By TIOL News Service

NEW DELHI, JAN 30, 2018: THE appellants are engaged in hotel and real estate business. They were registered with the Service Tax Department for rendering various taxable services.

The investigation by the officers of the DGCEI resulted in the issue of SCN dated 24.10.2008 , demanding service tax under five categories of service viz. (a) franchisee service (Rs.75,92,208/-), (b) Mandap Keeper services (Rs.48,61,336/-), (c)Management, Repair and Maintenance Service (Rs.49,37,872/-), (d) Club or Association Service (Rs.22,12,691/-) and (e) Exhibition Service (Rs.40,170/-).

The case was adjudicated by the CCE(Adjudication) by order dated 28/29.12.2011 whereby the service tax demands as proposed in the show cause notice were confirmed except in respect of franchise service where the demand was restricted for the period after 18.04.2006. The adjudicating authority also imposed penalties under Section 77 and 78 of the Finance Act, 1994.

This order was challenged before the CESTAT and the Tribunal held thus –

a) appellants service tax liability in respect of management, maintenance and repair services and mandap keeper services as confirmed in the impugned order is upheld along with penalties;

b) the service tax liability in respect of Franchise services shall be from 18.04.2006 on reverse charge basis. However, demand shall be restricted to normal period only. No penalty is liable in respect of this demand of service tax.

c) appellants are not liable to service tax under club or association service or business exhibition service . Demand as well as penalties on this account are set aside.

d) excess payment of service tax, if any, under different tax entries shall be dealt with in terms of provisions of Section 11 B of Central Excise Act, 1944 as made applicable to service tax.

We reported this order dated 18.05.2017 as 2017-TIOL-2519-CESTAT-DEL .

Aggrieved with the unfavourable portion of the above order, the appellant is before the Delhi High Court.

It is inter alia submitted that in respect of Mandap keeper services they were acting under a bonafide belief that the sale of food, beverages, liquor and mineral water would attract VAT and not service tax; that the appellant had, during the enquiry itself, paid service tax on the sale of the abovementioned items for the period 2004-05 and 2005-06 with interest and also started paying service tax on these items regularly from April 2006. They rely on the judgment of the Supreme Court in  Imagic Creative Pvt. Ltd. -  2008-TIOL-04-SC-VAT ,  to say that payment of service tax and VAT are mutually exclusive. That since they were under a bona fide belief that it was entitled to claim exemption from payment of service tax on sale of goods while providing services under the Notification No. 12/2003-ST, the extended period of limitation cannot be invoked.

That maintenance and repair of immovable property became taxable only from 16.06.2005 u/s 65(105)(zzg) of the Act and that under a bonafide mistake it was unaware about this development which led to omission to charge of service tax from the occupants of shopping arcade in its hotel premises and also from the occupants of World Trade Centre and World Trade Tower buildings, owned by it, on the maintenance service provided to them. However, consequently, they got their registration certificate amended and started discharging service tax liability from the financial year 2006-07; thatthey also paid the service tax for the financial year 2005-06, being Rs. 48,41,187/- and in view of the said payment, no SCN should have been issued. Inasmuch as the SCN issued by the department of Rs. 49,37,872/- (there being a calculational error of Rs.96,685/-) should have been restricted to the differential amount only. That section 80 of the FA, 1994 should have been invoked to waive the penalty.

To buttress their stand of the demand being hit by limitation, reliance is placed on the apex court decision in Chemphar Drugs & Limiments -  2002-TIOL-266-SC-CX.

The Counsel for the revenue argued that the plea of bona fides cannot be urged by the appellant.Moreso since the appellant is a large corporate house, with an army of advisers and consultants, its plea of ignorance of its tax liability cannot be accepted at face value; rather the onus to show that it did not act malafidely was upon it, rather than otherwise.

After considering the submissions made, the High Court extracted the provisions of section 73 of the FA, 1994 and after adverting to the apex court decision in Uniworth Textiles Ltd.  -  2013-TIOL-13-SC-CUS  in the matter of section 28 of the Customs Act, 1962, the case cited by the appellant pertaining to s.11A of the CEA, 1944, the decision in Continental Foundation Joint Venture Holding -  2007-TIOL-152-SC-CX , observed that since the pith and substance of both these provisions is the same, the various judgments of the Supreme Court discussing the interpretation of proviso to Section 11A/section 28 can be extended to interpret Section 73(1), proviso to section 73 of the Finance Act.

The High Court further observed –

Merits:

++ It is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression" in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. “fraud, collusion, wilful misstatement”. As explained in Uniworth (supra), “misstatement or suppression of facts” does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid paying excise duty. The terms "mis-statement" and "suppression of facts" are preceded by the expression "wilful". The meaning which has to be ascribed is, deliberate action (or omission) and the presence of an intention. Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention.

++ The absence of any material disclosing intent to evade payment of service tax by the appellant is evident by the fact that it promptly made all the payments pertaining to service tax liability with respect to Mandap Keeper Service and Management, Maintenance and Repair Service as soon as the appellant became aware of the same (during the enquiry) and continued to pay service tax thereafter. The authorities are unanimous that to invoke the extended period under cognate provisions (such as Section 11A of the Excise Act or Section 28A of the Customs Act) the burden is cast upon it to prove suppression of fact. The Revenue has not been able to prove an intention on the part of the appellant to evade tax by suppression of material facts. In fact, it is clear that the appellant did not have any such intention and was acting under bona fide beliefs. For these reasons, it is held that the revenue cannot invoke the proviso to Section 73(1) of the Finance Act to extend the limitation period for issuing of SCN.

++ The SCN was issued on 24.10.2008. The undischarged liability for payment of service tax with respect to Mandap Keeper Service and Management, Maintenance and repair services alleged in the SCN is for the period 2004-06 and 2007-08 respectively. Since the proviso to Section 73(1) cannot be invoked the SCN had to be served within one year from the relevant date. Therefore, the SCN with respect to short-payment of service tax for Mandap Keeper Service for the years 2004-2006 is barred by limitation. The SCN with respect to short-payment of service tax for Management, Maintenance and Repair Services for the years 2005-2007 is also barred by limitation.

++ The SCN for the year 2007-2008 is, however, not barred by the limitation period of one year and the assessee is liable to pay service tax on the same.

Penalty:

++ In the present case, the appellant was under a bona fide belief that it was not liable to pay service tax for the Mandap Keeper Service and Management, Maintenance and Repair Services as discussed earlier. The conduct of the appellant of prompt payment of service tax during the enquiry and after gaining knowledge about its liability to pay service tax, is sufficient reason to believe that the assessee did not have an intention to evade the payment of service tax. Therefore, no penalty can be imposed on the appellant.

The appeal was allowed in the above terms.

(See 2018-TIOL-178-HC-DEL-ST)