Mere non-payment of service tax was not suppression of material facts for invoking extended period of limitation under proviso to Section 73 (1) of the Finance Act-High Court
ABCAUS Case Law Citation:
ABCAUS 2097 (2017) (10) HC
Important Case Laws Cited/relied upon by the parties:
P.C. Poulose v. Commissioner of Customs & Central Excise (Appeals), Cochin 2008 (10) STR 335 (Tri. Bang)
Commissioner of Central Excise v. P.C.Paulose 2010 (19) STR 487 (Ker.)
Brief Facts of the Case:
The assessee company was granted licences by the Airports Authority of India (AAI) for sale of airport entry tickets to visitors to the airport. As per the assessee company, it was not allowed by the AAI to collect service tax on the entry tickets. The AAI granted the Assessee the authority to collect service tax by a letter dated 2nd March 2005 whereupon the Assessee got itself registered and started collecting service tax from 2nd March 2005 onwards.
Thereafter, the Service Tax Department issued summons to the assessee on 31st May 2005 which according to the assessee company was replied on 14th July 2005. On 7th November 2005 another summons was issued by the Department to the Assessee which was duly replied by the assessee. On 4th December 2006 and 26th March 2007, the “voluntary statements” of the Manager of the Assessee were recorded by the Department.
However, A show cause notice (SCN) dated 4th March 2008 was issued to the assessee for its failure to collect service tax during the period from 10th September 2004 to 1st March 2005 by invoking the extended period of limitation under clause (d) of the proviso to Section 73 (1) of the Finance Act.
The said Show cause notice resulted in an adjudication order dated 6th May 2009 being passed by the Additional Commissioner of Service Tax (ACST). As regards the contention of the Assessee that the SCN was barred by limitation, the ACST held that invoking of extended period of limitation was right as the failure of the assessee to pay service tax amounted to non-disclosure of facts to the Department, resulting into contravention of various provisions of the Act and said Rules aforesaid with intent to evade payment of service tax and education cess.
Aggrieved by the adjudication order, the assessee went before the Commissioner (Appeals), Service Tax (CAST) who dismissed the appeal and concurred with the ACST. The CAST observed that “even if the appellant was not empowered to collect the Service Tax from the visitors, then also he was supposed to pay the appropriate tax, considering the amount collected as inclusive of tax and the demand has been calculated accordingly. It was further observed that the assessee company company was well aware about their liability but visitor suppressed the facts from the department in that equation.
Aggrieved by the orders of the ACST as well as the CAST the Assessee went before the CESTAT which by its interim order waived the pre-deposit and stayed the recovery of adjudicated demand liability.
The Substantial Questions of Law framed/urged for determination:
Whether the Service Tax Department was justified in invoking the extended period of limitation under clause (d) of the proviso to Section 73 (1) of the Finance Act?
Observations made by the High Court:
The Hon’ble High Court observed that in the interim order, the CESTAT took note of the fact that it was the Assessee‟s case that it had not been permitted by the AAI to collect service tax and that as soon as the AAI allowed the Assessee to do so with effect from 2nd March 2005, the Assessee obtained service tax registration and from that date onwards was paying service tax. It was observed by the CESTAT in the context of the decision of the CESTAT, Bangalore which was reversed by the Kerala High Court that the Supreme Court had subsequently affirmed the Kerala High Court and since there were contrary views, suppression cannot be alleged.
The Hon’ble High Court observed that the central issue to be addressed by the CESTAT was whether the Department was justified in invoking the extended period of limitation of five years in terms of Clause (d) of the proviso to Section 73 (1) of the FA. However, CESTAT failed to note certain important dates and therefore came to the erroneous conclusion that the invocation of extended period of limitation by the Department was justified.
The Hon’ble High Court observed that the Assessee did not deny that it did not collect service tax for the concerned period. But it had a valid explanation for not doing so. It is right in questioning the invocation by the Department of the extended period of limitation under cause (d) of the proviso to Section 73 (1) FA since the above facts, far from being suppressed, were known to the Department before the one year period from 1st March 2005 expired.
Regarding the contention of the Department that the mere failure to pay the service tax was by itself is sufficient to conclude that there was suppression of material facts by the Assessee. The Hon’ble High Court observed that it stood negatived by the decision of the Supreme Court opined that the conclusion that mere non-payment of duties is equivalent to collusion or wilful misstatement or suppression of facts was untenable.
The Hon’ble High Court expressed its dissatisfaction in the Department invoking the extended period of limitation under clause (d) of the proviso to Section 73 (1) of the FA.
Questions framed were answered in favour of the Assessee and against the Department by holding that the impugned order passed by the CESTAT was without application of mind and that the CESTAT erred in holding that the extended period of limitation in terms of the proviso to Section 73 (1) of the FA was rightly invoked by the Department.