Patna High Court: Non-Registration For Service Tax Not Sufficient Grounds To Assume Fraud Or Willful Tax Evasion For Invoking The Extended Five-Year Limitation Period U/s. 73(1) Finance Act

The Court quashed a demand-cum-show cause notice and subsequent Order issued by the Assistant Commissioner, CGST, which sought to impose service tax, interest, and penalties on a government contractor (Petitioner). The Petitioner had challenged the tax demand related to royalty deductions from his payments during the 2016-17 financial year.

A Division Bench of Justice Rajeev Ranjan Prasad and Justice Sourendra Pandey held, “This Court finds much force in the submission of the petitioner that had the Government Department issued invoice as required under Rule 4A of the Service Tax Rules, 1994, he would have come to know the requirement of payment of service tax and the rate at which it was required to be paid. The relevant Rule which we have taken note of hereinabove is mandatory as it casts a duty upon every person liable for paying the service tax to make an application to the concerned Superintendent of Central Excise in Form ST-1 for registration within the 30 days from the date in which the service tax under Section 66B of the Finance Act is levied. Proviso to Sub-Rule (1) of Rule 4 further says that where a person commences the business of providing a taxable service after such service has been levied, he shall make an application for registration within a period of thirty days from the date of such commencement.”

Advocate Ramesh Kumar Agrawal appeared for the Petitioner, while ASG KN Singh represented the Respondents.

Brief Facts

The Respondents submitted that the deducted royalty was an amount paid to the government for "permission for license" to use natural resources, and considered it a taxable service. The Respondents contended that the Petitioner, as the service recipient, was liable to pay service tax under the Reverse Charge Mechanism (RCM).

The Petitioner argued that the demand-cum-show cause notice was barred by limitation under Section 73(1) of the Finance Act, 1994 (the Act) as it was issued beyond the prescribed period. He contended that the extended period of five years was wrongly invoked, as his case did not involve fraud, collusion, willful misstatement, suppression of facts, or contravention of any provisions of the Act.

Court’s Reasoning

The High Court held that “the plea of the respondent that the petitioner had not taken registration of the service tax would alone not be a reason to believe that he has committed a fraud or has wilfully suppressed his liability to pay the tax. Rule 4A casts a duty upon every person providing taxable service (not later than thirty days from the date of completion of such taxable service whichever is earlier to issue an invoice, a bill or as the case may be a challan signed by such person or a person authorised by him in respect of such taxable service provided or agreed to be provided.”

“It is evident from a reading of Sub-Section (1) of Section 73 that the prescribed period of limitation for serving a notice on the person chargeable with service tax is thirty months from the relevant date. The words ‘thirty months’ have been substituted for ‘eighteen months’ by Finance Act, 2016 (28 of 2016), dt.14-5-2016. Proviso to Sub-Section (1) of Section 73, however, permits invocation of extended period of limitation of five years in the cases where service tax has not been paid by reason of fraud or collusion or wilful misstatement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax,” the Bench explained.

The Bench stated that the failure of the department to issue an invoice, as required by Rule 4A of the Service Tax Rules, 1994, meant it was not a case where the Petitioner could be said to have committed fraud or wilfully evaded service tax.

Consequently, the Court ordered, “In the opinion of this Court, it is not one of those cases in which the petitioner may be said to have committed a fraud or acted with an intention to evade the service tax. The show cause is barred by limitation. The benefit of extended period of limitation would not be available to the respondent no. 2. Hence, the SCN…and the consequent order confirming the demand…to the writ application are quashed.”

Accordingly, the High Court allowed the Writ Application.

Cause Title: Anil Kumar Singh v. The Union of India & Ors. (Civil Writ Jurisdiction Case No.9105 of 2024)

Appearance:

Petitioner: Advocates Ramesh Kumar Agrawal and Sanjeev Kumar

Respondents: ASG K. N. Singh; Senior SC Anshuman Singh

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