Extended period is not invocable, when penalties were waived off on the ground of interpretational issue being involved

[Bimal jain]

Dear Professional Colleague,

Extended period is not invocable, when penalties were waived off on the ground of interpretational issue being involved

We are sharing with you an important judgment of the Hon’ble CESTAT, New Delhi, in the case of Sankhla Udyog Vs. Commissioner of Central Excise and Service Tax, Jaipur [2014 (12) TMI 614 - CESTAT NEW DELHI ] on following issue:

Issue:

Whether extended period is invocable, when penalties were waived off on the ground of interpretational issue being involved?

Facts and background:

In the instant case, Sankhla Udyog (“the Appellant”) was engaged in rendering Repairs and Maintenance Services. A Show Cause Notice was issued to the Appellant by invoking the extended period alleging that there was a difference between the amount shown in their ledger and in the Service Tax Returns (ST-3) on which the Appellant had not paid Service tax and the same was liable to be recovered along with interest and penalty.

The Appellant contended that prior to June 16, 2005, Repair service other than under a Maintenance contract was not liable to Service tax and thereafter, they became eligible for Small Scale Exemption under the erstwhile Notification No. 6/2005-ST dated March 1, 2005 effective from June 16, 2005. Further, the difference between the figures shown in the ledger and in the ST-3 occurred because in the ledger the figures were shown on accrual basis whereas in ST-3 the figures were shown on actual realization basis and that there had been no suppression or wilful mis-statement on their part.

However, the Adjudicating Authority confirmed demand on the Appellant by invoking extended period but waived off penalties under Section 80 of the Finance Act, 1994 (“the Finance Act”) on ground that there was interpretation of law involved.

Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi, inter alia, questioning invocation of extended period when penalty was waived off under Section 80 of the Finance Act on the ground of interpretation of law being involved.

Held:

The Hon’ble CESTAT, Delhi held that when benefit of Section 80 of Finance Act, 1994 has been extended for not imposing any penalty, it clearly shows that the ingredients required for invoking extended period are not present in the instant case. Indeed in the entire

Adjudication Order there is no word as to how the extended period is invocable. Hence, the extended period is not invocable.

It was further held by the Hon’ble Tribunal that once the Appellant explained the reason for mismatch between the figures of their ledger and in their ST-3 return, a clear finding was required to be given by the Adjudicating Authority instead of brushing it aside on the ground that it was not possible to verify their claim.

Hence, the Adjudicating Order was set aside and matter was remanded back to decide the same afresh but without invoking the extended period.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards,

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

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