2023 (3) TMI 584 - HC - Service Tax

Levy of service tax - Fee collected by the SEBI for various activities - in the nature of Discharging of sovereign function or not - non-filing of proper returns - applicability of extended period to the demand of Service Tax in the first Show Cause Notice - demand for normal period as per provisions of section 73(2A) of the Finance Act, 1994 - violation of principles of Natural Justice (second SCN) - legality in remanding back the second Show Cause Notice without considering that the same was issued as a statement of demand under Section 73(1A) of Finance Act, 1994. HELD THAT - In the present case, Paragraph Nos. 7 to 9 of the show cause notice dated 17/03/2016 (first SCN) refers to all the correspondence between the respondent and the Commissioner. However, it does not refer to any specific instances of fraud, collusion, misstatement or suppression of facts indulged in by the respondent. At Paragraph No. 10 of the first show cause notice, the Department only states that it appears from the correspondence referred to therein that the respondent has wilfully suppressed facts from the Service Tax Department with an intention to evade payment of service tax. It does not specify any material particulars of how wilful misstatements or suppression of facts has been indulged in by the respondent or in what manner the acts of the respondent are wilful or with an aim to evade tax. In Cosmic Dye Chemical 1994 (9) TMI 86 - SUPREME COURT , the Hon'ble Supreme Court has also considered a similar issue on the question of what constitutes fraud, collusion or wilful misstatement or suppression of facts for the purpose of invocation of the extension of period of limitation under section 11-A of the Excise Act, where it was held that 1994 (9) TMI 86 - SUPREME COURT - From a reading of the decision of the Hon'ble Supreme Court, it would be incumbent upon the appellant to demonstrate from the correspondence / material on record or on the specific averments made in the first show cause notice, as to how the respondent has indulged in fraud, collusion or wilful misstatement or suppression of facts. In fact all disclosures as required by the earlier notice issued by the appellant were made by the respondent in its correspondence laid before the Appellant. Thus, the finding of fact arrived at by the CESTAT to the effect that there was no suppression, misrepresentation or fraud committed by the respondent, to enable the appellant to invoke the extended limitation clause in Section 73 is proper and based upon the correct appreciation of the record. Accordingly, it is concluded, that the substantial questions raised by the appellant in its appeal on the question of holding that the extended period of limitation was not applicable, do not arise in the present appeal, in view of the specific factual finding arrived at by the CESTAT. The other substantial questions of law sought to be raised, as to whether the CESTAT was right in holding that the respondent was discharging sovereign function does not arise as the CESTAT has clearly refrained from giving its finding on that question. This is evident from reading of the contents of Paragraph Nos.23, 24 and 25 of the impugned order, whereat, the CESTAT had recorded that it has withheld ascertainment of the legality of the claim made by the respondent on the question of whether it was exercising sovereign functions under the SEBI Act and therefore, not liable to pay service tax. Thus, no substantial question of law arises for our determination in the present appeal which is hereby dismissed.

Summary

Issues Involved:
1. Whether the Respondent was discharging sovereign function.
2. Applicability of the extended period of limitation to the demand of Service Tax.
3. Validity of the demand for the normal period under Section 73(2A) of the Finance Act, 1994.
4. Alleged violation of principles of Natural Justice in the second Show Cause Notice.
5. Justification for remanding the second Show Cause Notice.

Summary:

1. Sovereign Function:
The appellant questioned whether the respondent was discharging a sovereign function and thus exempt from service tax. The CESTAT refrained from ascertaining the legality of the respondent's claim that it was performing sovereign functions under the SEBI Act and therefore not liable to pay service tax.

2. Extended Period of Limitation:
The appellant contended that the CESTAT erred in holding that the extended period of limitation under Section 73 of the Finance Act, 1994, was not applicable. The CESTAT found no evidence of fraud, collusion, misstatement, or suppression of facts by the respondent. The Tribunal concluded that the invocation of the extended period of limitation was unjustified based on the material on record.

3. Demand for Normal Period:
The appellant argued that the Tribunal erred in setting aside the demand for the normal period under Section 73(2A) of the Finance Act, 1994. The CESTAT's decision was based on the finding that there was no suppression, misrepresentation, or fraud by the respondent.

4. Principles of Natural Justice:
The appellant claimed that the principles of Natural Justice were violated in the second Show Cause Notice dated 21/02/2018. The CESTAT found that the second notice was issued without giving the respondent a hearing, violating principles of Natural Justice.

5. Remanding the Second Show Cause Notice:
The appellant questioned the justification for remanding the second Show Cause Notice. The CESTAT remanded the notice without considering that it was issued as a statement of demand under Section 73(1A) of the Finance Act, 1994.

Conclusion:
The High Court concluded that no substantial question of law arose for determination. The appeal was dismissed, and the findings of the CESTAT were upheld, particularly regarding the non-applicability of the extended period of limitation and the violation of principles of Natural Justice.