Court’s decision
The Customs excise and service tax appellate tribunal allowed the appeal and set aside the demand of service tax, interest, and penalties. It held that the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 could not be invoked in the facts of the case. The Tribunal concluded that the dispute relating to taxability of car parking charges during the relevant period was purely interpretational and legal in nature, and there was no evidence of deliberate suppression, wilful misstatement, or intent to evade tax.
The Tribunal observed that the assessee had maintained proper records, discharged service tax on basic sale price, and regularly filed returns. The entire demand arose only after audit, which by itself could not justify invocation of the extended limitation. Consequently, the Tribunal held that the demand beyond the normal limitation period was barred and unsustainable in law.
Facts
The assessee was engaged in construction and development of residential complexes and entered into agreements with prospective buyers at the pre-construction stage. Under such agreements, various amounts were collected including basic sale price, preferential location charges, and separately identified car parking charges. Service tax was discharged on the basic sale price under the category of construction of complex services.
For the period prior to July 2012, the assessee did not pay service tax on car parking charges on the bona fide belief that such charges were excluded from the taxable value. After the introduction of the negative list regime, the assessee began paying service tax on car parking charges. A departmental audit later raised an objection and a show cause notice was issued invoking the extended period of limitation for the period July 2010 to June 2012.
Issues
Whether car parking charges collected by a developer prior to July 2012 were taxable under construction of complex services.
Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 could be invoked.
Whether non-payment of service tax on car parking charges amounted to suppression of facts with intent to evade tax.
Whether penalties under Sections 77 and 78 of the Finance Act were sustainable.
Petitioner’s Arguments
The assessee contended that the issue involved interpretation of taxability of car parking charges, which was highly debatable during the relevant period. It was submitted that there was no concealment of facts as all transactions were duly recorded in the books of accounts and reflected in agreements with buyers. The assessee argued that it had regularly filed ST-3 returns and discharged service tax on other taxable components.
It was further argued that mere non-payment of tax, without any positive act of suppression or wilful misstatement, could not justify invocation of the extended period. The assessee relied on settled Supreme Court jurisprudence holding that audit detection does not automatically establish intent to evade tax.
Respondent’s Arguments
The Department argued that the assessee failed to disclose the taxable value of car parking charges in ST-3 returns and therefore suppressed material facts. It was contended that but for the audit, the non-payment of service tax would not have come to the notice of the Department.
The Revenue submitted that the assessee had an obligation under the self-assessment scheme to correctly assess and pay service tax, and failure to do so amounted to wilful suppression. On this basis, invocation of the extended period and imposition of penalties were justified.
Analysis of the law
The Tribunal examined Section 73 of the Finance Act, 1994 and reiterated that the extended period of limitation is an exception and can be invoked only when non-payment of tax is due to fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax.
The Tribunal emphasised that “suppression” must be deliberate and accompanied by intent to evade tax. Mere omission or failure to pay tax due to a legal misunderstanding does not satisfy the statutory threshold. The Tribunal also noted that where records are maintained and returns are filed, the Department cannot allege suppression solely because the issue surfaced during audit.
Precedent Analysis
The Tribunal relied extensively on Supreme Court decisions interpreting identical language under Section 11A of the Central Excise Act. It applied the ratio that suppression must be deliberate and cannot be inferred merely from non-payment.
Judgments clarifying that interpretational disputes fall outside the scope of extended limitation were followed. The Tribunal also relied on decisions holding that audit objections cannot substitute statutory ingredients required for invoking extended limitation. These precedents directly governed the controversy.
Court’s Reasoning
The Tribunal found that the assessee’s conduct was consistent with a bona fide interpretation of law. It noted that the assessee began paying service tax on car parking charges once the negative list regime was introduced, which reinforced the absence of intent to evade.
The Tribunal rejected the reasoning that non-disclosure in returns automatically amounted to suppression. It held that the Department failed to establish any positive act of concealment. Accordingly, the extended period invocation and penalties were held to be legally untenable.
Conclusion
The Tribunal allowed the appeal and set aside the entire demand, interest, and penalties. It held that the extended period of limitation was wrongly invoked and the demand was barred by limitation.
Implications
This ruling reinforces the principle that interpretational disputes cannot be converted into allegations of suppression. It provides significant protection to assessees against retrospective demands based solely on audit objections.
