Extended period of limitation not invocable when there is no suppression.

PJ/Case Law/2014-15/2387

Case:- M/s NET CONNECT PVT LTD Vs COMMISSIONER OF SERVICE TAX, BANGALORE

Citation:- 2014-TIOL-550-CESTAT-BANG

Brief facts:-This application filed by the appellant seeks waiver of pre deposit and stay of recovery in respect of the adjudged dues. The impugned order passed by the Commissioner confirmed demand of service tax and education cesses totalling to over Rs.4.48 crores for the period 16/06/2005 to 31/03/2009 under the head ‘manpower recruitment or supply agency services' and appropriated towards such demand an amount of Rs.2,94,76,493/- paid by the party under the head ‘Business Auxiliary Service' (BAS) for the period from 01/08/2006 to 31/03/2009. The impugned order also imposed penalties on the assessee, including a penalty of Rs.1,53,96,558/- under Section 78, this penalty being equal to the service tax and education cesses held to be recoverable for the period from 16/06/2005 to 31/07/2006. While claiming prima facie case against the demand, the learned counsel for the appellant has, at the outset, referred to a few Stay Orders passed by this Bench viz. IDS Systems Pvt. Ltd. Vs. CCE, Bangalore [2012(28) STR 389 (Tri. Bang.)] = (2012-TIOL-1532-CESTAT-BANG), Stay Order No.1063/2012 dt. 07/06/2012 in appeal No.ST/1776/2011 of M/s. Modus Information Systems Pvt. Ltd. and Aztesoft Ltd. vs. CCE, Bangalore [2012(26) STR 552 (Tri. Bang.)] = (2011-TIOL-1971-CESTAT-BANG). In the cited cases, the question considered by this Bench was whether the subject activity was classifiable under 'manpower recruitment and supply agency service' or 'information technology software service'. After examining the terms and conditions of the relevant agreements, a prima facie view was taken in their favour and we classified the activity under 'information technology software service' and accordingly waiver and stay were granted in the cited cases. Per contra, the learned Commissioner (AR), at the outset, refers to a Final Order passed by a co-ordinate Bench (at Chennai) in the case viz. Future Focus Infotech India (P) Ltd. Vs. CST, Chennai [2010 (18) STR 308 (Tri. Chennai)] = (2010-TIOL-835-CESTAT-MAD) wherein, reportedly on a similar set of facts, pre deposit was ordered. In his rejoinder regarding case law, the learned counsel points out that the decision in Future Focus case was considered by this Bench while granting waiver and stay in favour of Aztecsoft Ltd. (supra).

Appellant’s contentions:-The learned counsel for the appellant submits that the appellant took registration under BAS and paid tax accordingly on services covered by the same agreements. Thus, appellant cannot be said to have suppressed material facts with intent to evade payment of service tax.

Respondent’s contentions:-The impugned demand is on the payments made to the appellant by M/s. Infosys Technologies Ltd. (Infosys for short) and M/. IBM Global Services (India) Pvt. Ltd. (IBM for short) under the respective "Sub-contracting Agreements". We have perused the sub-contracting agreement between the appellant (consultant) and Infosys. This agreement required the "consultant" to render the services specified in detail in the relevant "Task Orders" placed on them by Infosys. No copy of any Task Order is available on record though one format is seen. The caption of one section of this format is "personnel" while there is no entry in other sections of the format. We have also noted Appendix A to the agreement dealing with ‘mode of payment'. This document spells out 3 modes of payment, one of which indicates that the payment should be made on the basis of the number of days of service provided by the consultant's personnel. In the absence of copies of Task Orders and for want of satisfactory explanation with regard to actual mode of payment under the agreement and for ancillary reasons, we take the prima facie view that what was envisaged under the agreement was 'manpower recruitment or supply service' to be provided by the appellant to Infosys. The appellant has not claimed that the agreement with IBM was different from the one with Infosys.

Reasoning of judgment:- Wehave heard the learned Commissioner (AR) also on this issue. The show-cause notice in this case was issued on 20/04/2010 for recovery of service tax for the period from 16/06/2005. As service tax was paid from 01/08/2006 albeit under a different head, we have to examine the plea of limitation in relation to the period from 16/06/2005 to 31/07/2006, which period is indisputably beyond the normal period of limitation. It appears from the records that there was a spate of correspondence between the appellant and the Department originating in July 2006. In a letter dt. 18/07/2006, the Superintendent of Service Tax-Anti Evasion required the appellant to provide certain material/information, such as (i) brief information of all activities carried out by the appellant, (ii) copy of Service Tax registration if any, (iii) balance sheet for 2004-05 and trial balance for 2005-06, (iv) month-wise statement of billing from 16/06/2005 to till date for supply of manpower, (v) sample copies of bills/invoices raised on all customers. The appellant furnished the required particulars through a letter dt. 08/08/2006 wherein they, inter alia, offered to supply copies of the relevant agreements, which were submitted on 17/11/2006. It thus appears that all the relevant documents and information were furnished by the appellant to the Department during July to November 2006. However, the show-cause notice came to be issued as late as in April 2010. It is also on record that consistent with the stand taken by the appellant in their correspondence with the Department, they took registration under BAS and other services and started paying service tax accordingly on the activities covered by the very same agreements. Prima facie, the appellant cannot be said to have suppressed material facts with intent to evade payment of service tax. We have also perused the relevant findings of the adjudicating authority which are contained in para 25 of the impugned order. Though this para of the impugned order refers to the conduct of the assessee with reference to self-assessment scheme, it does not indicate the aforesaid correspondence having been considered. The fact that the appellant started paying service tax for the period from 01/08/2006 also appears to have been overlooked in para 25 of the impugned order. The findings recorded in para 25 do not appear to be sufficient to invoke the proviso to Section 73(1) of the Finance Act, 1994 and, for that matter, the findings recorded later in the impugned order for imposing penalty under Section 78 are also not appealing.

In view of the above findings, the stay application is allowed.

Decision:- The stay granted.

Comment:- The analogy of the case is that as the appellant furnished all relevant documents and information to Department in the year 2006 while the show-cause notice was issued in the year 2010, the same was beyond normal period of limitation. The appellant cannot be said to have suppressed material facts with intent to evade payment of service tax because they started paying service tax from 01.08.2006 under the head business auxiliary services. Accordingly, the stay application was allowed on limitation.

Prepared by:- Monika Tak

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PJ/Case Law/2014-15/2387

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