2018 (9) TMI 262 - HC - Service Tax

Extended period of limitation - penalty - non registration, non payment and non filing of returns - bonafide belief - no suppression of facts - Whether the Department was justified in invoking the extended period of limitation and also imposing penalty? Held that - In the instant case, there was no allegation of fraud or suppression or wilful mis-statement against the assessee. The Department, even in the said SCN, stated that the assessee was liable to pay service tax and get himself registered from the year 2007-08 whereas he got himself registered only in the year 2012. The law on the subject as to whether the extended period of limitation could have been invoked when there were two views within the Department itself i.e. when certain Original Authorities hold that the services are taxable services and certain Appellate Authorities hold otherwise - When there is scope for doubt in the mind of the assessee on a particular issue, the longer period under the Proviso to Section 11A of the Central Excise Act, 1944 cannot be invoked. Extended period cannot be invoked - Appeal dismissed - decided against Revenue.

Issues:
1. Extended period of limitation for invoking penalty.
2. Allegation of fraud, suppression, or wilful mis-statement against the assessee.
3. Applicability of the decision in Charanjeet Singh Khanuja case.
4. Justification for invoking the extended period of limitation and imposing penalty.

Issue 1: Extended period of limitation for invoking penalty:
The case involved an appeal by the Revenue against the Customs, Excise and Service Tax Appellate Tribunal's order. The substantial question of law was whether the Tribunal was justified in holding that there was no suppression of facts and that the issue of show cause notice was hit by limitation. The Department issued a show cause notice to the respondent assessee regarding commission received for promoting goods. The Original Authority stated that the assessee did not disclose the actual commission received in the ST-3 returns filed. The Tribunal disposed of the appeal in favor of the assessee, setting aside the orders passed by the Adjudicating Authority and the First Appellate Authority, stating that the demand beyond the limitation period was not sustainable. The question before the High Court was whether the Department was justified in invoking the extended period of limitation and imposing penalties.

Issue 2: Allegation of fraud, suppression, or wilful mis-statement against the assessee:
The Tribunal referenced the decision in Charanjeet Singh Khanuja case, which held that when there are two views within the Department itself on whether the activity of the assessee was taxable, the longer period of limitation cannot be invoked. The High Court noted that there was no allegation of fraud, suppression, or wilful mis-statement against the assessee. The Department did not claim deliberate evasion but stated the assessee was liable to pay service tax from an earlier year. The Tribunal's decision in Charanjeet Singh Khanuja was followed, emphasizing that when there is scope for doubt, the longer limitation period cannot be invoked.

Issue 3: Applicability of the decision in Charanjeet Singh Khanuja case:
The Tribunal's decision in Charanjeet Singh Khanuja case was crucial in this judgment. It highlighted that the Department's contention of suppression was not upheld if there was doubt regarding the taxable nature of the activity. The High Court reiterated the principles from the Charanjeet Singh Khanuja case, emphasizing that the longer limitation period could not be invoked when there were two views within the Department itself. The Tribunal correctly applied the decision in Charanjeet Singh Khanuja, which had attained finality.

Issue 4: Justification for invoking the extended period of limitation and imposing penalty:
The High Court analyzed the law on invoking the extended period of limitation, citing the Supreme Court's decision in Continental Foundation Jt. Venture case. The Court emphasized that suppression must involve deliberate intent to evade payment of duty. In this case, the Department did not prove fraud or wilful mis-statement by the assessee. The Tribunal's decision aligning with Charanjeet Singh Khanuja case was upheld, stating that when there is doubt, the longer limitation period cannot be invoked. The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision and answering the substantial question of law in favor of the assessee.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of doubt in invoking the extended period of limitation and penalties. The judgment relied on legal precedents to determine that in the absence of fraud or suppression, the longer limitation period cannot be applied. The decision in Charanjeet Singh Khanuja case played a significant role in determining the outcome of the appeal, ultimately favoring the assessee against the Revenue.

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