The Chennai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has clarified that, although grounds not set out in the memorandum of appeal ordinarily cannot be urged without leave under Rule 10 of the CESTAT (Procedure) Rules, the issue of limitation stands on a different footing because it goes to jurisdiction and may be examined by the adjudicating or appellate authority even if not specifically raised by the appellant. However, where the show cause notices are only partly time-barred and not wholly beyond limitation, the proceedings are not rendered void for lack of jurisdiction; instead, the demand must be confined to the period lawfully recoverable and reworked accordingly.
The CESTAT held that where there is nothing on record to establish that service tax was collected separately from the recipient of service, or that the assessee recovered the tax after the demand was raised, the gross consideration received for taxable services is to be treated as inclusive of service tax, and the benefit of cum-tax valuation under Section 67(2) of the Finance Act, 1994 must be granted while determining taxable value.
The Tribunal also held that penalty under Section 78 cannot be sustained merely on non-payment of service tax; the statute requires the presence of fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade payment of service tax. Since no such allegation or supporting material was discernible in the present case, penalty under Section 78 was unsustainable, and for the same reason, the demand beyond the normal period could not be upheld. Accordingly, the Tribunal and remanded the matter to the Original Authority and directed that the appellant’s claim for exemption under Notification No. 25/2012-Service Tax dated 20.06.2012 be duly examined in accordance with law, and that due consideration also be given to CBEC Circular No. 200/10/2016-Service Tax dated 06.09.2016 while adjudicating the matter.
The Division Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) observed that under Rule 10 of the CESTAT (Procedure) Rules, 1982, an appellant ordinarily cannot urge grounds outside the memorandum of appeal without leave, and written submissions cannot replace the appeal memorandum. At the same time, it held that limitation goes to the root of the matter and may be examined even if not specifically pleaded.
On the facts, the Tribunal found that a portion of the first show cause notice fell beyond the extended period and a portion of the second notice also appeared to travel beyond the prescribed period, requiring re-quantification, but held that neither notice was wholly barred by limitation.
The Tribunal then turned to the merits of cum-tax benefit and penalty and observed that, in the absence of material showing that service tax had been separately collected or subsequently recovered from service recipients, the gross consideration should be treated as inclusive of service tax. It further observed that for penalty under Section 78, the Revenue must establish fraud, collusion, wilful misstatement, suppression of facts, or contravention with intent to evade tax, and mere non-payment or non-registration is not enough. On the record, no such blameworthy conduct or conscious intent to evade was discernible from the show cause notices.
Briefly, appellant, a society registered under the Tamil Nadu Societies Registration Act, owned immovable properties at Tuticorin, constructed shops thereon, and rented them out for commercial purposes. The department treated this activity as taxable under “Renting of Immovable Property Service” under the Finance Act, 1994, and alleged that the appellant had neither obtained registration nor paid service tax for the period from June 2007 to March 2014. Two show cause notices were issued and the adjudicating authority confirmed a total demand of Rs. 21.69 lakhs with interest and equal penalty. On first appeal, the Commissioner (Appeals) partly allowed the appeal by extending the benefit of Notification No. 24/2007-ST dated 22.05.2007 and Notification No. 29/2012-ST dated 20.06.2012 for exclusion of municipal taxes and remanded the matter for re-quantification, Dissatisfied, the appellant approached the CESTAT.
