2014 (5) TMI 986 - HC - Service Tax

Demand of service tax - Clearing and Forwarding agents - extended period of limitation - Assessee contends that they were acting merely agent of the client and their activity did not come within the purview of Section 65(72) of the said Act, as they did not undertake services, normally rendered by Clearing and Forwarding agents - Third show cause notice issued while 2 notices already existing - whether on the date of issue of notice, all the ingredients of Section 73 (1)(a) of the Act were available - Penalty u/s 76 - Held that - In the present case, there is no dispute that the appellant has filed return in ST-3 for the relevant period. It is not the case of the revenue also that notice under Section 73(1)(a) of the Act has been issued for non-filing of return under Section 70 for a presecribed period. Notice has been issued on the allegation that the appellant had not disclosed fully and truly all material facts required for verification of the assessment under Section 71 and it amounts to escaped assessment. First notice was server as on 18.4.2002 for the period 1.9.1999 till the date - assessee submitted the reply - second notice was issued on 12.5.2003, under Section 71(2) for verification of ST-3 returns for the period 1.9.1999 to 30.9.2003. - appellant filed reply on 28.5.2003 and submitted all the details. - no order was passed against both the notices - This shows that he was fully satisfied that there is no escaped assessement or has been under assessment. When the third notice under Section 73(1)(a) of the Act had been issued on 6.9.2003 by the Deputy Commissioner, in pursuance of which the impugned order has been passed, the complete facts and details relating to the impugned transactions, namely, copy of the contract, gross amount received, the amount received towards remuneration, etc. were made available, therefore, it cannot be said that at the time of issue of notice, there was any material with the Deputy Commissioner to believe that by reason of omission or failure on the part of the appellant to disclose fully and truly all material facts, the value of taxable service has escaped assessment or has been under-assessed or service tax has not been paid. Deputy Commissioner failed to make out any case that he had the material to believe that there was omission or failure on the part of the assessee to disclose fully and truly all material facts and, therefore, we are of the view that the Deputy Commissioner has illegally invoked the provisions of Section 73(1)(a) of the Act and exercised the power to raise the demand under Section 73(1)(a) of the Act. Since the demand is not sustainable, the consequential penalties are also not sustainable. - Decided in favour of assessee.

Issues Involved:
1. Legality of the third show cause notice dated 23.9.2003.
2. Sustainability of the adjudicating order dated 14.2.2008.
3. Validity of the show cause notice under section 73(1)(a) of the Finance Act, 1994.
4. Classification of the appellant's activities under "consignment agent" and the taxability of the demand.
5. Imposition of penalty under Section 78 of the Finance Act, 1994.
6. Validity of the Tribunal's order dated 16.8.2013 allowing the Departmental Appeal.
7. Applicability of the amended provisions of Section 76 of the Finance Act, 1994.

Detailed Analysis:

1. Legality of the Third Show Cause Notice Dated 23.9.2003:
The appellant contended that the third show cause notice was illegal since two previous notices had already been issued. The Tribunal found that the first notice dated 9.10.2002 did not specify the service tax amount and no adjudication occurred. The second notice dated 20.5.2003 was for document verification under Section 71(2), not for assessment. Thus, the third notice was deemed valid as it was the first comprehensive notice for assessment.

2. Sustainability of the Adjudicating Order Dated 14.2.2008:
The Tribunal upheld the Commissioner's order confirming the service tax demand and penalties. However, the High Court found that the delay of four and a half years in passing the order without explanation was unjustified, referencing the decisions in Hindustan Lever Ltd. v. Union of India and Universal Generics Pvt. Ltd. v. Union of India.

3. Validity of the Show Cause Notice Under Section 73(1)(a) of the Finance Act, 1994:
The High Court emphasized that for invoking Section 73(1)(a), there must be a "reason to believe" based on omission or failure to disclose material facts fully and truly. The appellant had filed returns and provided all necessary documents. The Court found no material to justify the belief of escaped assessment, rendering the notice under Section 73(1)(a) invalid.

4. Classification of the Appellant's Activities Under "Consignment Agent" and Taxability:
The Tribunal classified the appellant's activities under "consignment agent" as per Section 65(16) and 65(72) of the Finance Act, 1994. The High Court noted that the appellant performed additional tasks like cutting/bending and bundling, which were not typical of a consignment agent. The Court found that the appellant's activities did not strictly fall under the "consignment agent" category, questioning the taxability under this classification.

5. Imposition of Penalty Under Section 78 of the Finance Act, 1994:
The Tribunal upheld penalties under Sections 76 and 78, citing the Delhi High Court decision in Bajaj Travels Ltd. v. Commissioner of Service Tax. However, the High Court found that since the primary demand was unsustainable, the consequential penalties were also invalid.

6. Validity of the Tribunal's Order Dated 16.8.2013 Allowing the Departmental Appeal:
The Tribunal allowed the Departmental Appeal based on the amended provisions of Section 76 applicable from 18.4.2006. The High Court found that the Tribunal did not adequately address the appellant's objections regarding the delay and the validity of the third show cause notice, thus invalidating the Tribunal's order.

7. Applicability of the Amended Provisions of Section 76 of the Finance Act, 1994:
The Tribunal applied the amended provisions of Section 76 for the period from 18.4.2006 to 9.5.2008. The High Court noted that the demand pertained to a period before the amendment, and applying the amended provisions retrospectively was not justified.

Conclusion:
The High Court quashed the order of the Commissioner, Central Excise dated 14.2.2008, and the Tribunal's order dated 16.8.2013, finding them unsustainable due to lack of jurisdiction and necessary ingredients for invoking Section 73(1)(a) of the Finance Act, 1994. The questions of law raised in the appeals were decided in favor of the appellant.

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