Second Service Tax Notice Cannot Invoke Extended Limitation on Known Facts: CESTAT Allahabad

Fareed Ahmad Vs Commissioner of Central Excise & CGST (CESTAT Allahabad)

Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, in Shri Fareed Ahmad Vs Commissioner of Central Excise & CGST, Lucknow, allowed the assessee’s appeal against a service tax demand of ₹11,03,019 for the financial year 2016-17, holding that the subsequent show cause notice dated 18 October 2021 was barred by limitation. The appellant was engaged in civil construction and works contract services for the Director General, Medical and Health Services, Uttar Pradesh. Based on amounts appearing in Form 26AS and the profit and loss account, the Department initially proposed a service tax demand of ₹21,25,727. Following examination of the work orders and applicable exemptions under Notification No.25/2012-ST, the adjudicating authority reduced the demand to ₹11,03,019, confirmed interest and imposed penalties under Sections 77 and 78 of the Finance Act, 1994. The Commissioner (Appeals) deleted the two penalties imposed under Section 77 but sustained the service tax demand and penalty under Section 78.

The appellant challenged the proceedings principally on limitation. It was submitted that the Department had already issued an earlier show cause notice dated 31 December 2020 for the financial year 2015-16, demanding ₹20,96,562 on substantially identical grounds. Since the earlier proceedings had already disclosed the nature of the appellant’s activities and the basis of the proposed demand, the Department could not subsequently allege suppression of facts, concealment or wilful misstatement to invoke the extended period of limitation. The appellant relied upon several Supreme Court judgments, including Nizam Sugar Factory Vs CCE, ECE Industries Ltd. Vs CCE, Pahwa Chemicals Pvt. Ltd. Vs CCE and Caprihans India Ltd. Vs Commissioner of Central Excise, Surat, along with other Tribunal decisions. The Revenue defended the demand, arguing that the adjudicating authority had already considered the appellant’s submissions, extended the available exemption benefits and reduced the original demand.

The Tribunal examined the chronology of the notices and accepted the appellant’s objection. It found that the relevant activities were already known to the Department when the first show cause notice was issued. Consequently, the subsequent notice could not be supported by a fresh allegation of suppression of facts, collusion or wilful misstatement with an intention to evade payment of service tax. The Tribunal observed that the demand could not be extended beyond the ordinarily permissible limitation period, referring to one year or, at best, 30 months in the circumstances discussed. The demand concerned FY 2016-17, whereas the second notice was issued only on 18 October 2021. Accordingly, the extended five-year limitation under the proviso to Section 73 of the Finance Act, 1994 could not be invoked. The Tribunal held the notice time-barred and allowed the appeal. Its decision rested on limitation rather than a fresh adjudication of the substantive taxability of each construction or repair contract.

Cases Discussed

1. Nizam Sugar Factory Vs CCE (Supreme Court) — 2006 (197) E.L.T. 465 (S.C.). Relied upon by the appellant for the proposition that the extended limitation period cannot ordinarily be invoked in a subsequent show cause notice on the same known facts.

2. ECE Industries Ltd. Vs CCE (Supreme Court) — 2004 (164) E.L.T. 236 (S.C.). Cited concerning the impermissibility of repeatedly alleging suppression where the Department already possesses the relevant information.

3. Pahwa Chemicals Pvt. Ltd. Vs CCE (Supreme Court) — 2005 (189) E.L.T. 257 (S.C.). Cited by the appellant in support of its submissions concerning the invocation of the extended period of limitation.

4. Caprihans India Ltd. Vs Commissioner of Central Excise, Surat (Supreme Court) — 2015 (324) E.L.T. 8 (S.C.). Relied upon in support of the challenge to extended limitation.

5. D & M Building Product Pvt. Ltd. Vs Commr. of Customs, Bangalore (CESTAT Bangalore) — 2019 (370) E.L.T. 1183 (Tri.-Bang.). Cited concerning limitation in indirect tax proceedings.

6. M/s Innovative Pest & Agrotech Pvt. Ltd. (CESTAT) — Final Order No.70046/2026. Relied upon by the appellant regarding the extended period of limitation. The source does not identify the complete respondent or decision date.

7. M/s Arjita Tripath. (CESTAT) — Final Order No.70183/2026. Cited by the appellant on extended limitation. Party identification is reproduced as recorded in the source.

8. M/s S.I. Advertisers (CESTAT) — Final Order No.70170/2026. Relied upon in support of the limitation objection. The complete cause title and date are not specified in the source.

FULL TEXT OF THE CESTAT ALLAHABAD ORDER

The present appeal has been filed by the Appellant assailing the Order-in-Appeal No.237-ST/APPL/LKO/2025 dated 15.07.2025 passed by the learned Commissioner (Appeals) Customs, CGST & Central Excise, Lucknow.

2. The facts of the case in brief are that a Show Cause Notice¹ dated 18.10.2021 was issued proposing to demand Service Tax as under:-

3. The SCN also proposed to impose penalties under various Sections. Vide the Order-in-Original dated 31.03.2024 the learned Adjudicating Authority observed as follows :-

“The Party has received in the year 2016-17 the following work orders/Agreements from office of the D.G. Health Lucknow and D.G. Family Welfare, Lucknow as submitted by the party is as under:-

Total: 14176342=(6622548+6720626+833168)

On going through the Agreement/Work order submitted by the party, I find that during the Financial Year the party was engaged in miscellaneous construction services such as new construction and repairing and maintenance of the building of Swasthya Bhawan of the Director General, Medical and Health Services, U.P. On perusal of the agreement mentioned SI. No.1,2,12 and 25 above, it has been found that these work order pertains to water supply/treatment/Sewerages. Therefore, same is exempted under entry 12(e) of exemption Notification No.25/2012 dated 20.06.2012.

The services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of is omitted from Notification No.06/2015-ST dated 01.03.2015, as per point 12(A) of exemption Notification No.25/2012-ST dated 20.06.2012 the exemption was allowed provided agreement is signed before 01.03.2015 but these agreement have been executed after 01.03.2015. Therefore, the benefit of entry 12(A) of Notification No.25/2012-ST dated 20.06.2012 shall not be allowed.

Hence, from above, the total amount which is paid to the party on the original work done by them is found to be Rs.66,22,548/- of which the total taxable value (@ 40% of total amount) is worked out here as under:-

Table-B

Similarly, the total amount which is paid to the party on the work of ‘Repairs and Maintenance Services’ is Rs.67,20,626/- out of which the total taxable value (@ 70% of total amount) is worked out here as under:-

Table-C

And pass the following order:-

“ORDER

(i) I confirm the service tax of Rs.11,03,019/- (Rs. Eleven lakh Three Thousand Ninteen Only) including various cess as applicable under proviso to Section 73(1) of the finance Act, 1994 read with Section 142 and 174 of the CGST Act, 2017 and drop Rs.1022708/- out of demand of service tax Rs.2125727/-

ii. I confirm the demand of interest on the confirmed amount of Service Tax mentioned at (i) above under Section 75 of the Finance Act, 1994 read with Section 142 & Section 174 of the CGST Act, 2017.

iii. I impose penalty amounting to Rs.11,03,019/- (Rs. Eleven lakh Three Thousand Ninteen Only) under Section 78 of the Finance Act, 1994 read with Section 142 & 174 of the CGST Act, 2017.

iv. I impose penalty amounting to Rs.10,000/- (Rupees Ten Thousand Only) under Section 77(1)(a) of the Finance Act, 1994 read with Section 142 & Section 174 of the CGST Act, 2017.

v. I impose penalty amounting to Rs.10,000/- (Rupees Ten Thousand Only) under Section 77(1)(d) of the Finance Act, 1994 read with Section 142 & Section 174 of the CGST Act, 2017.”

4. Being aggrieved, the Appellant filed an appeal before the first Appellate Authority and the learned Commissioner (Appeals) vide the impugned Order-in-Appeal, modified the adjudication order by setting aside the penalties imposed under Sections 77(1)(a) and 77(1)(d). He upheld the demand of Service Tax and also penalty imposed under Section 78. Being aggrieved, the Appellant has filed the present appeal before the Tribunal.

5. The learned Advocate appearing on behalf of the Appellant submits that the Appellant is engaged in Civil Construction/Works Contract Service provided to the Director General, Medical & Health Services, Uttar Pradesh. The Appellant was issued two SCNs for the period 2015-16 & 2016-17 invoking extended period of limitation. Details of the SCNs are as under:-

(i) SCN No.273/DC/LKO/ST/2020-21 dated 31.12.2020 for the period 2015-16 for Rs.20,96,562/-.

(ii) SCN No.158/AC/ST/LKO/2021-22 dated 18.10.2021 for the period 2016-17 for Rs.21,25,727/-.

5.1 Both the SCNs were issued on substantially identical grounds, purportedly on the basis of the amounts reflected in the Appellant’s Income Tax Returns². The issuance of the earlier notice demonstrates that the Department was already aware of the nature of the Appellant’s activities and the underlying basis of the proposed Service Tax demand. The subsequent SCN dated 18.10.2021 was issued on the same basis as the earlier notice dated 31.12.2020. The Appellant submits that, in the facts and circumstances of the present case, the Department cannot mechanically invoke the extended period of limitation by alleging suppression or concealment of facts when the relevant facts and the basis of the proposed demand were already within its knowledge. The extended period of limitation cannot be invoked in the garb of suppression or concealment of facts as invocation of extended period of limitation on the same issue is legally impermissible. The Appellant relies upon the following judicial pronouncements in support of his submissions concerning invocation of period of limitation:-

a. 2006 (197) E.L.T. 465 (SC) Nizam Sugar Factory vs. CCE

b. 2004 (164) E.L.T. 236 (SC) ECE Industries Ltd. vs. CCE

c. 2005 (189) E.L.T. 257 (SC) Pahwa Chemicals Pvt. Ltd. vs. CCE

d. 2015 (324) E.L.T. 8 (S.C.) Caprihans India Ltd. Vs. Commissioner of Central Excise, Surat.

e. 2019 (370) E.L.T. 1183 (Tri. – Bang.) D & M Building Product Pvt. Ltd. Vs. Commr. of Customs, Bangalore.

5.2 The Appellant further relies upon the following orders passed by the Tribunal on the issue of extended period of limitation:-

• Final Order No.70046/2026 – M/s Innovative Pest & Agrotech Pvt. Ltd.
• Final Order No.70183/2026 – M/s Arjita Tripath.,
• Final Order No.70170/2026 – M/s S.I. Advertisers.

Accordingly, he prayed that the appeal may be allowed.

6. Learned Departmental Authorized Representative appearing on behalf of the Revenue justified the impugned order and prayed that the appeal filed by the Appellant, being devoid of any merits, may be dismissed. He further mentioned that the original SCN proposed demand of Service Tax of Rs.21,25,727/-and the learned Adjudicating Authority has considered the submissions made by the Appellant and allowed benefit of exemption notification and modified the demand to Rs.11,03,019/. He further submitted that the learned Commissioner (Appeals) has also modified the adjudication order by setting aside the penalties imposed under Section 77(1)(a) and 77(1)(d).

7. Heard both the sides and perused the appeal records.

8. I find that the main argument of the learned Advocate is on limitation. He submits that the SCN is barred by limitation of time as for the earlier period, SCN dated 31.12.2020 was issued and the same has been adjudicated.

9. He further submitted that since the entire activity of the Appellant-Assessee was in the knowledge of the Department and already SCN for the preceding Financial Year was issued, there cannot be an allegation of suppression of facts in the given facts and circumstances of the case.

10. He vehemently argued that the SCN for the Financial Year 2016-17 could at best be issued upto 31.10.2019 whereas, the impugned SCN has been issued on 18.10.2021. I find that it is a fact that there is no ingredient of suppression of facts, collusion and willful misstatement with an intent to evade payment of tax Since the issue was in the knowledge of the Department, the Demand vide the impugned SCN cannot be allowed to be extended beyond the period of one year as being permissible period of limitation, or at best a period of 30 Months.

11. In view of the above, I am unable to uphold the demand considering the ground of limitation raised by the Appellant. I observe that period of dispute is Financial Year 2016-17 and the SCN was issued only on 18.10.2021. Further, the impugned SCN being a subsequent SCN, the same cannot propose the demand for the period beyond 01 year of the period in dispute nor can raise the allegation as that of suppression of facts or misstatement on the part of the Appellant-Assessee that too with an intent to evade payment of tax.

12. In these circumstances, the proviso to Section 73 of the Finance Act extending the period of limitation from 01 year to 5 year could not have been invoked by the Department. In view of these findings, I am of the opinion that the impugned SCN is barred by limitation of time.

13. The appeal filed by the Appellant is allowed.

(Dictated and pronounced in open court)

Notes:

¹ SCN

² ITR