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TMI Blog2023 (4) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... n record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income - merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. Undisputedly, the act of transferring radio frequencies now falls within declared service by virtue of clause (j) of Section 66E of the Act. There would be no reason for the Parliament to amend Section 66E of the Act to specifically include the assignment of the right to use radio frequency spectrum or its transfer as a separate declared service if the same was covered under Section 66E(e) of the Act - the assignment by the Government of the right to use radio frequency spectrum or its subsequent transfer does not constitute declared service under Clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66E(e) of the Act and is thus chargeable to service tax. 5. MTNL seeks to assail the impugned show cause notice, essentially, on four fronts. First, it claims that the show cause notice has been issued beyond the period stipulated under Section 73(1) of the Act. It claims that the extended period of limitation in terms of the proviso to Section 73(1) of the Act is unavailable as it has not made any willful misstatement or suppressed any material fact to evade service tax. 6. Second, it is contended that the impugned show cause notice has been issued without the mandatory pre-consultation. 7. Third, that the compensation received for surrender of frequency is not a taxable service under Section 66E(e) of the Act. The transactions regarding assignment to use radio frequency spectrum and subsequent transfers were specifically included as a declared service by insertion of Clause (j) in Section 66E of the Act by the Finance Act, 2016 with effect from 14.05.2016. MTNL claims that the insertion of a specific clause covering the service clearly establishes that it was not a declared service prior to enactment of the Finance Act, 2016. 8. Lastly, MTNL also seeks to challenge the jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the balance amount of ₹29,09,00,000/-. 14. Respondent no.2 issued summons dated 14.09.2016 and 23.09.2016 under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Act, to the officers of MTNL with respect to an enquiry case regarding evasion of service tax and contravention of the provision of the Act and the Rules made thereunder. By a letter dated 23.09.2016, MTNL filed its response to the said summons. It provided documents relating to the surrender of 800 MHz CDMA and the details of the payments received for the same. 15. Thereafter, respondent no. 2 sent a letter dated 23.09.2016 to MTNL stating that it appeared that MTNL was liable to pay service tax for providing taxable service by way of surrender of Spectrum Rights to the DoT and seeking a time frame within which MTNL would discharge its service tax liability. 16. On the same date, that is, 23.09.2016, the officers of respondent no.2 recorded the statement of one Mr. S.S. Banjara, Deputy General Manager, MTNL. However, according to MTNL, Mr. Banjara was neither summoned nor had dealt with the relevant subject. Subsequently, he sent a retraction letter dated 18.10.2016. 17. Thereafter, respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion equivalent to the value of spectrum for the remaining period of license i.e. upto 09-10-2017 at the rate of auction determined price of 800 MHz spectrum. Following the aforesaid recommendation, the management of MTNL communicated to the DoT that it may be reimbursed compensation equivalent to the value of the spectrum for the remaining period of license at the auction determined price of 800 MHz spectrum. 23. On 23.07.2015, the DoT communicated to MTNL that the entire spectrum held by MTNL in 800 MHz band was put to auction and the payment of compensation would be dealt with separately. MTNL was required to provide the date for vacating the carriers in the given spectrum for the purpose of determining the period of use of the spectrum by the successful bidder. 24. Subsequently, by a letter dated 18.08.2015, the DoT communicated the Cabinet s approval for the proposal for payment of compensation of ₹458.05 crores to MTNL for surrendering of 800 MHz CDMA carriers. This was followed by communications dated 28.03.2016 and 16.06.2016 issued by the DoT conveying the sanction for payment of ₹428.95 crores and ₹29.09 crores to MTNL for surrender of the spectrum (800 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of eighteen months or five years, as the case may be. 28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main question to be addressed is whether the allegation that MTNL had suppressed material facts for evading its tax liability, is sustainable. 29. It is relevant to note that the impugned show cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no requirement for seeking clarifications. Further, there is no provision in the Act which contemplates any procedure for seeking clarification from jurisdictional service tax authority. Clearly, the reasoning that MTNL ought to have approached the service tax authority for clarification, is fallacious. 33. It is also important to note that MTNL had declared the receipt of compensation as income in its books of accounts. The final accounts of MTNL are in public domain. In the circumstances, the allegation that MTNL had suppressed any material facts from the Service Tax Department is wholly without any basis. 34. Mr. Harpreet Singh, learned counsel appearing for the respondents, submitted that the allegation that MTNL had suppressed material facts was based on non-disclosure of the receipt of compensation in its service tax returns. However, he did not contest the contention that there is no provision in the Act to disclose receipt of any funds in the service tax returns, which are not regarded as consideration for rendering services (whether taxable or exempt). In the circumstances, there is no basis for the allegation that MTNL had suppressed any material facts. Mere non-disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smic Dye Chemical v. Collector of Central Excise, Bombay (1995) 6 SCC 117, the Supreme Court had, in the context of the proviso to Section 11A of the Central Excise and Salt Act, 1944, which is similarly worded as the proviso to Section 73(1) of the Act, held It is, therefore, not correct to say that there can be a suppression or misstatement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11-A. Misstatement or suppression of fact must be wilful. 38. In Uniworth Textiles Limited v. Commissioner of Central Excise, Raipur (2013) 9 SCC 753, the Supreme Court referred to the earlier decision in Cosmic Dye Chemical3 and explained that non-declaration would not establish any willful withholding of information if the assessee was in a bona fide belief that the item not disclosed did not attract tax. The relevant extract of the said decision is set out below: 18. We are in complete agreement with the principle enunciated in the above decisions, in light of the proviso to Section 11-A of the Central Excise Act, 1944. However, before extending it to the Act, we would like to point out the niceties that separate the analogous pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28 of the Customs Act is in pari materia with Section 11-A of the Excise Act, we find there is one material difference in the language of the two provisions and that is the words with intent to evade payment of duty occurring in proviso to Section 11-A of the Excise Act which are missing in Section 28(1) of the Customs Act and the proviso in particular 56. The proviso to Section 28 can inter alia be invoked when any duty has not been levied or has been short-levied by reason of collusion or any wilful misstatement or suppression of facts by the importer or the exporter, his agent or employee. Even if both the expressions misstatement and suppression of facts are to be qualified by the word wilful , as was done in the Cosmic Dye Chemical case while construing the proviso to Section 11-A, the making of such a wilful misstatement or suppression of facts would attract the provisions of Section 28 of the Customs Act. In each of these appeals it will have to be seen as a fact whether there has been a non-levy or short-levy and whether that has been by reason of collusion or any wilful misstatement or suppression of facts by the importer or his agent or employee. (emphasis supplied) 39. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. 42. We agree with the contention that the impugned show cause notice was issued beyond the period of limitation and is, thus, liable to be set aside. 43. In view of the above, it is not necessary for this Court to address the other issues raised by MTNL. However, this Court also considers it apposite to consider the question whether the amount received by MTNL would be chargeable to service tax as a receipt for a declared service under Section 66E(e) of the Act. This is essentially for two reasons. First, the conclusion that the extended period of limitation does not apply also rests on the conclusion that MTNL s contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub section (e) section 66E of the Act. It is apparently carried out by MTNL for another person for a consideration. It also appears that the definition of consideration in Explanation (a) of Section 67 of the Act is inclusive, and it includes any amount that is payable for the taxable services provided or to be provided. It means everything, received or recoverable in return for a provision of service, provided or to be provided. Thus, it appears that above said agreeing to surrender/surrendering of spectrum by MTNL was against consideration received by them in the form of monetary compensation or financial support and MTNL appears liable to Service Tax under section 66B of the Act. MTNL were therefore, required to discharge the Service Tax liability on the said consideration which they did not do. It further appears that MTNL had given its agreement on 21.04.2014, therefore, the point of taxation is 21.04.2014 when provision of service is deemed to have been completed in terms of Rule 3(a) of the Point of Taxation Rules. 45. In the present case, MTNL was allocated CDMA spectrum in 800 MHz for two carriers of 1.25 MHz each in Delhi and Mumbai. The said spectrum was being used by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out- (a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998; (b) by a foreman of chit fund for conducting or organising a chit in any manner. Explanation 3.- For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4.- A person carrying on a business through a branch or agency or representational office in any terr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof. 52. Undisputedly, the act of transferring radio frequencies now falls within declared service by virtue of clause (j) of Section 66E of the Act. There would be no reason for the Parliament to amend Section 66E of the Act to specifically include the assignment of the right to use radio frequency spectrum or its transfer as a separate declared service if the same was covered under Section 66E(e) of the Act. 53. In Balaji Enterprises, Madras v Collector of Central Excise, Madras (1997) 5 SCC 268 , the Supreme Court considered the question whether the aluminium scrap generated during the manufacture of utensils and containers out of aluminium circles could be classified as aluminium in crude form under Tariff Item 27(a)(i) of the Central Excise Tariff as in force at the material time. One of the reasons that persuaded the Supreme Court to reject the contention was that the amendment to Item 27 (Aluminium) of the Central Excise Tariff by introduction of Entry (aa). The Supreme Court had observed that If Waste and Scrap was already included in Item No.27(A), there would not have been any ..... 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