New facts surfaced during investigation and would not have become known but for investigation amounts to wilful suppression to evade tax – High Court
In a recent judgment, Patna High Court has held that where facts surfaced during investigation were not earlier known to them and they would not have come to know it if the investigation would not have taken place amounts to wilful suppression to evade tax.
ABCAUS Case Law Citation:
4630 (2025) (07) abcaus.in HC
Important Case Laws relied upon by Parties:
M/S Kanak Automobiles Private Limited Versus Union of India and Others
Union of India Versus Rajasthan Spinning and Weaving Mills
M/s Power Spectrum versus Union of India and Another
M/s Usha Rectifiers Corporation India Limited versus Commissioner of Central Excise
In the instant case, the Petitioner assessee had filed a writ application for setting aside the demand-cum-show cause notice issued by Asst. Commissioner of CGST and Central Excise for the financial years 2015-16 and 2016-17 whereby the Petitioner was called upon to show cause as to why the demand for payment of service tax an equivalent penalty and further interest be not imposed upon him. The petitioner had also challenged the consequent order passed confirming demand of service tax, interest and an equivalent penalty.
It was submitted before the Hon’ble High Court that in the present case, Dy. Commissioner of CGST and Central Excise had invoked the extended period of limitation alleging that the petitioner had suppressed the facts which have been revealed during investigation and it was done with sole intent to evade payment of service tax.
It was submitted that the petitioner was an individual running a travel agency. He was receiving money on account of sale of tickets and in lieu of sale of tickets, the petitioner was receiving commission.
It was submitted that under the provisions of the Service Tax Laws, he would be liable to pay service tax only to the extent of commission received on booking of travel tickets. It was his stand that in terms of the provisions of the Finance Act, 1994 (the Act), no tax is payable on the gross value received and the liability, if any, is limited to the rendition of service that too after abatement as prescribed under the notifications issued under the Act.
It was also submitted that the notices for the relevant Assessment Year were barred by limitation. According to him, the period of limitation as prescribed at the relevant time under proviso to Section 73(1) of Act of 1994 being only 12 months, the demand cum-show cause notice was liable to be held bad in law being barred by limitation. He further submitted that the impugned order was also beyond the period prescribed in clause (b) of Sub-Section (4B) of Section 73 of the Act.
It was submitted that the petitioner had not evaded any payment of service tax deliberately with a willful intent to evade payment of service tax and the calculation of service tax on the gross value of service contrary to the provisions of the Act of 1994, in no view of the matter would form part of suppression with a view to evade payment of service tax.
In support of his contentions, the Petitioner relied upon various judgments of Hon’ble Supreme Court and Hon’ble High Courts.
The Petitioner also placed reliance on the decision of the Co-ordinate Bench of the High Court to submit that the period prescribed under Section 73(4B) of the Act of 1994 cannot be extended for an inordinate period and the order having been passed after three and half years from the date of issuance of show cause is to be held as barred by limitation.
The Petitioner also relied upon the CBIC Circular dated 13th December, 2023 being F. No. CBIC20004/3/2023-GST. It was contended that the said Circular clearly says that only in the cases where the investigation indicates that there is material evidence of ‘fraud’ or ‘wilful mis-statement’ or ‘suppression of fact’ to evade tax on the part of the taxpayer, provisions of Section 74(1) of Central Goods and Service Tax Act, 2017 (in short ‘CGST Act’) would be invoked for issuance of show cause notice and such evidence should also be made a part of the show cause notice.
It was submitted that the words ‘fraud’, or any ‘wilful mis-statement’ or ‘suppression of facts to evade tax’ as occurring under Section 74(1) of the CGST Act had fallen for consideration in view of the judgment of the Hon’ble Supreme Court.
The Department submitted that the petitioner had been given ample opportunity to submit relevant documents required for ascertaining liability of service tax. However, the first letter was returned undelivered by the postal authority with remarks “LEFT”. Further, another letter and reminder letter were sent on new address as reflected on the GST portal to provide required documents and information. These letters were also returned undelivered by the postal authority with the remarks “LEFT”. The same letters were also sent on registered e-mail ID but the petitioner neither submitted his reply nor submitted any relevant documents. In these circumstances, in absence of any clarification from the petitioner, the show cause was issued on the basis of available data as received from the Income Tax Department for the corresponding period and service tax liability had been determined on the basis of data of sale of service declaration in the Income Tax Return (ITR) during the relevant period.
It was further submitted that conduct of the petitioner may be noticed from the uncontroverted statements made in the counter affidavit. The petitioner had been changing his stand before the respondent authority. Initially, the petitioner in his written reply submitted in response to the show cause notice stated that his firm and he were separate entities although both are having same Permanent Account Number (PAN). The respondent authority had found that in this way, he tried to circumvent the issue with respect to present liability to pay service tax. It had been noted that the proprietor and individuals are considered the same person and for this very reason, the same ‘PAN’ for the trade name and for the individual in the instant case was issued as both the entities are same and equal in the eye of law. As regards the merit of the case, the petitioner took a stand that due to fire in his establishment, all the documents have been destroyed and he is not in a position to submit anything in support of his claim but all of a sudden in response to personal hearing, later on, the petitioner changed his stand and came out with a submission that they were providing services of travel agent. However, in support of this submission no valid much less any cogent documentary support had been provided.
For invoking extended period of limitation, the Department relied upon the judgment of the Hon’ble Supreme Court which held that where the knowledge of manufacture came to be acquired by the department only subsequently and in view of non-disclosure of such information by the appellant and suppression of relevant facts, the extended period of limitation was rightly invoked by the department.
The Hon’ble High Court observed that on going through the various judicial pronouncements as to the subject that what would constituent a fraud, suppression or collusion, in the facts of the instant case the petitioner having surrendered his service tax registration had not disclosed the transactions in ST-3. The Taxing Authority were not aware of this, they were looking for cooperation on the part of the petitioner, they called for relevant information and records during investigation but the petitioner did not provide those information to the Taxing Authority. In such circumstance, if the Taxing Authority has taken a view that it is a case of suppression and the facts which have surfaced during investigation were not earlier known to them and they would not have come to know it if the investigation would not have taken place, cannot be found fault with.
The Hon’ble High Court opined that prima-facie no jurisdictional error had been committed by the respondent no. 2 or respondent no. 3 in invoking the extended period of limitation of five years under proviso to Sub-Section (1) of Section 73 of the Act of 1994.
As a result, the Hon’ble High Court declined to interfere with the demand-cum-show cause notice and the impugned order on jurisdictional issues. The petitioner was advised to avail his remedy of statutory appeal before the Appellate Authority.
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