2021 (6) TMI 679 - HC - Service Tax

Intent to evade service tax or not - activities during the period 16.07.2001 to 31.03.2005 - advances received during the period 16.06.2005 to 31.12.2005 - justification for invocation of extended period of limitation for demanding of service tax, as contended? - HELD THAT - The respondent had applied and obtained registration under various categories of services as guided by the authorities of the appellant-Revenue. It is also evident that the authorities, who informed the respondent that its activities would get covered by photography service, scientific or technical constancy service and commercial training and coaching service etc., are guided by Revenue considerations alone and they have not kept in mind the nature of activity undertaken by the respondent- NRSA and area of operation of its activities, apart from the important role it plays in the affairs of this nation. The appellant-Revenue authorities initially directed the respondent-NRSA to obtain registration under the three categories which was duly adhered to by obtaining registration on 14.02.2005. Upon obtaining registration, the appellant-Revenue saddled the respondent-NRSA with the show cause notice for the period prior to registration by invoking the provisions of Section 73(1)(a) of the Finance Act. To justify the action of invocation of extended period of limitation, it has been stated that since, the respondent has been rendering taxable service and failed to observe statutory provisions for registration and payment of service tax, there was suppression of material fact - the Tribunal held that the extended period of limitation cannot be invoked in this case and the demand if any, can only be survived within the normal period of limitation. There is no incentive for the respondent-NRSA to resort to evasion of tax which could result either in the profits soaring higher or any individual being benefited. On the other hand if there existed a liability, the respondent could have factored the same in its budget proposals and sought for release of more funds from the Government to discharge its liability. Thus, it is only flow of funds from one pocket to the other pocket of the Government and would not result in any gain either to the organization or to any individual. In this view of the matter, it is absurd to even suggest that the respondent had suppressed facts with an intent to evade payment of tax, and mulct it with payment of service tax by invoking the extended period of limitation. The focus of the organizations like the respondent-NRSA is definitely not on either resorting to tax evasion or tax planning which would benefit the establishment, but is focused in its core activity of research and assisting the other agencies of Government in various projects. The said fact was completely lost sight by the appellant-Revenue while passing the Order-in-Original, which however, has been rightly taken note by the Tribunal. This court is of the view that in the given facts and circumstances, the Tribunal has given cogent reasons for holding that the extended period of limitation under Section 73(1)(a) of Finance Act, 1994 would not be invocable - the order of the Tribunal waiving all penalties by invoking Section 80 of the Finance Act, is also rightly justified. Appeal dismissed.

Summary

Issues Involved:
1. Invocation of extended period of limitation under Section 73(1) of the Finance Act, 1994.
2. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Classification of services provided by the respondent under taxable categories.
4. Waiver of penalties under Section 80 of the Finance Act, 1994.

Detailed Analysis:

1. Invocation of Extended Period of Limitation:
The primary issue was whether the respondent had any intent to evade service tax, justifying the invocation of the extended period of limitation for demanding service tax. The Tribunal observed that the respondent, being an autonomous organization under the Department of Space, Government of India, did not have any personal interest in evading service tax. The Tribunal concluded that the respondent's failure to disclose activities was not due to fraud, collusion, or willful suppression of facts but possibly due to a genuine belief of non-liability. Hence, the extended period of limitation could not be invoked, and the demand would only survive for the normal period of limitation. The High Court agreed with this finding, emphasizing that the respondent's activities were essential for national safety and security and not driven by profit motives. The court also noted that attributing fraud or suppression to scientists and academicians could have a demoralizing effect and was not in the public interest.

2. Applicability of Penalties:
The Tribunal found no evidence of willful suppression of facts with an intent to evade payment of service tax. It held that the respondent, being a governmental organization, did not gain anything by not paying service tax. The High Court upheld the Tribunal's decision, stating that the respondent's focus was on research and assisting government agencies rather than evading taxes. The court emphasized that the respondent could have included any tax liability in its budget proposals and sought additional funds from the government, making the idea of tax evasion absurd.

3. Classification of Services:
The respondent contended that its activities primarily involved survey and map making, which should be classified under Section 65(105)(zzzc) of the Finance Act, 1994, and not under photography services or scientific and technical consultancy services. The Tribunal did not provide a detailed discussion on this primary contention but focused on whether the demand under the heads of photography service and scientific and technical consultancy service could be sustained. The High Court did not delve into this issue further, as it was not the primary focus of the appeal.

4. Waiver of Penalties under Section 80:
The Tribunal invoked Section 80 of the Finance Act, 1994, to waive the penalties imposed under Section 78, citing the absence of willful suppression of facts. The High Court found this decision justified, noting that the respondent's activities were not driven by profit motives and that penalizing the organization would not serve any practical purpose. The court also expressed displeasure at the revenue authorities for approving the appeal without considering the respondent's critical role in national safety and security.

Conclusion:
The High Court dismissed the revenue's appeal, upholding the Tribunal's findings that the extended period of limitation could not be invoked and that penalties were rightly waived. The court emphasized the respondent's governmental nature and its focus on research and national security, which negated any intent to evade taxes. The appeal was dismissed with costs, and the revenue was directed to pay ?10,000 to the Telangana High Court Legal Services Committee.