In a significant case, the Chandigarh bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that demand for an extended period is not sustainable when the entire service tax on outdoor catering with interest paid before the issue of Show Cause Notice (SCN). The decision was rendered on appeal challenging the impugned order passed by the Commissioner of Central Excise and Service Tax, which confirmed the demand of service tax amount to Rs. 55,66,971/- by invoking the extended period of limitation under Section 73(1) of the Finance Act, 1994 and appropriated the whole amount paid by the appellant.
M/s GSKCH Employees Co-Operative, the appellant is a cooperative society registered under the Punjab Co-operative Societies Act, 1961. The Appellant is engaged in providing the canteen services to M/S GlaxoSmithKline Consumer Healthcare Pvt. Ltd. (GSKCH Ltd.) pre19.09.2002. The employees of GSKCH Ltd. formed the present co-operative society i.e., the Appellant for supply of meals and light refreshments to the employees of GSKCH Ltd.
All the employees of GSKCH Ltd are members of the Appellant Society. The Appellant is registered as a “service provider” under “outdoor catering services” and also under VAT. Also, in cases of losses in any particular financial year, the Appellant often receives a subsidy from GSKCH Ltd.
The Appellant serves the food items to the employees of GSKCH Ltd. in consideration of some money on which VAT was duly been discharged by the Appellant during the Relevant Period. Also, on the amount received as a subsidy, no service tax was deposited by the Appellant in light of the settled law in sales tax regarding the non-leviability of VAT on amounts received as subsidy.
On these allegations, a show cause notice was issued to the appellant proposing to recover service tax of Rs. 57,66,971/- for the applicable services of outdoor catering services along with applicable interest and penalty by invoking the extended period of limitation. After following the due process, the Commissioner of Central Excise and Service Tax confirmed the demand by the impugned order.
The appellant is only contesting the imposition of penalty under Sections 77 and 78 of the Finance Act. She further submitted that the appellant has already paid service tax demand along with interest suo-moto before the issuance of the show cause notice and without any insistence from the department and therefore the extended period of limitation invoked by the department under Section 73(3) of the Act is not applicable as the appellant has not suppressed the facts to evade the payment of service tax.
It was evident that the appellant reconciled his accounts and paid the service tax along with interest much before the issuance of the show-cause notice. Further assessee has also accepted that the CENVAT credit was wrongly taken on account of clerical mistakes committed by the officers who were handling Service Tax matters and the Finance Manager of the unit who was handling the service tax matter had also resigned.
On various decisions, it was held that “if the service tax is paid along with interest before the issuance of the notice, then under Section 73(3) of the Finance Act, the Department is precluded from issuing the show-cause notice.”
A two-member bench comprising Mr S S Garg, Member (Judicial), and Mr. P. Anjani Kumar, member (technical) observed that show cause notice was issued merely on audit objections and no suppression can be alleged merely on audit objections.
The bench held that the appellants are not liable to pay penalties under Sections 77 & 78 and allowed the appeal of the appellant by setting aside the penalties on the appellant.
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