Extended period of limitation not invokable when penalty under section 78 not imposable.

PJ/Case Law/2013-14/1971

Case:-THE SASWAD MALI SUGAR FACTORY LTD Vs THE COMMISSIONER OF CENTRAL EXCISE, PUNE-II

Citation:-2013-TIOL-898-HC-MUM-ST

Brief facts:-This Appeal under Section 35G of the Central Excise Act, 1944 read with Section 83 of theFinance Act, 1994 (in short “the Act”), was originally filed against order dated 14 May 2013 of the
Customs, Excise and Service Tax Appellate Tribunal (in short “the Tribunal”), directing the Appellant to deposit the entire amount of service tax of Rs.10, 04,928 /- for the purpose of hearing the appellant's appeal on merits.

During the pendency of the present appeal, the Tribunal on 3 July 2013, dismissed the appellant's appeal on account of non deposit of service tax of Rs.10, 04,928 /- as directed by its order dated 14 May, 2013. The appeal was dismissed on 3 July 2013 for non deposit, even though a short adjournment was sought from the Tribunal on the ground that the appeal from the order dated 14 May 2013 had come up for hearing before this Court on 2 July 2013 and it had been posted for hearing on 3 July 2013. In these circumstances, when on 4 July 2013 the appellant pointed out the aforesaid facts, liberty was granted to the appellant to amend its appeal memo and also challenge the order of the Tribunal dated 3 July 2013 dismissing the appellant's appeal.

In the above circumstances, the appellant now challenges the final order dated 3 July 2013 of the Tribunal as well as the order dated 14 May 2013, directing the appellant's to pre-deposit the entire amount of service tax of Rs.10,04,928/.

As the issue arising in this appeal is with regard to pre-deposit of service tax before the Tribunal decides the issue on merits, Counsel for both sides request that the appeal itself be disposed of at the stage of admission. Accepting the request of the Counsel, the appeal was taken up for final disposal.
In the above facts, first the order dated 3 July 2013 of the Tribunal was set aside. Then the counsel considered the sustainability of the order dated 14 May 2013 of the Tribunal directing predeposit of the entire duty demanded for the purposes of hearing the appeal.

The appellant is Sugar Factory which received during period 1 April 2005 to 31 October 2006 service of a Goods Transport Agency (GTA). In this GTA service, the liability to pay Service Tax is cast on the recipient of the services and accordingly, the appellant was liable to pay the service tax liability. On 14 October 2010, show cause notice was issued by the revenue, demanding service tax of Rs.10,04,928/- under Section 73 of the Act and also proposed equivalent penalty under Section 78 of the said Act for the services of GTA received by it during period 1 April 2005 to 31 October 2006. Additional Commissioner, Central Excise by order dated 30 March 2012, confirmed the demand of service tax invoking the extended period of limitation and also imposed equivalent penalty of Rs.10,04,928/- under Section 78 of the said Act. The demand for extended the period for the limitation as well as the penalty was confirmed on the ground that the appellant had suppressed the receipt of the GTA services by it.

In appeal, the Commissioner (Appeals) by order dated 17 October 2012 upheld the service tax confirmed by the Additional Commissioner of Central Excise on the ground that there was suppression of facts by the appellant. However, the penalty under Section 78 of the said Act was deleted by holding as under:-

“Coming to imposition of penalty on the Appellant, I find that there is no doubt that right since initial imposition of Service Tax on Goods Transport Operators in 1997, there have been cases in various High Courts and the matter was finally settled by Hon'ble Supreme Court and the initial levy of service tax was eventually not enforced.

The period covered by the present Show Cause Notice/ Order in Original is immediately after imposition of service tax afresh on GTA. Thus there was genuine room for confusion regarding the correct legal position in respect of liability to pay service tax, especially because reverse charge mechanism was introduced for first time (on GTA) under the Service Tax Law. Further, in the case of Appellant, the fact of individual truck owner's providing transportation services further leaves ample scope for doubt about the service tax liability on GTA, as 'Commercial concern' was mentioned in the definition during the period of demand covered by the Show Cause Notice/ Order in Original . Thus, I am of the view that as per the facts of this case, as narrated above, the Appellant has proved that there was reasonable cause for the failure on their part to pay the required service tax as GTA during the period prior to 1.5.2006, as covered in the Show Cause Notice/ Order in Original. My conclusion is also supported by the fact that the Appellant have been paying service tax as GTA since 1.5.2006. Thus, their case is squarely covered under the provisions of Section 80 of the Act and no penalty needs to be imposed on the Appellant in this case”.

The Appellant preferred an appeal before the Tribunal against the order dated 17 October 2012 of the Commissioner (Appeals) and also filed stay application for waiver of pre-deposit of service tax and interest. No appeal has been preferred by the revenue from the order dated 17 October 2012 of the Commissioner (Appeals) deleting the penalty imposed under Section 78 of the Act.

Appellant’s contention:-Mr. Joshi, learned Counsel for the appellant points out that the services were provided by individual Truck owners who are not covered by the definition of GTA as existing during the relevant period as they are not commercial concern. This according to Mr. Joshi has been the consistent view of the Tribunal as held in the matter of K.M.B. Granites Pvt. Ltd. v/s. Commissioner of Central Excise, Salem 2010 (19) S.T.R. 437 = (2010-TIOL-611-CESTAT-MAD), Salem Cooperative Sugar Mills 2010 (19) S.T.R. 435 = (2009-TIOL-1677-CESTAT-MAD) and Lakshminarayana Mining Co. 2009 (16) S.T.R. 691 = (2010-TIOL-122-CESTAT-BANG).

Reasoning of judgment:- It was found that the condition for invocation extended the period of limitation as provided under Section 73 of the Act and the condition precedent for imposing penalty under Section 78 of the Act are identical viz : there should be either the fraud, collusion or wilful misstatement or suppression of facts or contravention with intent to evade payment of service tax. Once the Commissioner (Appeals) has come to a finding that for the relevant period, there was genuine cause for confusion regarding the correct legal position and also scope for doubt about the service tax liability on GTA as the 'Commercial concern' for non-imposition of penalty then the same cause is also to be factored in to conclude that extended period of limitation cannot be invoked. Even if the finding that there was sufficient cause for nonpayment of service tax was rendered in the context of Section 80 of the Act (as it stood at the relevant time), this finding also applies to determine whether there was any intent to evade payment of service tax.

Moreover, the revenue has accepted the deletion of penalty as we are informed that the revenue has not preferred any appeal from the order dated 17 October 2012 of the Commissioner (Appeals) deleting the penalty. Moreover, Mr. Joshi, learned Counsel for the appellant points out that the services were provided by individual Truck owners who are not covered by the definition of GTA as existing during the relevant period as they are not commercial concern. This according to Mr. Joshi has been the consistent view of the Tribunal as held in the matter of K.M.B. Granites Pvt. Ltd. v/s. Commissioner of Central Excise, Salem 2010 (19) S.T.R. 437 = (2010-TIOL-611-CESTAT-MAD), Salem Cooperative Sugar Mills 2010 (19) S.T.R. 435 = (2009-TIOL-1677-CESTAT-MAD) and Lakshminarayana Mining Co. 2009 (16) S.T.R. 691 = (2010-TIOL-122-CESTAT-BANG). The revenue has not been able to dispute the above position.

In the above circumstances, they were of a prima facie view that the appellant's appeal against order dated 17 October 2010 be heard on merits without requiring any pre-deposit of service tax.

Accordingly, the order dated 3 July 2013 and the order dated 14 May 2013 of the Tribunal directing pre-deposit of Rs. 10 ,04,928 /- are set aside. Further, the Tribunal is directed to hear the appellant's appeal from order dated 17 October 2012 of Commissioner (Appeals) on merits without insisting any pre-deposit.

Decision:- Appeal allowed.
Comment:-The essence of this case is that appeal may also be preferred against the order of the Tribunal directing pre-deposit of service tax when the same is contestable on merits and limitation both. It was concluded in this case that the condition for invocation of the extended period of limitation as provided under Section 73 of the Act and the condition precedent for imposing penalty under Section 78 of the Act are identical. viz there should be presence of either fraud, collusion or wilful misstatement or suppression of facts or contravention with intent to evade payment of service tax. As the Commissioner (Appeals) has come to a finding that for the relevant period, there was genuine cause for confusion regarding the correct legal position and also scope for doubt about the service tax liability on GTA so the imposition of penalty under section 78 is not proper; then the same cause is also to be factored in to conclude that extended period of limitation cannot be invoked. Accordingly, the order of the Tribunal directing the assessee to pre-deposit the amount of service tax was quashed and the appeal was allowed thereby directing the Tribunal to hear the same on merits.

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PJ/Case Law/2013-14/1971

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