ONCE THE DEMAND WAS HELD TO BE TIME BARRED THERE WAS NO OCCASION FOR THE TRIBUNAL TO ENQUIRE INTO THE MERITS OF THE CASE

[Mr. M. GOVINDARAJAN]

Section 73 of the Finance Act, 1994 provides that the Central Excise Officer may recover the service tax from the assessee if the same has not been levied or not paid or short levied or short paid or erroneously refunded by issuing a show cause notice to the assessee within 18 months (in the earlier period it is one year) from the relevant date.  If there is an intention to evade payment by means of fraud, suppression of fact etc., the limitation period for issuing show cause notice is 5 years from the relevant date. The Revenue is to prove the case for invoking the extended period of limitation.   If it is not able to be proved the same demand itself is liable to be quashed. There is no requirement to enquire the merits of the case. This has been illustrated by the case law in ‘Commissioner of Customs and Central Excise & Service Tax V. Monsanto Manufacturer Private Limited’ – 2014 (4) TMI 505 - ALLAHABAD HIGH COURT.

In the said case a notice to show cause was issued to the assessee on 21.7.2006 by which an amount of ₹ 9,46,766/- towards service tax along with interest was demanded.  The case of the Department is that on a scrutiny of the balance sheet for the year 2001-012 to 2004-05 and of relevant documents, the Audit team noticed that the assessee had received cold storage fixed rent charges up to 31..32005 in the amount of ₹ 1.46 crores from Hindustan Level Limited for storage of frozen products.  The agreement between the assessee and HLL was for providing clearing and forwarding agent’s service.

The show cause notice is for the period between 2001-02 and 2004-05 ending 31.03.2005. The Revenue contended that the assessee provided a facility for the storage of goods belong to HLL in a cold storage owned by the assessee. The compensation structure stipulated that the assessee would receive a fixed charge of ₹ 3.50 lacks per month for providing the facility of a cold storage and a reimbursement for clearing and forwarding agent expenses at a stipulated rate. The assessee was called upon to show cause as to why it should not be required to pay service tax amounting to ₹ 9,46,766/-

The Adjudicating Authority confirmed the demand with interest and imposed a penalty of ₹ 200 per day till the deposit of the duty subject to a maximum of ₹ 9,46,766/-. Penalties were also imposed at ₹ 500/- under Section 75A and ₹ 1000/- under Section 77. The assessee filed appeal before the Commissioner (Appeals) who reduced the penalty from ₹ 200 per day which was subject to ceiling of ₹ 2 lacs.  The other two penalties were also reduced from ₹ 500/- to ₹ 200/- and from ₹ 1000/- to ₹ 500/-.  The duty was confirmed.

Aggrieved against the order of the Commissioner (Appeals) the assessee filed appeal before the Tribunal. The Revenue also filed appeal before the Tribunal for the reduction of penalty.

On the appeal filed by the Revenue the Tribunal held that the extended period of limitation could not invoked by the Revenue since the condition precedent under Section 73(1) of the Finance Act, had not been fulfilled.   The Tribunal found that for the first time the Revenue wrote a letter dated 27.9.2002 asking assessee to pay tax for the period September 2001 to July 2002.  The assessee also filed reply to the letter. The Tribunal found that fact that assessee is not paying duty on cold storage was known to Department in 2002. Quantum of cold storage charges is already part of agreement and is fixed on monthly basis.   The Tribunal was of the view that extended period based on suppression of fact cannot be invoked and therefore demand beyond period of one year is time barred.

The Revenue contended that the extended period of limitation was validly invoked since the assessee has failed to furnish to the Department information that would indicate that the fixed charges that were levied for the use of a cold storage facility were part of the same agreement under which the assessee had agreed to provide clearing and forward agent services to HLL.  The High Court held that it is clear fact that the assessee was not paying the tax on the fixed monthly charges was known to the Department on 27.09.2002. The Department evidently had knowledge of the agreement between the assessee and HLL under which the payment of cold storage charges on a fixed monthly basis was part of the agreement.   In view of this matter the Tribunal, in the view of High Court, was justified in coming to the conclusion that the extended period of limitation could not be invoked since there was no suppression of fact.

On the appeal filed by the assessee the Tribunal enquired the merits of the case and came to the conclusion that since storage of goods in the cold storage was an essential part of the clearing and forwarding operations of the assessee, cold storage charges are required to be added in the taxable value of services rendered.    Before the High Court the assessee contended that once the Tribunal having come to the conclusion that extended period of limitation could not have been validly applied, the Tribunal could not enquire into the merits of the case.  The High Court viewed that the Tribunal acted outside its jurisdiction in entering upon the merits of the dispute on whether the demand for duty should be confirmed.  Once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues raised by the Revenue.