Extended Limitation Not Invocable When Service Tax Demand is Based Solely on Income Tax Disclosures: CESTAT [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the extended period of limitation under Section 73 of the Finance Act, 1994, cannot be used when the case is based only on information already shared in the assessee’s income tax returns and financial records.

Ajitabh Mishra, the appellant, is a civil contractor who mostly built houses for individuals and friends. He also built a community hall (Samudayik Bhavan) for Rajput Niswarth Seva Sangh. The tax department found, through income tax records, that the appellant had received Rs. 1,32,60,229 during 2013–14 for construction services and had not paid the correct amount of service tax, which they calculated to be Rs. 16,38,964.

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The department issued a show cause notice on October 12, 2018, asking for payment of service tax, interest, and penalty. The adjudicating authority confirmed the demand, and it was later upheld by the Commissioner (Appeals). The appellant then approached the CESTAT.

The appellant’s counsel argued that his work qualified for exemption under Entry 14(b) of Notification No. 25/2012-ST, which gives tax relief for the construction of single residential units that are not part of larger housing complexes.

They also argued that the community hall was built with funds from the government and was for charitable use, so it should not be taxed. He submitted affidavits from homeowners and pointed out that all payments were clearly shown in his income tax returns and financial statements.

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The revenue argued that the appellant did not give proper proof to support his claim for exemption. They said the affidavits had errors and that the appellant had not told the department about the payments to avoid paying tax. They said this justified using the extended limitation period and imposing penalties.

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The bench, led by Judicial Member Binu Tamta, observed that the appellant had already shared all the financial details in his tax returns and balance sheet, and these records were used by the department itself to make the case. The tribunal observed there was no proof that the appellant had tried to hide anything.

Referring to earlier tribunal decisions such as Kamal Lalwani, Balaji Industrial Products Ltd., and Antares Services Pvt. Ltd., the bench said that if everything is already shown in tax records, the department cannot say there was suppression just to apply the extended limitation period.

The tribunal also observed that the show cause notice was issued more than four years after the service was provided, even though the normal time limit was only eighteen months. Since the demand was clearly time-barred, the tribunal did not look into whether the service was actually taxable or exempt. The tribunal set aside the order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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