Extended Limitation Not Invocable for Audit & Income Tax Data-Based Demand: CESTAT Quashes Service Tax Demand [Read Order]

The Chandigarh Bench of Customs, Excise & Service Tax Appellate Tribunal(CESTAT) set aside the ₹2.19 lakh service tax demand holding the extended limitation period inapplicable whereby, the demand based on audit findings and Income Tax data, arose due to service tax paid under an incorrect PAN. Thus, the appeal was allowed on limitation grounds and penalties under Sections 77 and 78 were quashed.

The Appeal filed by the appellant against the order dated 05.03.2024 passed by the Commissioner (Appeals) CGST, Chandigarh, confirmed service tax demand of Rs 2,19,842/- with interest and penalties of Rs 2,19,842/- under Section 78 and Rs 10,000/- under Section 77.

The remaining demand amounting to Rs 17,40,551/- was dropped as supplies to SpecialEconomic Zone (SEZ) units which were exempted and only 25% service tax was payable under partial reverse charge mechanism.

Read More: CESTAT Remands ₹3.90 Crore Sun Pharma Case, Holds Deemed Exportsto be Considered For DTA Entitlement

The Appellant, M/s Singla Associates, provided “manpower supply services” to Sun Pharmaceutical Industries Ltd, paying 25% service tax under partial reverse charge mechanism per Notification 30/2012-ST. Services to SEZ units were exempt from service tax.

Based on third-party Income Tax data for 2014-15 showing service receipts without filed ST-3 returns, a show cause notice dated 28.09.2020 was issued demanding Rs 19,60,393/- with penalties under Sections 77 and 78. The adjudicating authority confirmed the full demand with interest and penalties vide order dated 03.01.2024.

On appeal, the Commissioner (Appeals) reduced the demand to Rs 2,19,842/- after allowing SEZ exemption and partial reverse charge deduction, but maintained interest and penalties. Aggrieved, the appellant challenged this order before CESTAT.

The Counsel for the Appellant, Om Prakash, stated that the impugned order failed to properly appreciate facts, law, and binding precedents and argued that service tax was duly paid under the PAN of an earlier partnership concern, despite informing the department about constitutional changes and requesting amendments, with no response being received. The demand for October 2014 to March 2015 incorrectly adopted the gross amount for the entire year 2014-15.

The Counsel also argued that the demand was barred by limitation as extended period cannot be invoked based on audit reports and third-party data without evidence of suppression. In support of such arguments, the Counsel relied on G.D. Goenka Pvt. Ltd. Vs CGST, Delhi South, Good Year India Ltd. & others VS CGST Faridabad, Maruti Suzuki India Ltd. Vs CS Delhi and Sunshine Steel Industries Vs CGST Jodhpur.

Further, the Counsel majorly cited Antares Services Pvt Ltd (Final Order No. 60023/2024 dated 25.01.2024) holding that extended period was invalid when proceedings were based upon Income Tax data.

On the other hand, the Authorized Representative for the Respondent, Yashpal Singh, stated that the appellant was at fault for depositing tax under PAN No. AMCPS8500P (proprietary concern) instead of the registered partnership PAN No. ABCFS3669J/ST-2 number ABCFS3669JST001.

Further, the Counsel argued that payment under the wrong PAN cannot be considered proper payment of service tax and submitted that the Commissioner (Appeals) had already granted deductions reducing the liability to Rs 2,19,842/-, which the appellant must pay with interest and penalty.

Read More: Customs Cannot Enhance Value Without Proof of Undervaluation orTreat Counterfeit Goods as Branded: CESTAT

The Tribunal consisted of Judicial Member, S.S Garg, heard and after considering the submissions made, addressed the limitation issue and found that for the disputed period October 2014-March 2015, the appellant had been paying service tax and filing returns, albeit under the wrong PAN number. The show cause notice dated 28.09.2020 was issued based on audit reports and third-party Income Tax data.

The bench held that extended limitation cannot be invoked for audit-based demands, citing Maruti Suzuki India Ltd. Vs CS Delhi (Final Order No. 60175/2024). It further pointed out that demands based on third-party data cannot invoke extended periods, as held in Antares Services Pvt. Ltd.

The Respondent failed to provide evidence of essential ingredients required for invoking extended limitation, making G.D. Goenka Pvt. Ltd. Vs CGST, Delhi South applicable. Consequently, the Tribunal ruled the entire demand barred by limitation without examining the merits.

Accordingly, the Tribunal allowed the appeal filed by the appellant solely on limitation grounds and set aside the demand.

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