during the normal period of limitation also since their turnover is less than the threshold exemption limit as provided under the respective Notifications issued during the relevant period."

The Tribunal set aside the impugned order and allowed the appeal, granting consequential relief as per law.