2017 (11) TMI 1466 - AT - Service Tax

Time Limitation - non-payment of service tax - cable operator service - Whether in this case, longer limitation period under proviso to Section 73 (1) of the Finance Act, 1994 is applicable for demand of service tax for the period from 10.09.2004 to 15.06.2005 raised by show cause notice dated 21.08.2007 and whether penalty is imposable on the Respondent under Section 78 of the Finance Act, 1994? - difference of opinion - majority order. Held that - where there is no suppression, the pre-condition for applicability of proviso to Section 73 (1) ibid cannot be said to be met and hence, extended period of limitation contemplated therein cannot be invoked - Since, the demand against the appellant was confirmed under the proviso to Section 73 (1) ibid, which is not maintainable, there is no requirement of any further analysis with regard to the revenue neutrality situation - longer period of limitation cannot be invoked for confirmation of the adjudged demand - appeal dismissed - decided against Revenue.

Summary

Issues Involved: Limitation period for service tax demand, Revenue neutrality, Suppression of facts, Penalty imposition under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Limitation Period for Service Tax Demand:
The primary issue revolves around whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, is applicable for the demand of service tax for the period from 10.09.2004 to 15.06.2005, raised by the Show Cause Notice dated 21.08.2007. The Commissioner (Appeals) and the Judicial Member concluded that the demand was barred by limitation, citing that there was no willful suppression of facts with the intent to evade payment of duty. They referenced several Supreme Court decisions, emphasizing that mere failure or inaction does not justify invoking the extended period unless there is a clear intent to evade tax. The Technical Member, however, disagreed, asserting that ignorance of law is not an excuse and that the longer limitation period is applicable due to deliberate non-payment of service tax.

2. Revenue Neutrality:
The Commissioner (Appeals) and the Judicial Member held that the situation was revenue-neutral because the service tax payable by the appellant would have been available as Cenvat credit to the cable operators, who were already paying service tax. They cited various legal precedents to support this view, stating that in a revenue-neutral situation, no malafide intent can be attributed to the assessee. The Technical Member, however, contended that revenue neutrality is only applicable when the tax payable by an assessee is immediately available to him as Cenvat credit, not when it is available to another entity.

3. Suppression of Facts:
The Show Cause Notice alleged suppression of facts but did not specify that it was with the intent to evade payment of tax. The Judicial Member and the Commissioner (Appeals) emphasized that for the extended period of limitation to apply, there must be a clear intent to evade tax, which was not established in this case. The Technical Member argued that the non-payment of service tax was deliberate and thus constituted suppression.

4. Penalty Imposition under Section 78 of the Finance Act, 1994:
The Commissioner (Appeals) set aside the penalties imposed by the Additional Commissioner, which was upheld by the Judicial Member. They held that in the absence of willful suppression or intent to evade tax, penalties under Section 78 were not warranted. The Technical Member disagreed, stating that penalties should be imposed as the non-payment of service tax was deliberate.

Majority Decision:
The Third Member concurred with the Judicial Member, holding that the extended period of limitation could not be invoked due to the absence of willful suppression or intent to evade tax. Consequently, the demand was barred by limitation, and the revenue's appeal was rejected.

Conclusion:
The majority decision favored the respondent, concluding that the extended period of limitation was not applicable and that the demand was time-barred. The appeal by the revenue was thus rejected on the grounds of limitation.