The Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) of Mumbai Bench clarified that if there is no suppression alleged, the department cannot extend the limitation period to impose demand including interest. It should be restricted to the normal limitation period.

The Appellant - Secure Hospitality & Insurance Services Pvt. Ltd. had discharged its service tax liability belatedly due to delayed payments from clients, though it had regularly filed ST-3 returns.

After an audit, the tax department issued a show cause notice dated 24.06.2020 demanding interest of ₹4.79 lakh for the period from 2014-15 to June 2017. The department contended that since Section 75 does not prescribe a specific limitation period for recovery of interest, such demand could be raised without any time restriction.

Rejecting this contention of the department, the Tribunal held that interest under Section 75 is not an independent levy but is incidental to the principal tax liability, and therefore cannot be treated separately for limitation purposes.

It observed that when a statute is silent on limitation, the power must still be exercised within a “reasonable period,” and such reasonableness must be aligned with the limitation prescribed for the principal demand.

The Tribunal noted the Supreme Court’s ruling in TVS Whirlpool Ltd. and the Delhi High Court’s decision in Kwality Ice Cream Company, both of which confirmed that the limitation applicable to the principal amount must also apply to interest claims.

Under the normal limitation period relevant to this case, the department had 30 months to issue a notice. Since the last relevant period ended in June 2017, the department should have acted by December 2019. By waiting until June 2020, the department's claim became legally "time-barred."

The Tribunal also pointed out that the "extended period of limitation" which allows authorities to go further back in time can only be triggered if there is evidence of a deliberate attempt to evade tax through fraud or suppression of facts. Since the department made no such allegations in its notice, it could not bypass the standard 30-month window.

“In the absence of any specific allegations warranting invocation of the extended period of limitation u/s. 73 ibid, the demand including interest can be sustained only within the normal period of limitation” said the bench of Ajay Sharma (Judicial member).

Accordingly, the CESTAT set aside the demand.

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