Bona Fide Belief Bars Extended Limitation u/s 73: CESTAT Quashes ₹3.72 Lakh Service Tax Demand [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal of Allahabad Bench (CESTAT), held that extended limitation under Section 73 of the Finance Act, 1994 cannot be invoked in the absence of suppression or wilful misstatement and here the assessee acted under a bona fide belief and all transactions were duly recorded, thereby setting aside the service tax demand confirmed against the assessee.

The appellant, M/s Stone Heights Infra, is engaged in execution of works contract services relating to construction of roads and infrastructure projects for government agencies through principal contractors. During scrutiny of third-party data received from themDepartment, it was noticed that the appellant had received an amount of ₹6.87 crore during the financial year 2016-17 as reflected in Form 26AS. As the appellant was not registered under service tax for the relevant period, proceedings were initiated.

A show cause notice was issued proposing recovery of ₹1.03 crore towards service tax under Section 73 of the Finance Act, 1994, along with interest and penalties, alleging suppression of facts. The notice was based on the allegation that the appellant failed to discharge service tax liability on the consideration received. Upon adjudication, the adjudicating authority dropped the demand amounting to ₹99.40 lakh, holding that the services rendered under works contracts for public utility projects were exempt from service tax.

However, a demand of ₹3.72 lakh was confirmed on an alleged excess receipt of ₹24.81 lakh, treating it as taxable service income. Interest and penalties under Sections 75, 77 and 78 of the Finance Act, 1994 were also imposed. Aggrieved by the confirmation of partial demand, the appellant approached the Commissioner (Appeals), who upheld the order. The appellant thereafter filed an appeal before the CESTAT.

The appellant submitted that the alleged excess amount of ₹24.81 lakh was not consideration for any taxable service but represented supply of materials such as sand and grit, on which Value Added Tax had already been paid and the amount appeared in Form 26AS due to a clerical error by the contractor, which was later corrected.

Since all receipts were duly recorded in the books of accounts and reflected in statutory records, negating any allegation of suppression, the appellant was under a bona fide belief that no service tax was payable, and therefore the extended limitation under Section 73 of the Finance Act, 1994 could not be invoked.

The Bench comprising of Sanjiv Srivastava, Technical Member allowed the appeal and set aside the demand, observing that the impugned order failed to record any finding on the issue of limitation, despite it being specifically raised by the appellant. Subsequently, noted that the adjudicating authority itself had accepted that the main contract was exempt from service tax.

Since the appellant had placed sufficient material to show that the amount related to supply of goods and not provision of taxable services, with no finding as to what taxable service was rendered against the alleged excess receipt, it can be assessed that there was no suppression or intent to evade tax. Relying on the Supreme Court decision in Uniworth Textiles Ltd. v. Commissioner of Central Excise (2013), the Tribunal held that mere non-payment of tax does not amount to suppression and that extended limitation can be invoked only when intent to evade tax is clearly established.

The Tribunal emphasized that the appellant had acted under a bona fide belief, therefore invocation of the extended period under Section 73 of the Finance Act, 1994 was not justified. Accordingly, the service tax demand of ₹3.72 lakh, along with interest and penalties, was set aside, and the appeal was allowed in favour of the assessee.

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