LIMITATION FOR DEMAND OF SERVICE TAX

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

1. Sec. 66 of the Finance Act, 1994 (‘Act’ for short) provides that the service tax shall be levied by the service providers who are coming the net of service tax.  Sec. 66A of the Act provides for the charging of service tax on services received from outside India.  Sec. 68 of the Act provides for the payment of service tax by the service providers within the time stipulated and in the manner prescribed.   The service tax is remitted to the credit of the Central Government on receipt basis.  The service tax is paid by the service provider on self assessment basis.  Demand of service tax by the department arises when the service provider fails to pay service tax.  Sec. 73A provides that service tax collected from any person is also to be deposited with Central Government.  Sec. 75 provides that interest is payable on delayed payment of service tax.  The Act gives power to the Central Excise Officers to recover the service tax and time limit is also prescribed for such demand of service tax.

LIMITATION:

2. Sec.73 provides that where any service tax-

• has not been levied; or
• has not been paid; or
• has been short levied; or
• has been short paid; or
• has been erroneously refunded

the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short levied or short paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

2.1. Sec.73 (6) defines the terms ‘relevant date’ as-

(i) in the case taxable service in respect of which service tax has not been levied or paid or has been short levied or short paid-

• where under the rules made the provisions of service tax, a periodical return showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
• where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
• in any other case, the date on which the service tax is to be paid under the provisions of service tax or the rules made there under;
• in a case where the service

(ii) in a case where the service tax is provisionally assessed the date of adjustment of the service tax after the final adjustment;

(iii) in a case where any return relating to service tax, has erroneously been refunded, the date of such refund.

2.2. The said limitation of one year will be extended to five years to the department where any service tax has not been paid or has been short paid or short levied or erroneously refunded by reason of –

• fraud; or
• collusion; or
• willful misstatement; or
• suppression of facts; or
• contravention of any of the provisions or the rules with intent to evade payment of service.

Where the service of the notice is stayed by an order of a Court, the period of such stay shall be excluded in computing the aforesaid period of one year or five years as the case may be.

2.3. Errors and omissions are common.  The service provider is to be more vigilant in service tax matters. Regarding the limitation of demand of service tax nearly fifteen case laws are discussed in this article of various types.

3. Relevant case laws:

1. Nirav Industries V. Commissioner of Central Excise & Customs, Rajkot – [2009 -TMI - 202893 - CESTAT, AHMEDABAD]

It is well settled law that, when there are favorable or contradictory decisions holding the field, entertaining bona fide belief by an assessee cannot be faulted upon. The Tribunal held that the demand of tax beyond the normal period of limitation is not justified.   The Tribunal set aside the impugned order.

2. Aditya College of competitive Examinations V. Commissioner of Central Excise, Vishakapatnam – [2009 -TMI - 34639 - CESTAT, BANGALORE],

A part of demand of service tax relates to inclusion of mess charges.   The Tribunal held that by no stretch of imagination, the mess charges collected can be considered as receipt for rendering the services of ‘commercial training and coaching’.  There should always be a nexus between the amount collected and service rendered.   The mess charges have been collected for availing the facility of the mess which is meant for providing food to trainees.   It cannot be brought under the category of receipt for ‘Commercial Training or Coaching’ and subject to service tax.   The show cause notice was issued on some audit objection.   There is no justification for invoking the longer period.

3. Ridhi Sidhi Transport V. Commissioner of Central Excise, Belgaum – [2009 -TMI - 35135 - CESTAT, BANGALORE],

The appellants contended that non application of extended period has not been discussed and no finding has been given by the Tribunal. The Tribunal accepted the contention of the appellant. The Tribunal held that in the interest of principles of natural justice, the final order was recalled and matter would be reheard.

4. Commissioner of Central Excise, Kanpur V. Taj Tours & Travels – [2009 -TMI - 32723 - CESTAT, NEW DELHI],

The respondent is rendering Tour Operator Service.   In the ST-3 returns filed by the respondent, the Tribunal found that clear remarks had been made for exclusion of certain amount from the value of taxable service on the ground that the tax on this amount was to be paid by the Principal Tour Operators. Therefore, in respect of this amount the respondent cannot be accused of suppression of facts. When all the records, as required by the Department had been produced by the respondent for scrutiny their ST-3 returns, it would not be correct to accuse the respondent of willful misstatement, suppression of facts etc., The Tribunal upheld the order of the Commissioner (Appeals) holding that the demand is time barred and that there was absolutely no suppression of any fact or information on the part of the respondent.

5. Korpan Ltd., V. Commissioner of Central Excise, Raigad – [2009 -TMI - 34320 - CESTAT, MUMBAI]

It is now well settled that once suppression or mis-declaration is established, the time limit available to the Department for raising the demand is five years from the relevant date. The present show cause notice invoking the extended period has been issued in October 2006, whereas the earlier show cause notice dated 16.04.2003 was dropped on 28.12.2006.   Further earlier show cause notice was dropped not on the ground of time bar but on the ground that the demand was not sustainable under the category of ‘consulting engineer’ The position would be different had the present demand related to a period after 28.12.2006, i.e., the date of decision in the show cause notice dated 16.4.2003. In other words, the department forms a final view on a matter, it cannot involve extended time limit for the subsequent period.   This is not a case here.   Hence prima facie extended period of limitation seems to be invocable.

6. Mahaveer Generics V. Commissioner of Central Excise, Bangalore – [2009 -TMI - 33412 - CESTAT CHENNAI],

The application is for waiver of pre-deposit of service tax confirmed under the proviso to Sec. 73(1) together with interest and penalty. The appellant, carrying on Consignment Agency Services is liable to pay the service tax under the heading ‘Business Auxiliary Service’. M/s Cipla has been penalized because it is the Principal whose products were being promoted by the appellants.

The Tribunal found that a strong prima  facie case for total waiver has been made out on the ground that the entire demand covers the period from 01.07.2003 to 08.07.2004 and raised in the show cause notice dated 13.06.2006 is barred by limitation as the activity of the appellant was very well within the knowledge of the department and service tax was demanded on it under the category of ‘Clearing and Forwarding Agent’ which demand was set aside by the Tribunal, rejecting the interpretation of the Revenue.  The agreement entered into by the appellant with M/s Cipla was the subject matter of earlier show cause notice and the subject matter before the Tribunal also.   The Tribunal, therefore, held that prima facie, the applicant cannot be held to be guilty of suppression of facts with intent to evade payment of duty so as to attract the extended period of limitation.

7. Essvee Express Logistics Private Ltd., V. Commissioner of Service Tax, Bangalore – 2009 -TMI - 35142 - CESTAT, BANGALORE

As regards the extended period of time, the Tribunal found that the appellants have field Service tax returns on 01.12.2003 for the entire period i.e., from 30.09.2000 to 30.09.2003 which is totally incorrect as the appellant is mandated to file the return half yearly. Hence having filed the returns belatedly the extended period is correctly invoked by authorities.

8. Saurin Investments Pvt. Ltd., V. Commissioner of Service Tax, Ahamedabad – 2009 -TMI - 35213 - CESTAT, AHMEDABAD

The demand is barred by limitation, having been raised beyond the normal period. The appellants were filing regular ST-3 returns. No suppression or misstatement can be attributed to the appellant in which case, the demand would be barred by limitation.  

9. Yadav Security & Crime Investigation V. Commissioner of Central Excise, Ahamedabad – I – [2009 -TMI - 202892 - CESTAT, AHMEDABAD],

The service tax was confirmed against the appellant for providing security services for the period from April 2001 to September 2005.The first show cause notice was issued on19.10.2004 which is within the normal period of limitation.   The Officers searched the premises on 07.10.2005.Thereafter the second show cause notice was issued on 13.10.2006 invoking longer period of limitation. The appellants contended that at the time of issuance of second show cause notice, all the facts were within the knowledge of the Revenue, inasmuch as they had issued the first show cause notice on 19.10.2004. As such second show cause notice is barred by limitation.   The Tribunal, prima facie, found force in the contention of the appellant on the point of limitation.

10. Commissioner of Service Tax V. Kothari Products Ltd., - [2008 -TMI - 30653 - SUPREME COURT],

In the present case the Tribunal has set aside the order-in-original passed by the Commissioner and held that in view of the earlier decision given by the Tribunal revenue was not justified in issuing a fresh show cause notice and the same was barred by limitation as well as by the principles of res judicata.

11. Idea Cellular Ltd., V. Commissioner of Central Excise, Rohtak – [2009 -TMI - 33135 - CESTAT NEW DELHI],

ST-3 return provides the details of service tax paid through CENVAT credit and cash.   The allegation of utilization of credit in excess of 20% is not sustainable.   Demand is beyond normal period of one year is not maintainable.

12. Padam Chand Mutha & Co., V. Commissioner of Central Excise, Jaipur – II – 2009 -TMI - 34222 - CESTAT, NEW DELHI

It was contended by the Revenue that the appellants failed to submit the return and to observe the procedure.    In our view, the Tribunal held that the procedural failure on the part of the appellant was a result of bona fide belief.   As such demand of tax is barred by limitation and the impugned order is liable to be set aside.

13. Nizam Sugar Ltd., V. Commissioner of Central Excise –[2006 -TMI - 47608 - SUPREME COURT OF INDIA],

The Supreme Court held that the extended period is not available to the department for the subsequent show cause notice which was issued based on the same set of facts of the earlier show cause notice.

14. In re – Emerson Climate Technologies (India) Ltd., - 2009 (16) STR 783 (Commr. Appeals)

As regards the grounds of limitation, the lower authority has held that non payment of service tax was pointed out by the Audit Party and the assessee did not disclose the same to the Department till the audit party pointed out the irregularities and accordingly the assessee is found to be guilty of suppression of facts with intend to evade payment of service tax.   Whereas the appellant claims that the extended period of limitation is not available to the department since for the earlier period on the same issue the department had issued show cause notice-cum demand notice and when the department was already aware of the relevant facts in view of the show cause notice it was obligatory on the part of the department to issue show cause notice-cum demand notice for the subsequent period within the limitation period and accordingly the show cause notice-cum-demand notice is time barred.   The Commissioner (Appeals) held that the extended period is not available to the Department. 

15. In Re. Makjai Laboratories – 2009 (16) STR 788 (Commr. Appeals)

The appellant willfully failed to take registration, failed to pay service tax and failed to file the returns which amount to contravention of the Act and Rules.   The extended period is rightly available to the Department.

CONCLUSION:

4. The Department in many a case invoked the larger period for the demand of service tax.  The provisions are interpreted to the convenience of the Department.   Therefore the service tax provider is compelled to agitate before the Tribunals which give rescue to the assessee in many cases.   If there is a fault or delay on the part of the assessee the Tribunals do not show mercy on the service providers by paving way to the Department to proceed to take action according to the provisions of Service tax and rules made there under.