Extended Service Tax Limitation Requires Wilful Suppression with Intent to Evade: CESTAT Delhi

Shyam Spectra Private Limited Vs Commissioner of Service Tax (CESTAT Delhi)

Summary: CESTAT Delhi set aside the order dated 30.12.2016 passed by the Commissioner of Service Tax, Delhi II confirming service tax demand with interest and penalty by invoking the extended period under the proviso to section 73(1) of the Finance Act, 1994. The appellant, engaged in providing internet services, had been subjected to departmental audits for the period 2006-07 to 2009-10, following which a show cause notice dated 19.10.2011 was issued covering various alleged service tax liabilities, including services provided to STPI units, the US Library of Congress and US Commercial Services, excess utilisation of CENVAT credit, short-payment of service tax, services provided to SEZ units and interest on delayed payment. The Tribunal examined whether the extended limitation could be invoked on the allegation that the appellant had suppressed facts with intent to evade service tax. Referring to the principles laid down in Pushpam Pharmaceuticals Company, Anand Nishikawa Company Ltd., Uniworth Textile Limited and Continental Foundation Joint Venture Holding, the Tribunal held that suppression of facts, for purposes of extended limitation, must be deliberate or wilful and accompanied by an intent to evade payment of tax. The show cause notice merely asserted that the appellant had intentionally and wilfully suppressed facts because the correct service tax liability had not been disclosed in the returns. It did not identify any positive act demonstrating an intention to evade payment. The Tribunal also noted that the appellant had been filing service tax returns and that its records had already been audited by departmental officers for the relevant period. The Commissioner’s reliance on the self-assessment scheme was held insufficient, as self-assessment did not relieve departmental officers of their duty to scrutinise returns and seek supporting records where necessary. In support, the Tribunal considered the decision in M/s. Raydean Industries, where the importance of departmental scrutiny even under self-assessment was recognised. The Tribunal concluded that there was no suppression of material facts, much less suppression with intent to evade service tax, and therefore the extended period under the proviso to section 73(1) could not be invoked. It also considered the appellant’s reliance on Infinity Infotech Parks concerning demands arising from transactions covered by an incorrectly invoked extended period, but found it unnecessary to examine the separate issue concerning the time limit under section 73(4B). The impugned order was consequently set aside and the appeal was allowed.