The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) set aside the service tax demand issued in 2007 for the assessment period of 1997-98 deeming it time-barred.
Aarti Industries Ltd., the appellant engaged in manufacturing organic and inorganic chemicals under Chapters 28 and 29 of the Central Excise Tariff Act, 1985. The appellant availed the CENVAT credit on inputs, input services, and capital goods used in manufacturing their finished products.
The company used Goods Transport Operator (GTO) services for the transportation of goods during the financial year 1997-1998. Under the Finance Act, 1994, Service Tax liability was only placed on the service provider. Finance Act, 2000 amendment validated the recovery of Service Tax from service recipients retrospectively for specific periods.
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The Finance Act, 2003 introduced Section 71A, which requires service recipients to file returns for the period November 16, 1997, to June 2, 1998, within six months of the amendment’s enactment. It also retrospectively amended Section 68 stating that service recipients would be liable to pay Service Tax for services availed from Goods Transport Agencies (GTA).
The appellant was served a show cause notice (SCN) on November 11, 2008, demanding payment of Rs. 64,52,012 as Service Tax for GTO services availed during 1997-1998. The SCN also invoked provisions for interest under Section 75 and penalties under Sections 76 and 78 of the Finance Act, 1994.
The appellant appealed before the Commissioner (Appeals), who upheld the Adjudicating Authority’s findings in an Order-in-Appeal dated March 28, 2018. Aggrieved, the appellant challenged the Commissioner (Appeals)’s order before CESTAT arguing that the demand was barred by limitation under Section 73(1) of the Finance Act, 1994.
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The appellant’s counsel argued the retrospective amendments did not permit the issuance of demands beyond this limitation period when no prior proceedings were initiated. The counsel relied on multiple court decisions.
The two-member bench comprising Ramesh Nair (Judicial Member) and C. L Mahar (Technical Member) observed that this issue was no longer res integra and cited this tribunal case of PSL Limited Vs. Commissioner of Central Excise -Daman 2014(35)S.T.R. 126 (Tri-Ahmd.)
The cited case explained that retrospective amendments cannot justify demands issued beyond the limitation period if no proceedings were pending at the time of the amendment. The case explained that many courts have ruled that service tax liabilities imposed retroactively are invalid without clear statutory provisions, as penalties cannot be enforced for unclear obligations at the time.
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The Gujarat High Court and others pointed out that retrospective laws cannot override procedural safeguards like limitation periods making such delayed demands unsustainable.
In light of the above case observation, the tribunal in this case ruled that SCN was time-barred under the statutory limitation and invalid. The appellant’s appeal was allowed.
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