2012 (11) TMI 740 - AT - Service Tax

Failure to file Return of Income - Recovery of service tax on GTA services prior to 2004 after validating the provisions post Laghu Udyog Bharati case (1999 (7) TMI 1 - SUPREME COURT OF INDIA) - Held that - Assessee could not be faulted with for not having filed a return after getting himself registered. More particularly, when one considers the language employed in the Proviso below sub-section (1) of Section 68 and the provisions of Section 71A of the Finance Act, 1994, it is not possible to state that the language of the Statute is so clear that any default can be fastened on the respondent-assessee. further, as the matter has been decided by two High Courts in favour of assessees which are directly opposite to the decision given by the Larger Bench and since the Larger Bench has not considered the above decisions of the High Courts, the final order should be passed based on the decisions of the High Courts and not based on the decision of the Larger Bench of Tribunal - demands issued after 2004 or later in respect of the short levies in dispute in case filed by assessees are not maintainable - Consequently, appeals filed by the assessees are allowed. In this case Notice was issued after retrospective amendments made by Finance Act, 2001 but before the retrospective amendments by Finance Act, 2003 and Finance Act, 2004. But the question whether such notices issued after amendment made by Finance Act, 2001 was valid for recovery of taxes short paid during 16-11-97 to 02-06-98 was the issue before the Tribunal in the case of L.H. Sugar Factories Ltd (2004 (1) TMI 111 - CESTAT, NEW DELHI) and the Tribunal answered the question in the negative and the decision has been affirmed by the Hon. Apex Court. Further after amendment made by Finance Act 2004, Revenue issued a corrigendum to the notice dated 01-11-04 quoting the amendments made in Finance Act, 2004. This has to be essentially understood as a notice issued on 01-11-04 when the corrigendum was issued. The ratio of the decisions of the High Courts quoted in para 13 above is to the effect such notices issued in 2004 also cannot be enforced. Therefore in this case also the decision goes in favour of the assessee. So this appeal filed by Revenue is rejected.

Summary

Issues Involved:
1. Validity of Rule 2 (d) (xvii) of the Service Tax Rules, 1994.
2. Retrospective amendments by the Finance Act, 2000 and their applicability.
3. Applicability of Section 73 of the Finance Act, 1994.
4. Decisions of the High Courts versus the Larger Bench of the Tribunal.
5. Specific case of Nova Iron and Steel and the validity of notices issued.

Detailed Analysis:

1. Validity of Rule 2 (d) (xvii) of the Service Tax Rules, 1994:
The primary issue was whether Rule 2 (d) (xvii) of the Service Tax Rules, 1994, which demanded service tax from the receivers of services provided by goods transporters, was ultra vires the Finance Act, 1994. The Supreme Court in Laghu Udyog Bharati v. Union of India [2006] 4 STT 322 (SC) held that the rule was ultra vires as the Act provided for demanding duty only from service providers, not receivers.

2. Retrospective amendments by the Finance Act, 2000 and their applicability:
To counter the defect pointed out by the Supreme Court, the Parliament made retrospective amendments by Section 117 of the Finance Act, 2000, validating actions taken under the said rule. The issue was whether these amendments were sufficient to demand tax from service receivers who had not filed returns or paid taxes during the period from 16-11-97 to 02-06-98.

3. Applicability of Section 73 of the Finance Act, 1994:
Section 73, prior to its amendment on 10-09-2004, provided mechanisms for recovering escaped assessments. The Tribunal in L.H. Sugar Factories Ltd. v. CCE [2007] 8 STT 295 (New Delhi-CESTAT), affirmed by the Supreme Court, held that Section 73 did not apply to returns filed under the newly inserted Section 71A. The Finance Act, 2003, introduced Section 71A retrospectively for the period 16-07-97 to 16-10-98, but it did not enable the issue of demands under Section 73 for that period.

4. Decisions of the High Courts versus the Larger Bench of the Tribunal:
The Larger Bench of the Tribunal in Agauta Sugar & Chemicals v. CCE [2010] 29 STT 60 (New Delhi-CESTAT) concluded that the relevant date for issuing valid demands should be calculated with reference to Section 71A and the amended Section 73. However, various High Courts, including the Gujarat High Court in Eimco Elecon Ltd. and the Kerala High Court in Precot Mills Ltd., held that demands issued in 2004 for liabilities arising from 16-11-97 to 02-06-98 were barred by limitation. The Tribunal decided to follow the High Courts' decisions, citing the hierarchy of Courts and Tribunal.

5. Specific case of Nova Iron and Steel and the validity of notices issued:
In the case of Nova Iron and Steel, the demand was issued on 01-10-01, invoking Sections 66 and 68 of the Finance Act, which were not applicable at the time of service receipt. The Tribunal, referencing the L.H. Sugar Factories Ltd. decision, held that notices issued after the 2001 amendment but before the 2003 and 2004 amendments were invalid. The corrigendum issued on 01-11-04 was treated as a new notice, which was also considered invalid based on High Courts' decisions.

Conclusion:
The appeals filed by the assessees were allowed, and the appeal filed by Revenue was rejected. The Tribunal followed the High Courts' decisions, holding that demands issued in 2004 or later for the period from 16-11-97 to 02-06-98 were not maintainable.