No Penalty Shall be Levied under Excise Act if Dept could not prove Allegation of Fraud to evade Duty: CESTAT [Read Order]

The appellants, M/s Punjab Cold Treads, have been issued a show cause notice dated 12.04.2013, seeking to recover service tax of Rs.87,95,473/-, invoking an extended period during the period 2007-08 to 2012-13, on the tyre retreading process the appellants undertake for their clients under the heading Management, Maintenance or Repair Service as defined under Section 65 (105) (zzg) of the Finance Act, 1994; the proposals in the show cause notice were confirmed along with equal penalty vide the impugned order dated 23.03.2015.

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Shri Kanwaldeep Singh Gujral, counsel for the appellants, submitted that there was a general confusion in the industry as to whether the retreading of tyres amounted to manufacture or service; retreaded or used pneumatic tyres of rubber solid or cushion tyres, tire treads, and tyres flaps of rubber find an entry in the Central Excise Tariff, 1985 prescribing NIL rate of duty; with effect from 01.07.2003, an entry, related to maintenance or repair including re-conditioning or restoration or servicing of any goods, excluding a motor vehicle, was introduced in the Service Tax Law.

The appellants requested the Department vide Letter dated 19.09.2006 to issue suitable clarification; the said letter was never replied. Meanwhile, the appellant received a letter dated 20.12.2012 asking them get themselves registered and to pay service tax in view of the clarification given by CBEC vide Circular dated 27.02.2012; the appellants immediately got themselves registered and started paying duty; the present proceedings were initiated for the period prior to 2012, invoking extended period.

Counsel for the appellants submitted that there was a general confusion in the industry and the Department also as to whether the activity undertaken by the appellants amounted to manufacture or service; the said confusion was cleared by the decision of the Apex Court in the case of M/s Ahmedabad Electricity Company; accordingly, CBEC issued a Circular No.137/125/2011-ST dated 27.02.2012 clarifying that the activity amounts to provision of taxable service.

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The appellants have requested the Department for clarification vide their letter dated 19.09.2006; there was general confusion and the CBEC had to issue a Circular; the appellants received a letter dated 20.12.2012 asking them to pay service tax; the appellants have promptly registered themselves and started paying service tax.

The Commissioner has dismissed their plea on bona fide intent based on their letter dated 19.09.2006 for the reason that the original copy of the letter is not readily available with the Department. He submitted that they cannot be held responsible for the reason that the letter is not available with the Department an extended period cannot be invoked.

A two-member bench of Mr. S. S. Garg, Member (Judicial), and Mr. P. Anjani Kumar, Member (Technical), observed that the appellant argues on the limitation. They contend that there was no clarity on the issue, and the confusion was cleared only after the judgment of the Supreme Court in the case of Ahmedabad Electricity Co.2003 has also issued a circular dated 27.02.2012.

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The entry in the Central Excise Tariff with a NIL rate of duty and the simultaneous introduction of the entry in the Service Tax Law w.e.f. 2003 is certainly a basis for the confusion, which was cleared by the CBEC in February 2012. Therefore, when the Department itself needed 09 years to clarify the issue after the entry was made in 2003 and the Deputy Commissioner has issued a letter to the appellants in December 2012, a clear 10 months after the issue of circular, the bona fides of the appellants cannot be suspected.

Moreover, the appellant on his own sought a clarification vide letter dated 19.09.2006 which was never replied. Dismissing the submissions of the appellants, based on the letter, for the reason that the said letter is not available in the official records is bad in law.

The Tribunal observed that the Counsel for the appellants could demonstrate the official receipt of the letter. Revenue has sat over the letter for 06 long years and proceeded to invoke extended period. On the other hand, the department could not produce any evidence to substantiate the allegation of fraud, suppression, collusion, misdeclaration, etc., with intent to evade payment of duty so as to invoke extended period.

The tribunal observed that the appellants have demonstrated bona fide reasons for not discharging service tax during the impugned period. The court considered the opinion that Revenue has not made out any case for invocation of the extended period, and the facts and circumstances of the case do not warrant the same either.

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