Extended period not invocable as non-disclosure was based on bonafide interpretation of law

GRT Regency Vs Assistant Commissioner of Central Excise (Madras High Court)

Madras High Court held that invocation of extended period of limitation unjustified as non-disclosure or claim of non-liability was on the basis of bonafide interpretation of law.

Facts- The Petitioner is running a Hotel called GRT Regency registered with Service Tax Department and has paid service tax, interalia, on Restaurant Services and Short Term Accommodation Services. The Department conducted Internal Audit and found that the Petitioner did not pay service tax on certain charges collected from the customers towards in-room dining, in-room beverages supply and mini bar and also on laundry, Miscellaneous Income and Telephone. The Department was of the view that these charges should be included in the value of room rent and the petitioner ought to have paid service tax on these charges under “Short Term Accommodation Services”. While so, show cause notice, dated 16.10.2015 was issued by the Commissioner of Central Excise, Tirunelveli, whereby, the Petitioner was directed to show cause as to why service tax of Rs.15,28,564/- for the period 2010-2011 to 2014-2015 under Proviso to Section 73(1) of Finance Act, 1994, should not be demanded.

Petitioner mainly contested that the impugned order is barred by limitation and thus a nullity and there is no need to even examine the question of the levy being unconstitutional or otherwise.

Conclusion- Assuming the levy is valid, the impugned proceeding invoking the extended period of limitation cannot be sustained. To invoke the extended period, it ought to be demonstrated that service tax has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax. It has been consistently held by the Hon’ble Supreme Court that any non-disclosure or claim of non-liability on the basis of bonafide interpretation of law would not enable the Respondent to invoke the extended period of limitation. This Court also finds that the attempt made by the learned counsel for the Respondent to sustain the impugned proceedings, by invoking extended period of limitation cannot be sustained, in view of the fact that the view taken by the Petitioner has also been approved by at least two High Courts. Therefore, the question of existence of mental element/mens rea, which is a condition precedent for invoking the extended period, is absent, thus the invocation of extended period is unsustainable.

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