The case of Rama Colour Prints vs. Commissioner of Service Tax, as heard by the CESTAT Mumbai, revolves around a critical issue of disclosure in tax returns and the applicability of the extended period of limitation. The case involves the payment of service tax by Rama Colour Prints, a provider of photography services, under the Finance Act, 1994. The appellant paid service tax based on their interpretation of the law, but the tax department raised objections, resulting in a legal dispute.
The Case Details:
Rama Colour Prints, engaged in providing photography services as per Section 65(79) of the Finance Act, 1994, filed ST-3 returns and paid service tax during the period from October 1, 2008, to March 31, 2013. They declared their gross turnover and paid service tax on 30% of this gross amount, while VAT was applied to the remaining part of the total bill.
However, a subsequent investigation by the revenue department revealed a discrepancy. The total tax components shown on invoices did not match the value declared in the ST-3 returns. The department claimed that Rama Colour Prints was required to pay service tax on the entire value of the service.
A show cause notice was issued, invoking the extended period of limitation, and demanding service tax of Rs. 14,78,864 for the period mentioned above. Penalties were also proposed. The original authority confirmed the demand and imposed various penalties, leading to an appeal by the appellant.
The appellant argued that they genuinely believed that only the service portion was subject to service tax, and they paid service tax on 30% of the gross receipt. They contended that they had filed ST-3 returns, disclosing all relevant information required for such returns, and there was no suppression or willful misstatement in the information provided through these returns.
CESTAT Mumbai’s Decision:
The CESTAT Mumbai made the following key observations in its judgment:
1. The show cause notice was issued under the proviso to sub-section (1) of Section 73 of the Finance Act, 1994. This section prescribes a normal period of limitation, and for the period in question, the normal period was from October 1, 2012, to March 31, 2013.
2. No show cause notice was issued under the main clause of sub-section (1) of Section 73.
3. The entire information had been disclosed by the appellant through ST-3 returns, and there was no suppression on their part.
4. The extended period of limitation was not applicable in this case.
The CESTAT concluded that the show cause notice was erroneous, as it was hit by the limitation. It was also observed that the demand included service tax of Rs. 3,69,188, which the appellant had self-assessed and paid through ST-3 returns. The law did not permit the revenue department to demand service tax that had already been paid via self-assessment through ST-3 returns.
The Rama Colour Prints vs. Commissioner of Service Tax case is a significant reminder of the importance of accurate disclosure in tax returns and the limitations on the revenue department’s ability to invoke extended periods of limitation. In this instance, the appellant’s disclosure through ST-3 returns played a pivotal role in their favor, leading to the appeal’s success. It also underscores the importance of understanding and complying with tax laws to avoid legal disputes.
The matter was argued by Ld. Counsel Mahesh Raichandani
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT, MUMBAI
Brief facts of the case are that the appellant had registered themselves for payment of service tax with the department declaring that they were engaged in providing photography service taxable under Section 65(79) of Finance Act, 1994. During the period from 01.10.2008 to 31.03.2013, appellant filed ST-3 returns and paid service tax. Appellant paid service tax during the above said period of an amount of Rs.3,69,188/-. Revenue conducted enquiry. It was noticed by Revenue that out of the gross turnover of provision of service, appellant was paying service tax on 30% of the value of the said gross turnover. However, appellant was showing tax component at the rate of 12.36% in each invoice. It was observed by Revenue that sum total of all the tax components reflected on the invoice did not match with the value declared in ST-3 returns and the value of services reflected in ST-3 return was 30% of the gross amount charged. Therefore, Revenue issued a show cause notice dated 12.03.2014 to the appellant invoking proviso to sub-section (1) of Section 73 of Finance Act, 1994 for extended period demanding service tax of Rs.14,78,864/- for the above stated period alleging that the appellant had willfully suppressed the material fact of consideration received by them. There were proposals for imposition of penalties. On contest, the original authority confirmed the demand and appropriated service tax of Rs.3,69,188/- which was paid through ST-3 returns. The original authority imposed various penalties. Appellant preferred appeal before learned Commissioner (Appeals). Appellant inter alia argued the case on limitation before the learned Commissioner (Appeals). However, the learned Commissioner (Appeals) rejected the appeal and upheld the order-in-original through which service tax was confirmed. Aggrieved by the said order, appellant is before this Tribunal.
2. Heard the learned counsel for the appellant. Learned counsel for the appellant has argued that the appellant was under a bona fide belief that the cost of the material consumed shall be subjected to VAT and only service portion is subjected to service tax and, therefore, paid service tax on 30% of the gross receipt. He has further argued that the appellant had filed ST-3 return and disclosed relevant information required for filing of ST-3 return in the said returns and there was no suppression or willful misstatement in the information submitted through ST-3 return. He has further argued that as held under para 19 of the judgment of Hon’ble High Court of Madhya Pradesh in the case of Agrawal Colour Advance Photo System vs. CCE reported at 2020 (38) GSTL 298 (MP), the value that has been subjected to State VAT cannot be included in the value of photography service for the purpose of imposition of service tax and in view of the said legal position, the extended period of limitation was not invokable.
3. Learned AR for Revenue has supported the impugned order.
4. We have carefully gone through the record of the case and submissions made. We have also perused the subject show cause notice dated 12.03.2014. We note that the said show cause notice was issued by invoking proviso to sub-section (1) of Section 73 of Finance Act, 1994. We have also gone through the provisions of sub-section (1) of Section 73 ibid and we note that during the period before 14.05.2016, normal period of limitation was 18 months. The show cause notice dated 12.03.2014 was issued for the period from 01.10.2008 to 31.03.2013. Therefore, the normal period that can cover the issue in the present case is only from 01.10.2012 to 31.03.2013. However, there is no show cause issued to the appellant under main clause of sub-section (1) of Section 73 of Finance Act, 1994 and also that the entire information was disclosed by the appellant through ST-3 return. Therefore, there was no suppression on the part of the appellant. We, therefore, hold that extended period of limitation was not invokable in the present case. Had Revenue scrutinized ST-3 return in time, they could have issued demand during the relevant period under normal period of limitation and once the normal period of limitation is over after filing of ST-3 return, then the self-assessed assessment is finalized and was not open for raising demand. We also observe that Revenue had also demanded the service tax of Rs.3,69,188/- which the appellant has self-assessed and paid. The law does not permit Revenue to demand service tax which is already paid by self-assessment through ST-3 return. On that count also, the present show cause notice is erroneous. We, therefore, hold that the subject show cause notice is hit by limitation. We, therefore, do not examine the merit of the case.
5. We, therefore, without interfering with the amount of service tax of Rs.3,69,188/- paid through ST-3 return, set aside the impugned order and allow the appeal.
(Order pronounced in the open court on 17.10.2023)