Invocation of Extended Period of Limitation is not Valid In the absence of Deliberate Attempt  to suppress or to miss declare Value of service: CESTAT [Read Order]

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that invocation of an extended period of limitation is not valid in the absence of a deliberate attempt to suppress or to declare the value of service.

M/s. Dinesh Chandra R Agarwal Infracon Pvt Ltd, the appellant participated in a tender floated by Military Engineer Services, Ministry of Defense, Government of India for resurfacing of runaway and aircraft operating areas Suratgarh in the state of Rajasthan. The appellant submitted the bid for the tender on 14th June 2016 and they were declared as a successful bidder. The Chief Engineer issued the letter of acceptance in favour of the appellant on behalf of the President of India.

The appellant entertained a view that their services provided to the Chief Engineer, Military Engineer Services are exempted from payment of service tax vide the notification number 25/2012-ST dated 20.06.2012 as amended from time to time.

Based on the intelligence inputs received by the Directorate Geeral of Goods and Service Tax Intelligence, Ahmedabad, an inquiry was initiated against the appellant regarding the difference in taxable value declared in the service tax returns filed by them as compared to the revenue shown in their financial statements.

On conclusion of the investigation, show cause notice was issued to the appellant on the ground that the appellant is not eligible for exemption under Notification No. 25/2012-ST dated 20.06.2012 as amended and also has misdeclared or suppressed the value of the taxable services. The show cause notice alleged suppression on the part of the appellant and invoked the extended period of limitation as provided for in the first proviso to section 73(1) of the Finance Act, 1994.

The appellant submitted the reply to the said show cause notice. The Commissioner of Central Tax, Gandhinagar confirmed the demand of service tax on the appellant. Mr. Jigar Shah and Mr. Amber Kumrawat appeared for the Appellant and also heard Mr. Rajesh Nathan Authorized Representative of the revenue. On perusal of the records, it was found that the Appellant has largely contested the matter because they are eligible to claim an exemption under Notification No. 12/2012-ST dated 20.06.2012, and in any case, the Appellant has supported the Government of India in the discharge of its sovereign function and therefore, the demand of service tax is not sustainable.

The question was whether the demand for service tax was required to be set aside on the grounds of limitation. The entire issue has arisen based on a comparison of the income disclosed by the appellant in their financial statements and the value of taxable services in their periodical returns.

The department also conducted an audit of the records of the appellant on 26.07.2019. The show cause notice was issued on 23.06.2020 i.e. almost after three years and two months from the date the verification was conducted by the department.

The appellant may have suppressed information in the ST-3 returns filed by it regarding the liability to pay service tax on input service on a reverse charge basis, though it had paid service tax while providing output service, the department was aware of this fact on 11.04.2017.

Commissioner (Appeals) in the impugned order stated that since it was evident that the appellant had not declared the liability on import of services under reverse charge in the ST-3 returns, this would amount to suppression of such import of services and if the verification of the records had not been conducted, non-payment of service tax could not have been detected.

A two-member bench of Ramesh Nair (Judicial Member) and Raju (Technical member) observed that “Suppression of a fact is not enough to invoke the extended period of limitation, for there has also to be an intent to evade of payment of service tax. Though the Commissioner (Appeals) has referred to the verification carried out on 11.04.2017, the Commissioner (Appeals) completely failed to appreciate that if this was the position, then the department could have issued the show cause notice promptly soon after 11.04.2017 and there was no necessity at all to wait till 23.06.2020 to issue the show cause notice.”

It was found that the Commissioner (Appeal)stated that a usual reason has been stated for invoking the extended period of limitation by merely mentioning that had the department not conducted the verification, non-payment of service tax would have gone undetected and in the era of self-assessment, the appellant must state the correct facts.

There was no suppression as to the activities being carried out by the respondent. It is also relevant to note that the respondent's contention that its services were covered under the 'Works Contract' Services is not insubstantial.

“Misstatement and suppression of facts must necessarily be examined from the perspective of sufficient disclosure or statements of facts and not contentious interpretations of statutory provisions. Once an assessee has truly disclosed the facts, it would not be apposite to invoke the provisions of Section 73(1) of the Act only on the ground that the assessee has classified its services under a head which the revenue considers erroneous.”, the bench viewed.

The CESTAT set aside the impugned order and allowed the appeal filed by the Appellant.

To Read the full text of the Order CLICK HERE

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