2025 (4) TMI 1393 - AT - Service Tax

Time limitation for issuance of SCN - SCN issued beyond the statutory limitation period prescribed under Section 73 of the Finance Act 1994 - suppression of facts or not - HELD THAT - In the case of Uniworth Textile Ltd Vs CCE Raipur 2013 (1) TMI 616 - SUPREME COURT as well as Continental Foundation Joint Venture Holding Vs CCE Chandigarh-I 2007 (8) TMI 11 - SUPREME COURT the Hon ble Supreme Court held that the expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as fraud or collusion and therefore has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties omission by one party to do what he might have done would not render it suppression. In the case of section 73 of the Finance Act the words suppression is not preceded by wilful. It is clear that the word suppression of facts has not been qualified with the word wilful . In other words mere suppression of facts is enough to invoke the extended period under the Service Tax law and impose penalty under section 78 of the Act. Hon ble Andhra Pradesh High Court in the case of Nizam Sugar Factory Ltd Vs CUE 1986 (3) TMI 84 - HIGH COURT OF ANDHRA PRADESH AT HYDERABAD has held that mensrea is not an essential ingredient for imposing penalty. Conclusion - The extended period of limitation is held to be rightly invoked due to suppression of facts by the appellant in their ST3 returns despite disclosure of actual income in Income Tax returns. The department has rightly invoked the extended period of limitation. Accordingly the appeal filed by appellant is liable to be dismissed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the issuance of the Show Cause Notice (SCN) beyond the statutory limitation period prescribed under Section 73 of the Finance Act, 1994, is barred by limitation.

2. Whether the extended period of limitation under the proviso to Section 73(1) of the Finance Act can be invoked in the facts of the present case, specifically whether there was suppression of facts or wilful misstatement by the appellant.

3. The applicability and interpretation of the term "suppression of facts" in the context of service tax assessment and demand.

4. The relevance and effect of discrepancy between income declared in Income Tax returns and Service Tax ST3 returns filed by the appellant.

5. The applicability of various precedents cited by both parties on limitation and suppression issues.

Issue-wise Detailed Analysis:

1. Limitation for Issuance of Show Cause Notice under Section 73 of the Finance Act, 1994

The relevant legal framework is Section 73 of the Finance Act, 1994, which mandates that the department must issue a notice within thirty months from the "relevant date" for recovery of service tax that has not been levied or paid, or short-levied or short-paid. The proviso to Section 73(1) extends this period to five years if the short payment is due to fraud, collusion, wilful misstatement, suppression of facts, or contravention of provisions with intent to evade tax.

The "relevant date" is defined in Section 73(6) as the date on which the periodical return is filed or the last date for filing such return, as applicable.

In the present case, the SCN was issued on 24.09.2020 for financial years 2014-15, 2015-16, and 2016-17, which was beyond the statutory limitation period of 18 months (thirty months from the relevant date) for each year. The appellant argued that this delay of 2 to 4 years renders the SCN barred by limitation.

The department contended that the extended period of limitation is invokable due to suppression of facts by the appellant, as evidenced by the discrepancy between income declared in Income Tax returns and ST3 returns.

The Court analyzed the timelines and confirmed the delay in issuance of SCN beyond the normal limitation period but proceeded to consider whether the extended period under the proviso is applicable.

2. Applicability of Extended Period of Limitation and Suppression of Facts

The key legal question was whether the appellant suppressed facts or made wilful misstatements to evade payment of service tax, thereby justifying invocation of the extended limitation period.

The Court noted that the appellant declared lower income in ST3 returns compared to Income Tax returns, which was not explained or disclosed to the Service Tax department. The appellant's explanation that the difference was on account of defence pension, salary, and savings bank interest (not taxable under service tax) was accepted to some extent by the Adjudicating Authority, who allowed deductions on these heads. However, the appellant failed to provide proof supporting their claim of export of technical consultancy services, which would have been exempt or zero-rated.

The Court emphasized that under the self-assessment regime, the onus is on the assessee to correctly assess and declare taxable value and pay service tax accordingly. The failure to declare taxable income or turnover in ST3 returns, despite being aware of the actual income, constitutes suppression of facts.

The Court rejected the appellant's contention that filing of Income Tax returns disclosing actual income suffices as disclosure to the Service Tax department. It held that income declared in Income Tax returns does not amount to disclosure of taxable value to the service tax authorities, as the two are distinct statutory regimes with different requirements.

The Court found that the appellant's conduct amounted to deliberate concealment of taxable income and short payment of service tax, thus invoking the extended limitation period under the proviso to Section 73(1).

3. Interpretation of "Suppression of Facts" and Mens Rea

The Court examined precedents on the interpretation of "suppression of facts" and the requirement of mens rea (intention or knowledge) for invoking extended limitation and penalty provisions.

It was noted that the term "suppression" in Section 73 is not qualified by "wilful" and mere suppression of facts is sufficient to invoke extended limitation and penalty. The Andhra Pradesh High Court in a cited case held that mens rea is not an essential ingredient for imposing penalty under service tax provisions.

The Court distinguished the appellant's case from precedents where suppression was not found due to facts being known to both parties or mere omission without intent. Here, the appellant knowingly declared less income to evade tax, which constitutes suppression.

The Court also rejected the appellant's reliance on cases where bona fide belief or confusion about taxability was held to negate suppression, stating that ignorance or assumption without verifying law is no excuse under the self-assessment regime.

4. Effect of Discrepancy Between Income Tax and Service Tax Returns

The Court observed that the discrepancy between Income Tax returns and ST3 returns filed by the appellant was a crucial factor indicating suppression. The department discovered the short payment only after comparing the two sets of returns.

The appellant's failure to disclose the correct taxable turnover in ST3 returns despite filing Income Tax returns showing higher income was held to be deliberate concealment.

The Court held that such concealment deprives the department of the opportunity to assess and collect correct service tax within the normal limitation period, justifying the extended period.

5. Treatment of Competing Arguments and Precedents

The appellant relied on several Supreme Court and Tribunal decisions emphasizing strict construction of extended limitation provisions and requiring proof of suppression with knowledge or intent.

The Court analyzed these precedents and found them distinguishable on facts, as those cases involved either known facts to both parties or bona fide omissions without intent to evade tax.

The department's reliance on various Tribunal decisions was upheld, which held that failure to disclose taxable turnover, even if information is in public domain or Income Tax returns, constitutes suppression if not disclosed to service tax authorities.

The Court also noted that under the self-assessment scheme, the duty to correctly assess and pay tax lies squarely on the assessee, and ignorance or assumptions do not excuse non-compliance.

Significant Holdings:

"The appellant had declared the actual income in their Income Tax returns and less income in their statutory ST3 returns under Service Tax. This short declaration of income clearly shows that appellant wants to evade payment of service tax on the portion of income, which they short declared in the ST3 returns."

"Declaration of income in the IT returns filed with Income Tax department does not tantamount to declaring the taxable values to the service tax department."

"Unless the correct income/taxable values are declared in the ST3 return, the department has no way of knowing about the provisions of services or receipt of taxable consideration by the appellant."

"The appellant failed to declare the differential taxable values to the service tax department which clearly points to suppression on the part of the appellant with an intent to evade payment of service tax."

"Under the self assessment regime, a person providing taxable services is required to assess his tax liability correctly and discharge the same in the proper manner, by the prescribed due dates and file periodical returns showing the above details."

"The words 'suppression' is not preceded by wilful. It is clear that the word 'suppression of facts' has not been qualified with the word 'wilful'. In other words, mere suppression of facts is enough to invoke the extended period under the Service Tax law and impose penalty under section 78 of the Act."

"The department has rightly invoked the extended period of limitation."

The Tribunal upheld the impugned order confirming the demand for service tax along with interest and penalty, dismissing the appeal filed by the appellant solely on the ground of limitation. The extended period of limitation was held to be rightly invoked due to suppression of facts by the appellant in their ST3 returns, despite disclosure of actual income in Income Tax returns.