Whether invocation of extended period justified if no point was raised by audit party before?

PJ/CASE LAW/2016-17/3143

Case:-SANJAY AUTOMOBILE ENGINEERING PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-III

Citation:-2016-TIOL-1314-CESTAT-MUM

Brief Facts:- This appeal is directed against Order-in-Appeal No. P-III/VM/110/10 dated 26/05/2010 passed by the Commissioner of Central Excise (Appeals), Pune-III.
Demand of service tax is for the period July 2003 to March 2007 which is in respect of the alleged services rendered by the appellant in the category of ‘Business Auxiliary Service' and ‘Business Support Service'. It is the case of the Revenue that during the material period appellant had received commission paid by banking and insurance companies, subvented commission to its customers and provided infrastructural support services for which having received some amount not discharged tax liability.

Appellant Contentions:-It is the argument of the learned counsel that on merits the issue is covered against the appellant by the larger bench decision in the case of Pagariya Auto Centre 2014 (33) STR 506 (T-LB) = 2014-TIOL-141-CESTAT-DEL-LB. At the same time he would submit that the question of limitation of the demand of the tax liability has not been addressed by the lower authorities in correct perspective. He would draw attention to the fact that the appellant had bona fide belief that the tax liability does not arise on the amount of commission received as it was held in various cases and the matter was finally settled by the larger bench in the case of Pagariya Auto Centre (supra). He would also submit that the EA-2000 audit was conducted for the period July 2001 to March 2006 and concluded on 09/08/2006. Despite such detailed audit, no point was raised by the audit party of taxability of the commission received by the appellant. He would submit since the show cause notice is dated 21/10/2008, the entire demand is hit by limitation.

Respondent Contentions:-The learned departmental representative reiterates the findings of the lower authorities and submits that the audit party of the Commissionerate does not look into the entire records to come to a conclusion that they have considered all the angles. It is the submission that the mandate for the audit party is very limited and the appellant having not declared the receipt of commission has suppressed the fact from the department and is liable to pay the tax for the extended period also.

Reasoning of Judgment:-Heard both the sides and perused the records.
We find that the issue of discharge of service tax liability on the commission received from the financial institutions and the insurance companies by an automobile dealer is taxable is the law now settled by the larger bench. As regards the question of limitation, on perusal of the audit report annexed to page No. 21 of the appeal memorandum, we find that it was a EA-2000 audit conducted by the service tax cell of Pune Commissionerate and the audit party undertook the audit on 03/05/2007, 10 th and 12 th July 2006 and on August 9, 2006. The said audit report does not indicate that they had raised a query as to taxability of the commission received by the appellant. It is undisputed that the appellant had recorded the amount of commission as income in the balance sheet. In spite of such detailed audit which was undertaken for the period July 2001 to March 2006, we find that, except for one small amount of interest not paid on the incentives, no objections were raised. It would mean that the Revenue authorities were aware of the amount received as commission by the appellant and recorded in the balance sheet. It is common knowledge that the EA-2000 audit is an extensive audit of the records of the assessee.
We find that the Hon'ble High Court of Karnataka in the case of MTR Foods 2012 (182) ELT 196 (Kar.) = 2011-TIOL-696-HC-KAR-CX has held that once the audit of the records of the assessee takes place no objection is taken on a issue in dispute, the demand raised by invoking the extended period is unsustainable.
In view of the authoritative judicial pronouncement and in the facts of this case, we hold that the demand is barred by limitation. The impugned order is set aside and the appeal is allowed only on the ground of limitation.

Decision:-Appeal allowed.

Comment:-The gist of this case is that demand raised by invoking extended period is not sustainable as despite the detailed audit, no point was raised by the audit party for taxability of the commission received by the appellant. Therefore, it would mean that the Revenue authorities were aware of the amount received as commission by the assessee and recorded in the balance sheet. Hence, the demand was barred by the clause of limitation.

Prepared By: Hushen Ganodwala

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PJ/CASE LAW/2016-17/3143

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