CESTAT Upheld service tax demand deletion Due to Limitation

Commissioner of Central Excise And Service Tax Vs Himachal Futuristic Communication Limited (CESTAT Chandigarh)

The case in question involves a dispute between the Commissioner of Central Excise and Service Tax (the appellant/Department) and Himachal Futuristic Communication Limited (the respondent) regarding the payment of Service Tax for providing Installation Commissioning Services during the period 2005-06 to 2007-08 to a company named M/s Exicom.

The appellant alleged that the respondent was not entitled to the benefit of certain notifications that provided abatement from the gross value charged, as they had not included the value of plant, machinery, or equipment supplied by various clients in the assessable value. The Department demanded a Service Tax amount of Rs. 2,85,81,185/- along with interest and penalties under Section 76 & 78 of the Finance Act, 1994.

The Commissioner initially initiated proceedings against the respondent through two show cause notices. However, later, the Commissioner dropped the proceedings. The Department, dissatisfied with the order of the Commissioner, appealed to the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Chandigarh.

During the hearing, the Department contended that the extended period of limitation should be invoked as the respondent had not disclosed certain material facts, thereby suppressing the true gross value. They relied on various cases to support their argument.

On the other hand, the respondent claimed that they had availed the benefit of the notifications and had correctly filed the required ST-3 Returns, disclosing the fact of availing the abatement. They also cited guidelines from the Manual for Scrutiny of Service Tax Returns, indicating that it was the Department’s responsibility to scrutinize the returns and raise queries if necessary.

The CESTAT, Chandigarh, after considering both sides’ arguments and examining the records, found that there was no willful suppression of facts on the part of the respondent. They noted that the respondent had correctly disclosed the information in the prescribed format in their ST-3 Returns, and the Department had not raised any objections or queries based on those returns. The CESTAT upheld the order of the Commissioner, ruling in favor of the respondent.

In conclusion, the CESTAT dismissed the Department’s appeal, stating that there was no suppression of facts, and therefore, the extended period of limitation could not be invoked. The case was decided in favor of Himachal Futuristic Communication Limited.

FULL TEXT OF THE CESTAT CHANDIGARH ORDER

The respondents, Himachal Futuristic Communication Limited, are engaged in installation commissioning under various contracts to different customers and have registered themselves with the State VAT Department as well as Service Tax Department. During the course of Audit by the officers of Auditor General’s Office, it was observed that the respondents were not paying Service Tax in relation to the value of services received by them, for providing Installation Commissioning Services, during the period 2005-06 to 2007-08, to M/s Exicom. Two show cause notices dated 20.10.2010 and 15.04.2011; it was alleged that the respondents are not entitled to the benefit of Notification No.19/2003-ST dated 21.08.2003 and No.1/2006-ST dated 01.03.2006 as value of the tower supplied free by various clients was not included in the assessable value; therefore, the appellants were required to pay Service tax to the tune of Rs.2,85,81,185/- should be recovered along with interest and penalty under Section 76 & 78 of the Finance Act, 1994. Commissioner vide Order dated 29.06.2012 has dropped the proceedings initiated vide above show cause notices. Department is in appeal against the impugned order.

2. Shri Rajeev Gupta assisted by Shri Nikhil Kumar Singh, Authorized Representatives, for the appellant/Department, reiterates the grounds of appeal and submits that though the Adjudicating Authority has held that the respondents had not included the value of plant, machinery or equipment erected, commissioned or installed in the gross value charged by them from the service recipients and as such they were required to pay Service Tax on the gross value charged without availing the benefit of abatement, he dropped the proceedings finding that extended period cannot be invoked; the Adjudicating Authority has erred in appreciating the fact that in the liberalised scenario, the appellant/assessee themselves assesses the tax liability, pays the same and files the returns; it is incumbent upon the appellants to check if they have fulfilled the conditions laid down in the notifications before availing the abatement; mere filing of ST-3 Returns does not mean that the appellants have disclosed the true gross value. He submits that the periodical scrutiny of ST-3 Returns by the Department is limited to figures declared by the assessee and in any manner, it will not make Department aware of the true gross value; therefore, the Adjudicating Authority has clearly erred in holding that the appellants have suppressed any material fact/ figure.

3. Learned AR submits that the Hon’ble Supreme Court in the case of Dilip N. Shroff- 2007 (219) ELT 15 (SC) has examined the word “Conceal”, which according to law lexicon means “to hide or keep secret”; the word “Conceal” is “Con+celare”, which implies to hide; as the respondents have not disclosed the material facts before the Department and the same was noticed only during the audit of records, there is clear suppression of fact as held by the Hon’ble Supreme Court in the case of Mallur Siddeswara Spinning Mills Private Limited- 2004 (166) ELT 154 (SC). He contends that extended period is invokable in the instant case and penalty under Section 78 is invokable; he relies upon the following cases:

• Suzlon Infrastructure- 2012 (283) ELT 49 (Tri. Mumbai)
• Bajaj Travels Ltd- 2009 (16) STR 183 (Tri. Del.).
• M/s Magnum International, M/s Magnum Environment Management Pvt. Ltd.- 2008-TIOL-671-CESTAT-DEL.

4. Shri Surjeet Bhadu assisted by Shri Veer Singh, learned Counsels for the respondents submits that they have availed the benefit of Notification No.19/2003-ST dated 21.07.2003 and Notification No.1/2006-ST dated 01.03.2006 thereby claimed abatement of 67% from the gross value charged by them; respondents filed all statutory ST-3 Returns, filling up all the columns that are required to be filled up; they have declared the fact of availment of the notifications and no objection was ever raised by the Department with regard to the Returns. He submits the AG Audit conducted an audit of the respondent and on the basis of the same, Department issued two show cause notices; the Adjudicating Authority has correctly analysed the facts of the case and came to the conclusion that there was no suppression etc. on the part of the respondents with an intent to evade payment of Service Tax and therefore, extended period cannot be invoked.

5. He submits that it has been categorically directed, in the Manual for Scrutiny of Service Tax Returns 2009 published by Central Board of Excise and Customs, at Para 1.2.1A that: “It is the view that assessment should be the primary function of the Central Excise Officers. Self-assessment on the part of the taxpayer is only a facility and cannot and must not be treated as dilution of the statutory responsibility of the Central Excise Officers in ensuring correctness of duty payment. No doubt, audit and anti-evasion have their roles to play, but assessment or confirmation of assessment should remain the primary responsibility of the Central Excise Officers.” He submits that it has been further clarified at Para 1.2.2A that: “The authority to conduct scrutiny of returns for verifying the assessment done by the assessee is provided in Rule 5A of the Service Tax, Rules, 1994. This rule, inter alia, authorizes the Commissioner to empower any officer to carry out ^„Scrutiny, verification and checks, as may be necessary to safeguard the interest of Revenue‘. The Rule also allows the officer to call for any record maintained by the assessee for accounting of transactions, the trial balance or its equivalent, and the Income Tax Audit Report maintained under Section 44AB of the Income Tax Act. In other words, the Rule permits the officer to examine financial records for scrutinizing the return to determine the correctness of the assessments made. In pursuance of this, the Board has also issued guidelines vide Letter F.No.137/27/2007 CX.4, dated 08.02.2007, which makes it mandatory to scrutinize returns on a regular basis. Details of the Board‘s guidelines on returns‘ scrutiny are discussed in Chapter 2 of this Manual”.

6. He further submits that under Chapter 2: Policy Guidelines for Returns‟ Scrutiny, it is mentioned at Para 2.1. that the designated officers must seek answers to certain key questions while conducting the preliminary scrutiny of Service Tax Returns. The questions inter alia include the following:

4. Is the applicable rate of tax correctly calculated?

5. Are the exemption claims (if any) admissible?

7. He further submits that in the Annexe-2.1: Format for Preliminary Scrutiny of ST-3 Returns is mentioned at Sl. No.8 & 9 of the Table as follows:

He further submits that the Department sought to deny the exemption to the very same respondent, concerning their Delhi office, by show-cause notice dated 25.04.2008; learned Adjudicating Authority has also dropped the show-cause notice; Tribunal vide Final Order No. ST/A/50207/2016-CU (DB) dated 05.02.2016dismissed the appeal of the Department and upheld the order. He further submits that the Hon‟ble Supreme Court in the case of Bhayana Builders (P) Ltd.- 2018 (10) GSTL 118 (SC) held that the value of material supplied free of cost by the service receiver is not required to be added in the gross value for availing the abatement. He relies on the following cases and submits that extended period of limitation cannot be invoked in the subsequent show-cause notices.

• Nizam Sugar Factory- 2008 (9) STR 314 (SC)
• Manipal Universal Learning Pvt. Ltd.- 2020 (372) ELT 408 (Tri. Bang.)
• D & M Building Product Pvt. Ltd.- 2019 (370) ELT 1183 (Tri. Bang.)

9. Heard both sides and perused the records of the case. The main issue that requires our consideration in the case is as to whether the impugned show-cause notices is time barred and as to whether the Adjudicating Authority was correct in holding so. Learned Counsel for the appellants submits that the respondent has been filing the Returns from time to time and as such there is no willful suppression on the part of the respondent. We find that the Adjudicating Authority though finds that the exemption contained in Notification No.19/2003-ST dated 21.07.2003 and Notification No.1/2006-ST dated 01.03.2006 is not applicable to the respondents as the service receiver has not supplied any plant, machinery or equipment. However, learned Adjudicating Authority holds that the issue is time barred and observes as follows:

3.12. The Noticees have stated that the demands issued to them under both the show cause notices are time barred. They have claimed that all the facts regarding assessment of service tax were in the knowledge of the department. The Noticees had duly filed the ST-3 returns on which the fact of availing abatement from the gross value had been explicitly mentioned and they were depositing the service tax on the value of services they were liable to pay service tax. They have submitted that invoking of extended period of limitation was not warranted by law and the proposed invocation was unjust and unreasonable. The demands were barred by limitation of time.

3.13 The ST-3 returns filed by the Noticees have been obtained and examined. The returns for the periods from October-2005 to March-2006, April-2006 to September-2006, October-2006 to March-2007, April-2007 to September-2007, October 2007- March-2008. April-2008-September 2008 and October-2008 to March-2009 could be examined and it was informed by the Range Officer that other returns were not readily available. Even the returns that have been made available, the copies of the Returns have been obtained from the Noticees. The audit objection (on the basis of which the show cause notice dated 15/04/2011 has been issued) was raised on the basis of the records of the Noticees. The jurisdictional revenue authorities at the time of issuing the show cause notice had not disputed the figures of abatement said to have been claimed by the Noticees and pointed out by the audit party. Examination of the returns show that in all returns the Noticees had specifically mentioned the fact of availing of abatement at the rate of 67% from gross value charged by them from the service recipients in respect to the service of erection, commissioning and installation. Whenever there was a column in the format ST-3 return, the Noticees had mentioned the number of notification and serial number of the notification under which they claimed abatement from the gross value of the service. From the perusal of the ST-3 returns, one fact is evident that the practice being followed by the Noticees for availing the abatement was made to known to the department through their ST-3 returns. All the information required to be furnished under the ST-3 returns was furnished by the Noticees to the jurisdictional revenue authorities. The jurisdictional revenue authorities had not raised any objection with regard to the availing of abatement from the gross value charged by the Noticees from the service recipients. No allegation has been made in the show cause notices that the ST-3 return were not filed or the information shown under the ST-3 return was not correct or the information required to be furnished in the returns was not furnished. Further, there is no other allegation in the show cause notices that the Noticees had not filed any other return/information which was required to be filed or that the information was incorrectly filed with the jurisdictional revenue authorities.

3.14 Though the Noticees had incorrectly availed benefit of abatement under notification 19/2003 and 1/2006 yet they had filed the prescribed returns on time with the jurisdictional revenue authorities and had disclosed the fact of having availed the abatement. It was for the jurisdictional revenue authorities to scrutinize and assess the ST-3 returns and take appropriate action for recovery of the service tax short paid. By failing to take the appropriate action on the basis of information made available by the Noticees it is not open to the revenue authorities to charge the Noticees with suppression of facts. The information made available by the Notices to the jurisdictional revenue authorities was in the prescribed format and whatever information was required to be given in the prescribed format was provided by the Noticees. When the facts were in the knowledge of the jurisdictional revenue authorities the Noticees cannot be held guilty of suppression of facts. A mere allegation of suppression of facts without disclosing what fact was required to be disclosed and was not so disclosed is not sufficient to prove the suppression of fact. The Noticees were under obligation to disclose only those facts which were required to be disclosed under the law. There is nothing in the show cause notices which shows that there was a legal requirement for Noticees to disclose certain facts and the Noticees had failed to disclose those facts.

3.15 Under the proviso to Section 73 (1) of the Act, the extended period of limitation can be invoked only when service tax has not been levied or paid or has been short levied or short paid by reasons of; (a) fraud; (b) collusion; (c) wilful mis-statement; (d) suppression of facts: (e) contraventions of any of the provisions of Chapter V of the Act or the rules made there under with the intent to evade payment of service tax. Consequently, mere fraud, collusion, mis-statement, suppression of facts or contravention of provisions of law is not sufficient to attract the invoking of the extended period of limitation. The requirement of law is that such fraud, suppression of facts, contraventions of provisions of law should be with intent to evade the payment of service tax. As the Noticees had laid on the table of the jurisdictional revenue authorities all the facts they were required to provide under the law hence there can be no case of suppression of facts and fraud or wilful mis-statement. Consequently, the extended period of limitation cannot be invoked in the present proceeding.

10. We find that there is considerable force in the argument of the Adjudicating Authority. Moreover, the submissions of learned Counsel for the respondents based on the Manual for Scrutiny of Service Tax Returns make it clear that it was incumbent upon the Department to scrutinise the records of the respondent and to raise any queries, in case they are not satisfied with the Returns, In the instant case, it is seen that no queries of any sort have been raised or no mistakes were pointed out by the Department on the basis of the scrutiny of the Returns of the respondent. Under the circumstances, it is not open to the Department to allege that there has been wilful suppression of material facts on the part of the respondent. To this extent, we find that the Adjudicating Authority has rightly held that there is no suppression, mis-declaration etc., whatsoever, by the respondents.

11. We find that Tribunal has gone into the very same issue, in respect of the respondent‟s office in Delhi, in respect of show-cause notice issued on similar lines, and vide Final Order No.50207/2006 have upheld the order of the Adjudicating Authority who dropped the proceedings. Tribunal went into the merits of the case and held as follows:

3. We have considered the submissions of both sides. It is now settled by the Supreme Court in the case of Larsen & Toubro Ltd. – 2015. – TIOL – 187 – SC-ST that works contract was not liable to service tax prior to 1.6.2007. It is also settled by the CESTAT judgment in the case of Bhayana Builders (P) Ltd. (supra) that in the case of free supply of some goods by the service recipient abatement under Notification like 15/2004-ST is admissible even if the value of such goods is not included in the assessable value. Ld. A.R. has strenuously argued that in the light of Supreme Court judgment in the case of Larsen & Toubro Ltd. an exercise has to be conducted to compute the service tax liability under ECIS in respect of such contracts which were pure sweat contracts and did not involve any supply of goods and therefore did not fall in the category of works contracts.

4. In the light of the foregoing, we hold that no service tax is leviable on the works contract during the period prior to 1.6.2007 and remand the case for de novo adjudication only in respect of such contracts which were pure sweat contract, if any.

12. In view of the above, we find that the issue is loaded in favour of the respondents both on limitation and merits. In the instant case before us, the issue of merit is not under consideration. As far as limitation is concerned, we find that learned Adjudicating Authority has correctly found that there is no suppression and hence, the provisions of Section 73 of Finance Act, 1994 are not attracted to invoke extended period. Therefore, we find that the impugned order is legally correct and tenable and that the Revenue‟s appeal is not maintainable and is liable to be dismissed and we do so.

13. In the result, the appeal is dismissed.

(Pronounced in the open Court on 20/07/2023)