Dept cannot Extend Time Limit for Recovery of Service Tax when Assessee has Valid Explanation for Its Default: Delhi HC [Read Order]

Finance Act - Delhi High Court - taxscan

A division bench of the Delhi High Court, last week, held that the time limit for recovery of Service Tax under section 73 of the Finance Act, 1994 cannot be extended by the Department if the assessee has valid explanation for the default.

In the year 2001, assessee was granted with license to collect for sale of airport entry tickets to visitors to the IGI airport, Delhi and the Chhatrapati Shivaji International Airport, Mumbai by the Airport Authority of India. Initially, the assessee was not obliged to collect service tax on the entry tickets, but the AAI granted authority for the same in March 2005.

The department by invoking the extended period of limitation under clause (d) of the proviso to Section 73 (1) of the FA, held that the assessee failed to pay service tax the period from 10th September 2004 to 1st March 2005.

Though the assessee contended that the demand was barred by limitation, the ACST held that the failure of the Assessee to pay service tax for the above period 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 as applicable …….”

On appeal, the CESTAT upheld that order of the department by pointing out that the invocation of extended period of limitation by the Department was justified.

Quashing the demand, Justices S Muralidhar and Prathiba M Singh noted that “the Assessee does not deny that it did not collect service tax for the above period. But it has 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.”

Read the full text of the Order below.

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