2020 (7) TMI 233 - AT - Service Tax

Extended period of limitation - Validity of Show cause notice where service tax has been paid before issuance of SCN - Section 73(3) - Demand of service tax - reverse charge mechanism (RCM) - notification dated 03 March, 2009 - It has been contended on behalf of the Appellant that since the ECB facility for setting up the power project was to be consumed within the SEZ, it was entitled to exemption from service tax on the taxable services provided to the Appellant under the notification dated 31 March, 2004 - Circular dated 18 May, 2011 - extended period of limitation - validity of issuance of SCN - HELD THAT - Though sub-section (1) of section 73 of the Act provides that where service tax has not been paid, the Central Excise Officer may serve notice on the person chargeable with the service tax requiring him to show cause why he should not pay the amount specified in the notice, but sub-section (3) of section 73 also provides that where any service tax has not been paid, the person chargeable with the service tax may pay the amount of such service tax before service of the notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1). The Appellant paid the service tax before service of the show cause notice and informed the Central Excise Officer of the payment in writing - The Commissioner has merely stated that since the extended period of limitation under the proviso to section 73 (1) had been invoked, the benefit of sub-section (3) of section 73 will not be available to the Appellant. The issue as to whether sub-section (4) of section 73 of the Act would apply in the present case can be considered together with the contention raised on behalf of the Appellant that the extended period of limitation provided for under the proviso to section 73(1) of the Act could not have been invoked because the conditions for invocation are identical in both the situation - It is seen that sub-sections (1) (4) of section 73 of the Act do not mention that suppression of facts has to be wilful since wilful precedes only mis-statement - It is, therefore, clear that even when an assessee has suppressed facts, the extended period of limitation can be invoked only when suppression is wilful with an intent to evade payment of service tax. Extended period of limitation - HELD THAT - According to the Commissioner, it would be a case amounting to deliberate non-declaration and suppression of vital information with a wilful intention to evade payment of service tax . The Appellant, according to the Commissioner, had not furnished the required details of payment of upfront fee either in the ST-3 returns or in any other way to the Department - The Appellant had, in reply to the show cause notice, explained that the extended period of limitation under the proviso to section 73 (1) of the Act could not have been invoked and also explained why the provisions of sub-section (4) of section 73 could not have been applied. The show cause notice could not have been issued as the Appellant had paid the service tax with interest before the service of the show cause notice and had also informed the Department of this fact. Validity of issuance of SCN - HELD THAT - The Appellant is justified in asserting that the show cause notice could not have been served upon the Appellant under sub-section (1) of section 73 of the Act since the Appellant had deposited the entire tax with interest before the service of the show cause notice. The Department also could not have relied upon the provisions of sub-section (4) of section 73 of the Act as the conditions set out therein were not satisfied. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Demand of service tax on ECB facility of US$ 500 million from London Bank.
2. Demand of service tax on ECB facility of US$ 99 million from Hong Kong Bank.
3. Applicability of exemption under SEZ notifications.
4. Invocation of extended period of limitation.
5. Imposition of penalties under sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Demand of Service Tax on ECB Facility of US$ 500 Million from London Bank:
The Appellant contended that the ECB facility of US$ 500 million from London Bank was for a power project in the SEZ and thus exempted from service tax under the notification dated 31 March, 2004. The upfront fee paid on 25 June, 2008, was refunded on 19 November, 2009, as the ECB facility was cancelled. The Commissioner denied the exemption, reasoning that the Appellant's registered office was outside SEZ and thus the services were not wholly consumed within SEZ. However, the Tribunal found this reasoning flawed, noting that the location of the registered office is immaterial and that services for authorized operations within SEZ are exempt. The Tribunal also noted that the Department failed to show any part of the service was utilized outside SEZ. Consequently, the Appellant was entitled to exemption for the ECB facility of US$ 500 million.

2. Demand of Service Tax on ECB Facility of US$ 99 Million from Hong Kong Bank:
The Appellant initially believed that the liability to pay service tax on a reverse charge mechanism would not arise as ICICI Bank had a registered office in India. Upon receiving summons from the Department, the Appellant sought legal advice and paid the service tax with interest before the issuance of the show cause notice. The Commissioner held that the extended period of limitation was applicable due to suppression of facts. However, the Tribunal found that there was no wilful suppression of facts as the Appellant acted under a bonafide belief and paid the service tax with interest before the notice. The Tribunal held that the show cause notice should not have been issued under section 73(3) of the Act, as the conditions for invoking section 73(4) were not met.

3. Applicability of Exemption under SEZ Notifications:
The Tribunal examined the notifications dated 31 March, 2004, and 3 March, 2009, which provided exemptions for services consumed within SEZ. The Tribunal concluded that the Appellant was entitled to exemption for services consumed within SEZ. The Tribunal rejected the Commissioner’s reasoning that the Appellant's registered office outside SEZ disqualified it from exemption. The Tribunal also noted that the erroneous deposit of service tax and subsequent refund claim by the Appellant did not negate the entitlement to exemption.

4. Invocation of Extended Period of Limitation:
The Tribunal found that the extended period of limitation under the proviso to section 73(1) of the Act was not justified. The Tribunal referred to precedents where "suppression of facts" must be wilful with an intent to evade payment of service tax. The Tribunal observed that the Appellant had no intention to evade tax as any service tax paid would have been refunded under the SEZ notifications. The Tribunal concluded that the conditions for invoking the extended period were not satisfied.

5. Imposition of Penalties under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal held that penalties under sections 77 and 78 were not justified as there was no wilful suppression of facts or intent to evade payment of service tax. The Tribunal noted that the Appellant had acted under a bonafide belief and paid the service tax with interest before the issuance of the show cause notice.

Conclusion:
The Tribunal set aside the impugned order dated 27 December, 2011, passed by the Commissioner, and allowed the Appeal. The Tribunal concluded that the Appellant was entitled to exemption for the ECB facility of US$ 500 million, and the show cause notice for the ECB facility of US$ 99 million was not justified. The Tribunal also held that the extended period of limitation and penalties were not applicable.

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