Mere non-payment of tax or non-discharge of liability does not suffice ingredients for invoking extended period

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Principal Commissioner, Service Tax Vs National Institute of Bank Management (CESTAT Mumbai)

Mere non-payment of tax or non-discharge of liability does not suffice ingredients for invoking extended period

The CESTAT, Mumbai in Principal Commissioner, Service Tax v. M/s. National Institute of Bank Management [Service Tax Appeal No. 85892 of 2016 dated December 22, 2022] has held that mere non-payment of tax or non-discharge of liability does not suffice to alienate the responsibility of the ‘proper officer’ to offer convincing reasons for the belief that the ingredients for invoking extended period are evident.

Facts:

The Revenue Department (“the Appellant”) in this appeal has challenged the Order-in-0riginal passed by the Principal Commissioner of Service Tax Commissionerate, Pune dated December 9, 2015 (“the Impugned Order”) wherein the proceedings initiated in Show Cause Notice (“SCN”) dated April 15, 2014 for the period from 2008 to 2012 were dropped on the ground of being inconsistent with bar of limitation prescribed in Section 73 of the Finance Act, 1994 (“the Finance Act”) and for not being in compliance with the pre-requisite enabling the invoking of extended period.

Earlier, the proceedings were initiated against M/s National Institute of Bank Management (“the Respondent”) to fasten liability for having provided ‘taxable services’ in Section 65(105) of the Finance Act, with ‘commercial training and coaching centre’ as applicable to ‘post-graduate course in management’ offered by the Respondent.

Issue:

Whether the proceedings are in compliance for enabling the invoking of extended period?

Held:

The CESTAT, Mumbai in Service Tax Appeal No. 85892 of 2016 held as under:

  • Stated that, while lack of knowledge could be a defence in proceedings, it is not the knowledge or awareness that is on trial but the suppression of fact/wilful misstatement/ fraud which must be evinced in the SCN issued in pursuance of Section 73 of the Finance Act.
  • Mere non-payment of tax or non-discharge of the liability does not suffice to alienate the responsibility of the ‘proper officer’ to offer convincing reasons for the belief that the ingredients for invoking extended period are evident.
  • Relied on the judgment of the Hon’ble Supreme Court in Nizam Sugar Factory v. Collector of Central Excise, A.P. [2006 (197) ELT 465 (SC)] wherein it was held that, when SCN has been issued for the earlier period on certain set of facts, then, on the same set of facts another SCN based on the same/similar set of facts invoking the extended period of limitation on the plea of suppression of facts by the assessee cannot be issued as the facts were already in the knowledge of the department.
  • Held that, this appeal of Revenue seeking recovery as proposed in the demand by invoking of the extended period for subsequent period of time is not correct in law.

Relevant Provisions:

Section 73 of the Finance Act:

“Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded—

(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, Central Excise Officer may, within thirty months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —

 (a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words “thirty months”, the words “five years” had been substituted.

Explanation— Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of thirty months or five years, as the case may be.

(1A) Notwithstanding anything contained in sub-section (1) except the period of thirty months of serving the notice for recovery of service tax), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.

(1B) Notwithstanding anything contained in sub-section (1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in section 87, without service of notice under sub-section (1).

(2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined :

(2A) Where any appellate authority or tribunal or court concludes that the notice issued under the proviso to sub-section (1) is not sustainable for the reason that the charge of,—

(a) fraud; or

(b) collusion; or

(c) wilful misstatement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax, has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise Officer shall determine the service tax payable by such person for the period of thirty months, as if the notice was issued for the offences for which limitation of thirty months applies under sub-section (1). 

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the [Central Excise Officer] of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid : Provided that the Central Excise Officer may determine the amount of short-payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been 18 paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of “thirty months” referred to in sub- section (1) shall be counted from the date of receipt of such information of payment.

Explanation.1— For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the [Central Excise Officer], but for this sub-section.

Explanation 2. — For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made thereunder shall be imposed in respect of payment of service tax under this sub-section and interest thereon. (4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —

(a) fraud; or

(b) collusion; or

(c) wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax.

(4B) The Central Excise Officer shall determine the amount of service tax due under sub-section (2)—

(a) within six months from the date of notice where it is possible to do so, in respect of cases falling under sub-section (1);

(b) within one year from the date of notice, where it is possible to do so, in respect of cases falling under the proviso to sub-section (1) or the proviso to sub-section (4A)].

(5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14th day of May, 2003. (6) For the purposes of this section, “relevant date” means, —

(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid —

(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

(c) in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder; 

(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.”

****

FULL TEXT OF THE CESTAT MUMBAI ORDER

The short point in this appeal of Revenue against order-in-original no. PUN-SVTAX-000-COM-039-15-16 dated 9th December 2015 of Principal Commissioner of Service Tax, Pune is the impropriety of dropping the proceedings initiated in show-cause notice dated 15th April 2014 for the period from 2008 to 2012 on the ground of being inconsistent with bar of limitation prescribed in section 73 of Finance Act, 1994.

2. The proceedings against M/s National Institute of Bank Management, the respondent herein, to fasten liability for having provided ‘taxable services’

‘(zzc) – to any person, by commercial training or coaching centre in relation to commercial training or coaching’

in section 65(105) with ‘commercial training and coaching centre’ defined in section 65(26) and 65(27) of Finance Act, 1994 as applicable to ‘post-graduate course in management’ offered by them and which, according to the grounds of appeal referring to letter no. 354/91/2005-TRU dated 22nd August 2005 of Central Board of Excise & Customs (CBEC) and several judicial rulings, was well within their knowledge.

3. Learned Authorised Representative explained the several grounds enumerated in the appeal for our benefit.

4. Learned Counsel for respondent submitted that the proceedings had been dropped by the adjudicating authority for not being in compliance with the pre-requisite enabling the invoking of extended period.

5. We must state, at the outset and in no uncertain terms, that while lack of knowledge could be a defence in such proceedings, it is not the knowledge or awareness that is on trial but the suppression of fact/wilful misstatement/ fraud which must be evinced in the notice issued in pursuance of section 73 of Finance Act, 1994. Mere non­payment of tax or non-discharge of the liability does not suffice to alienate the responsibility of the ‘proper officer’ to offer convincing reasons for the belief that the ingredients for invoking extended period are evident. We see from the records that show-cause notice for the period from October 2003 to September 2008 dated 6th April 2009 on the same issue had been adjudicated and was carried to the Tribunal who, while upholding the default, had held that the demand was liable to be restricted only to the normal period in section 73 of Finance Act, 1994. An appeal against this order of the Tribunal, though admitted, is, as yet, pending before the Hon’ble Supreme Court.

6. We find that the demand for October 2003 to September 2008 has been, thus, curtailed and the present demand leading to the impugned order relates to the period thereafter till 2012 for which show-cause notice was issued on 15th April 2014. We also find from the impugned order that the adjudicating authority has relied upon the decision of the Hon’ble Supreme Court in Nizam Sugar Factory v. Collector of Central Excise, A.P. [2006 (197) ELT 465 (SC)] holding that

‘8. Without going into the question regarding Classification and marketability and leaving the same open, we intend to dispose of the appeals on the point of limitation only. This Court in the case of P & B Pharmaceuticals (P) Ltd. v. Collector of Central Excise reported in (2003) 3 SCC 599 = 2003 (153) E.L.T. 14 (S.C.) has taken the view that in a case in which a show cause notice has been issued for the earlier period on certain set of facts, then, on the same set of facts another SCN based on the same/similar set of facts invoking the extended period of limitation on the plea of suppression of facts by the assessee cannot be issued as the facts were already in the knowledge of the department. It was observed in para 14 as follows :

“14. We have indicated above the facts which make it clear that the question whether M/s. Pharmachem Distributors was a related person has been the subject-matter of consideration of the Excise authorities at different stages, when the classification was filed, when the first show cause notice was issued in 1985 and also at the stage when the second and the third show cause notices were issued in 1988. At all these stages, the necessary material was before the authorities. They had then taken the view that M/s. Pharmachem Distributors was not a related person. If the authorities came to the conclusion subsequently that it was a related person, the same fact could not be treated as a suppression of fact on the part of the assessee so as to saddle with the liability of duty for the larger period by invoking proviso to Section 11A of the Act. So far as the assessee is concerned, it has all along been contending that they were not related persons, so, it cannot be said to be guilty of not filling up the declaration in the prescribed proforma indicating related persons. The necessary facts had been brought to the notice of the authorities at different intervals from 1985 to 1988 and further, they had dropped the proceedings accepting that M/s. Pharmachem Distributors was not a related person. It is, therefore, futile to contend that there has been suppression of fact in regard M/s. Pharmachem Distributors being a related person. On that score, we are unable to uphold the invoking of the proviso to Section 11A of the Act for making the demand for the extended period.”

This judgment was followed by this Court in the case of ECE Industries Limited v. Commissioner of Central Excise, New Delhi reported in (2004) 13 SCC 719 = 2004 (164) E.L.T. 236 (S.C.). In para 4, it was observed :

“4. In the case of M/s. P&B Pharmaceuticals (P) Ltd. v. Collector of Central Excise reported in [2003 (2) SCALE 390], the question was whether the extended period of limitation could be invoked where the Department has earlier issued show cause notices in respect of the same subject-matter. It has been held that in such circumstances, it could not be said that there was any wilful suppression or mis-statement and that therefore, the extended period under Section 11A could not be invoked.”

Similarly, this judgment was again followed in the case of Hyderabad Polymers (P) Ltd. v. Commissioner of Central Excise, Hyderabad reported in [2004 (166) E.L.T. 151 (S.C.)]. It was observed in para 6:

“………… On the ratio laid down in this judgment it must be held that once the earlier Show Cause Notice, on similar issue has been dropped, it can no longer be said that there is any suppression. The extended period of limitation would thus not be available. We are unable to accept the submission that earlier Show Cause Notice was for a subsequent period and/or it cannot be taken into consideration as it is not known when that Show Cause Notice was dropped. If the Department wanted to take up such contentions it is for them to show that that Show Cause Notice was not relevant and was not applicable. The Department has not brought any of those facts on record. Therefore, the Department cannot now urge that findings of the Collector that that Show Cause Notice was on a similar issue and for an identical amount is not correct.”

9. Allegation of suppression of facts against the appellant cannot be sustained. When the first SCN was issued all the relevant facts were in the knowledge of the authorities. Later on, while issuing the second and third show cause notices the same/similar facts could not be taken as suppression of facts on the part of the assessee as these facts were already in the knowledge of the authorities. We agree with the view taken in the aforesaid judgments and respectfully following the same, hold that there was no suppression of facts on the part of the assessee/appellant.

10. For the reasons stated above, Civil Appeal Nos. 2747 of 2001 and Civil Appeal No. 6261 of 2003 filed by the assessees are accepted and the impugned orders are set aside on the question of limitation only. The demands raised against them as well as the penalty, if any, are dropped. Civil Appeals @ Special Leave Petition (C) Nos. 9271-9278 of 2003 filed by the department are dismissed. Questions of classification and marketability are left open. Parties shall bear their own costs.

7. Considering the judgment of the Hon’ble Supreme Court supra, this appeal of Revenue seeking recovery as proposed in the demand by invoking of the extended period for subsequent period of time is not correct in law. Accordingly, the appeal of Revenue is dismissed.

(Order pronounced in open court on 22.12.2022)

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(Author can be reached at info@a2ztaxcorp.com)

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