Mr. K.K. Maiti Adv.
1. The subject appeal under Section 35G of the Central Excise Act, 1944, is
Bench, Kolkata in S.P A.P. 31 of 2007. Section 35G enables filing of an
appeal to the High Court when a substantive question of law is involved.
2. By the said judgment dated May 29, 2008, the Tribunal has partially
between the years September 1999 to March 2004. The Ld. Tribunal,
3. The appellant herein is Naresh Kumar and Company, a registered
partnership firm. The respondent is the Central Commissioner of Service
Tax, Kolkata. The appellant is a service provider. The respondent has
the appellant to the said two companies. The tax claimed is for the period
September 1999 to March 2004. The tax break-up is set out hereinafter.
4. The undisputed records indicate that the appellant undertook to do
executed between the parties. The terms and conditions of the
I. To receive and unload the materials of the said two
companies.
II. To thereafter transport the said materials.
III. To also arrange for the storage of the materials.
IV. To further ensure that the said materials are forwarded
to customers of the said two companies.
5. The appellant also assisted the personnel of TISCO in conducting stock
verification of the goods lying in the godown. The TISCO used to pay
the appellant for the said service, in addition to remuneration paid for
the clearing and forwarding services. The appellant also undertook the
work of cutting and bending steel products of TISCO. The latter also
remunerated the former for the said service.
6. The respondent revenue authority has classified the aforesaid services
as 'Clearing and Forwarding' services under the Finance Act, 1994. The
appellant disputes the same. The appellant has argued that it did not
provide any clearing and forwarding services to the said companies. The
appellant has taken a novel plea that it has only provided either clearing
or forwarding services to the said companies. It simultaneously did not
provide both clearing and forwarding services to the said companies.
The appellant has argued that the mandate of the Finance Act is that an
entity has to simultaneously provide clearing and forwarding services to
be taxed thereunder.
7. The services provided by the appellant to the said two companies came
under the radar of the revenue authority when the later conducted a
search and seizure operation in the office premises of the appellant. The
Deputy Commissioner of Central Excise, Kolkata has stated that upon
receiving information from sources, of evasion of service tax by the
appellant, he carried out a search and seizure operation at the appellant's
office premises at 9B Wood Street, Kokata -700016 on April 19, 2002. The
Commissioner of Central Excise authorized the said search and seizure.
8. The appellant sent the letter dated May 2nd, 2002 to the
Commissioner of Central Excise, Kolkata and the Deputy
Commissioner of Central Excise, Kolkata regarding the said search
and seizure operation. In the said letter dated May 2 nd, 2002, the
appellant argued that it did not provide the services of a 'Clearing and
Forwarding' agent to the said two companies. The appellant submitted
that the services provided by it to the said two companies do not fall
under any of the taxable services under the Finance Act, 1994.The
appellant thus argued that the remuneration received by it from the
said two companies during September, 1999 to March, 2004 cannot be
taxed under the Finance Act. The appellant submitted that the said
search and seizure operation is illegal.
9. Within 2 years of the said search and seizure operation, the
respondent revenue authority further visited the said office premises of
the appellant on January 29, 2004. It found that the appellant had
registered itself under the Central Excise Act on May 27, 2002 i.e. 38
days after the aforesaid search and seizure operation. The respondent
revenue authority found that the appellant has started to pay services
tax on the remuneration received from the said two companies from
the financial year 2002- 2003.
10. Therefore, it is clearly seen that after the said search and seizure
operation conducted on April 19, 2002, the appellant voluntarily
registered itself under the Central Excise Act and obtained a certificate
of service tax registration. During the said visit, the respondent further
found that even after the said registration under the Central Excise
Act on May 27, 2002, the appellant is not paying the service taxat the
rate mandated under the Central Excise Act as amended by the
Finance Act.
11. Accordingly, on June 10, 2004, the Senior Intelligence Officer of the
respondent send summons to the appellant. The General Manager of
the appellant attended the office of the respondent and was
interrogated. During the interrogation, it was revealed that the
appellant did not pay any service tax for the period 1999 to 2004 for
the services and remuneration rendered and received by it from the
said two companies.
12. During the interrogation, the said General Manager of the appellant
firm informed that the appellant firm had deposited Rs 5,32 744/-
(rupees five lakhs, thirty-two thousand and seven hundred and forty-
four) on January 29, 2004 with the respondent revenue authority, the
day when the respondent revenue authority visited the office premises
of the appellant firm.
13. During interrogation, the General Manager of the appellant firm
admitted the said payment was made towards the past service tax
dues for the period of September 1999 to December 1999. The
appellant further deposited Rs 20 lakhs on the direction of the
Assistant Commissioner Central Excise, Tiljala Division, towards past
service tax dues. The general manager of the appellant stated that the
appellant firm works as a consignment agent for the said two
companies.
14. The appellant firm was show caused vide Notice dated September 13,
2004. The said show cause notice levelled the following evasions of tax,
committed by the appellant:-
HEAD OF TAX THE PERIOD OF AMOUNT OF TAX
EVASION. CLAIMED.
Item no. 1. September 1st, 1999 Rs. 49,27,918 ( rupees
Clearing and to 31st, March, 2002 forty-nine lakhs,
Forwarding twenty seven
services thousand, and nine
hundred and eighty
only).
Item no. 2- Tax on September, 1999- Rs 36,56,555 (thirty-six
the direct expenses March 2004 lakhs, fifty-six thousand
of the appellant and five hundred and
amounting to Rs fifty- five.
6,64,45,249 (Six
crores, sixty four
lakhs, forty-five
thousand, and two
hundred and forty
nine.
Item no. 3- Bending September, 1999- 3, 71, 610(three lakhs
and Bundling March, 2004 seventy- one thousand
services for which and six hundred and ten
remuneration
received Rs
66,44,322 (sixty six
lakhs, forty-four
thousand and three
hundred and twenty
two)
Item no. 4- Stock September 1999- 80, 402 (eighty
verification services March 2004 thousand and four
for which hundred and two only.
remuneration
received Rs 14, 71,
445( rupees fourteen
lakhs, seventy-one
thousand and four
hundred and forty
five).
Item no- 5- Clearing September 27, 2002 Rs 48,396. (Forty eight
and forwarding to May 10, 2004 thousand and three
services provided to hundred and ninety six.
the TRIAL for which
remuneration
received was 7,45,
231(seven lakhs
forty-five and two
hundred and thirty
one.
15. The appellant sent a reply dated May 20, 2005 to the aforesaid show
cause notice dated September 13, 2004. The appellant argued that it is not
a Clearing and Forwarding agent. It instead has provided cargo handling
services and business support services to the said two companies. Thus, it
is not liable to pay any service tax under the head Clearing and Forwarding
services. The appellant further filed additional reply dated August 29, 2006
to the said show cause notice. The appellant argued that the claim of
service tax is barred by limitation under Section 73 of the Finance Act,
1994.
16. The Central Commissioner of Service Tax, Kolkata, (the first authority)
passed the order dated March 22, 2007 upholding the claim of service tax,
of the respondents, against the appellants. The first authority upon perusal
of the agreement between the parties held that the appellant is indeed a
Clearing and Forwarding agent. The first authority has negated the
argument that the appellant was involved in only clearing services, and
held that the appellant was a clearing and forwarding agent. The first
authority held that the extended period of limitation under Sec. 73 of the
Finance Act, 1994 applies to the claim of service tax against the appellant
firm. The first authority upheld the imposition of penalty on the appellant
firm for evading service tax.
17. The appellant preferred the appeal against the aforesaid order of the
first authority. The Ld. Appellate Tribunal upheld the decision of the first
authority that the appellant is a Clearing and Forwarding agent. The
Tribunal however remanded the issue of limitation and imposition of
penalty to the first authority for re-adjudication. The appellant has
challenged the said judgment and order of the Tribunal in the present
appeal.
18. In the order dated December, 3rd, 2009, a coordinate Bench of this
Court admitted the present appeal by framing the following substantial
questions of law:-
(i) Whether the learned Tribunal was justified in passing an
order of remand on the issues mentioned therein after
having decided on fact that the appellant is a clearing and
forwarding agent?
(ii) Whether on the facts and circumstances of the case and
also the materials placed before the learned Tribunal, the
learned Tribunal was legally correct to conclude that the
appellant is a clearing and forwarding agent?
19. The aforesaid questions were summarised in arguments by counsel for
the appellant, as follows:-
a. Whether the appellant provided any Clearing and
Forwarding services to M/s TISCO and TRL.
b. Was it not possible for the Tribunal to decide the point of
limitation against the claim of past service tax dues in
view of the evidence on record? Was the remand for re-
adjudicating the point of limitation unavoidable?
c. Was the remand for re-adjudicating the imposition of
penalty of evading service tax unavoidable in view of
the evidence on record
ANALYSIS OF THIS COURT
20. Learned counsel for the revenue, has argued that the subject appeal
ought to have been filed under Section 35L read with Section 35G of the
Central Excise Act, 1944 before the Honourable Supreme Court of India.
The subject appeal is thus barred under Section 35G, under which the
subject appeal is in fact been filed. The learned counsel seeks to rely on a
conjoint reading of Section 35G and 35L of the Central Excise Act in
support.
I) JURISDICTION
21. Section 35G is set out below:-
"35G. Appeal to High Court. - (1) An appeal shall lie to the
High Court from every order passed in appeal by the
Appellate Tribunal on or after the 1st day of July, 2003 (not
being an order relating, among other things, to the
determination of any question having a relation to the rate
of duty of excise or to the value of goods for purposes of
assessment), if the High Court is satisfied that the case
involves a substantial question of law."
22. Section 35G, therefore, excludes an appeal where the rate of excise
duty or the value of goods to be taxed is at issue. Clearly, in the present
case, we are not called on to decide the rate of service tax on the services
provided by the appellant to the said two companies. We are not
concerned with the value of the services provided by the appellant. In
fact, the appellant herein has provided services and in return has
received remuneration.
23. This Court, in this appeal is not concerned with the value of any
goods held by the appellant, since there is none. In the present case,
service tax was imposed on the remuneration for services rendered, but
not on the goods handled.
24. The questions framed by a coordinate Bench in this appeal and
further summarised by Counsel for the appellant, clearly indicate that
this Court is called upon to decide the questions of law arising from the
admitted facts on the record. The issues involved will not have a pan-
India effect in view of that we are not going to decide the rate of excise
duty or the value of goods to be assessed.
25. The scope of Section 35G was alluded to in Navin Chemicals Mfg
and Trading Co Ltd vs. Collector of Customs, reported in (1993) 4
SCC 320, wherein it was held as follows:-
"7. The controversy, therefore, relates to the meaning to be given to
the expression „determination of any question having a relation to
the rate of duty of customs or to the value of goods for purposes of
assessment‟. It seems to us that the key lies in the words „for
purposes of assessment‟ therein. Where the appeal involves the
determination of any question that has a relation to the rate of
customs duty for the purposes of assessment that appeal must be
heard by a Special Bench. Similarly, where the appeal involves the
determination of any question that has a relation to the value of
goods for the purposes of assessment, that appeal must be heard
by a Special Bench....... The phrase "relation to" is, ordinarily, of
wide import but, in the context of its use in the said expression in
Section 129-C, it must be read as meaning a direct and proximate
relationship to the rate of C Ex Ref No.1/2009 Page 4 of 10 duty
and to the value of goods for the purposes of assessment."
26. The limited bar under Section 35G applies when the question
raised has a relation with the rate of duty or value of goods. In the
present case, we are not faced with such a situation.
II. MERITS OF THE CASE-WHETHER THE APPELLANT FIRM HAS PROVIDED
SERVICES AS A CLEARING AND FORWARDING TO THE SAID M/S. TISCO & TRL.
27. The appellant is clearly guilty of approbation and reprobation.
The appellant has belatedly but voluntarily registered itself under the
Central Excise Act on May 27, 2002. The said registration was in
respect of the remuneration received by it from TISCO and TRL. The
appellant therefore has admitted that the said remuneration received
from the said two entities amenable to the service tax under the
Central Excise Act.
28. The said registration did not have a rider that the appellant
would be liable to pay the service tax from the date of its registration.
The event of registration will relate back to the date on and from which
the appellant started to provide Clearing and Forwarding services to
the TISCO and TRL. The reason is that the appellant got itself
specifically registered for payment of service tax, under the Central
Excise Act, in connection to its Clearing and Forwarding services
provided to TISCO and TRL.
29. The appellant started to provide the said services from
September 1999 and not from the date of the said registration. The
principle of relating back thus has to be applied to the remuneration of
the appellant received from September, 1999 onwards. Any other
interpretation will deprive the public exchequer from its entitled dues.
30. Further, the purpose of the said registration would be rendered
meaningless if the said registration does not include the period of
services provided by the appellant from September 1999 onwards.
31. Notably, the appellant got itself registered only after the search
and seizure operation conducted in its premises on April 19 th, 2002.
The said search and seizure operation was conducted in connection to
the services provided to the said two companies. The appellant
therefore was always aware that its remuneration received from TISCO
and TRL is subject to service tax. The appellant was, however, testing
the water till the time the revenue authorities took any action.
32. In fact, the appellant has also paid a sum of Rs 5,32 744 lakhs
on January 29, 2004 and a further amount of Rs 20 lakhs (Rupees
twenty lakhs) towards its past service tax dues for the period starting
from September 1999. Thus, the appellant by its conduct has admitted
to the incidence and application of service tax on the services rendered
to M/s TISCO and TRL with retrospective effect to its registration
under the Central Excise Act.
33. The aforesaid payment of Rs 5, 32, 744 lakhs was made on the
same day on which the General Manager of the appellant was
interrogated by the respondent i.e. on January 29 th, 2004. The
interrogation was in connection to the appellant's remuneration
received from TISCO and TRL. The said payment was made before the
issuance of the said show cause notice. The appellant therefore has
made the said payment knowing fully well and accepting its liability for
service tax. It did not pay the past dues of service tax under the threat
of any recovery proceedings. The appellant therefore cannot argue that
it would be liable to pay the service tax only from the date of its
registration under the Central Excise Act.
34. The appellant cannot take the advantage of the principle that
there is no estoppel against the law. It cannot claim that it paid a
portion of the past dues in an erroneous understanding of the law. The
plea of estoppel is applied with reference to the conduct of the parties.
The conduct of the appellant is evasive with respect to paying service
tax. The plea of promissory estoppel cannot be applied in isolation
from the conduct of the parties. The appellant therefore being
dishonest in its conduct cannot claim the benefit of an equitable
principle of law.
35. The appellant has first registered itself under the Central Excise
Act. Thereafter, the appellant has made payments towards past service
tax dues. The appellant made such registration and payments under
the tax bracket of Clearing and Forwarding services. The appellant
clearly understood the law as it is.
36. The concept of self-assessment will stand defeated if the
deliberate inaction of the appellant to register itself under the Central
Excise Act and pay service tax from 1999 to 2002 is condoned.
37. The definition of clearing and forwarding services is alluded to in
the decision in Coal Handlers (P) Ltd. v. CCE, reported in (2015) 11
SCC 683 wherein it was held as follows:-
15. From the reading of the definition contained in the aforesaid
provision, together with its dictionary meanings contained in legal
and commercial dictionaries, it becomes apparent that in order
to qualify as a C and F agent, such a person is to be found to
be engaged in providing any service connected with "clearing
and forwarding operations". Of course, once it is found that
such a person is providing the services which are connected
with the clearing and forwarding operations, then whether
such services are provided directly or indirectly would be of
no significance and such a person would be covered by the
definition. Therefore, we have to see as to what would constitute
clearing and forwarding operations. As is clear from the plain
meaning of the aforesaid expression, it would cover those
activities which pertain to clearing of the goods and
thereafter forwarding those goods to a particular
destination, at the instance and on the directions of the
principal. In the context of these appeals, it would
essentially include getting the coal cleared as an agent on
behalf of the principal from the supplier of the coal (which
would mean collieries in the present case) and thereafter
dispatching/forwarding the said coal to different
destinations as per the instructions of the principal. In the
process, it may include warehousing of the goods so cleared,
receiving dispatch orders from the principal, arranging
dispatch of the goods as per the instructions of the principal
by engaging transport on his own or through the
transporters of the principal, maintaining records of the
receipt and dispatch of the goods and the stock available in
the warehouses and preparing invoices on behalf of the
principal. The larger Bench rightly enumerated these activities
which the C and F agent is supposed to perform.
(Emphasis Applied)
38. A clearing and forwarding agent is therefore an entity who receives
and dispatches goods on behalf of the principal. In the process of receipt
and dispatch of the said goods, a Clearing and Forwarding agent may
need to store the goods. For that purpose, a clearing and forwarding
agent may need to have a warehouse. A clearing and forwarding agent
has to also arrange for the transportation of the said goods. The
appellant has to bear the transportation charges for forwarding the goods
to the destination. The appellant thus fulfils all the criteria adverted to in
the decision in Coal Handlers (supra).
39. The Appellant received materials of TISCO and TRL. The appellant
ensured that the said goods reach their destination. The appellant has
borne the transport expenses. Thus, the service tax of Rs. 49,27,918 (
rupees forty-nine lakhs, twenty seven thousand, and nine hundred and
eighty only) assessed between September 1st, 1999 to 31st, March, 2002
and the service tax of Rs 48,396 (Forty eight thousand and three
hundred and ninety six) for the period September 27, 2002 to May 10,
2004 under the head 'Clearing and Forwarding' are thus sustainable.
We therefore hold that the appellant firm is liable to pay the said amount
of service tax along with interest indicated hereinafter.
40. The appellant has dishonestly claimed exemption of service tax of
Rs 36,56,555 (thirty-six lakhs, fifty-six thousand and five hundred and
fifty- five on the direct expenses of Rs 6,64,45,249 (Six crores, sixty four
lakhs, forty-five thousand, and two hundred and forty nine) incurred by
it on transportation charges for forwarding the goods to their destination.
The transportation charges form part of the remuneration received by the
appellant from the said companies. Therefore the appellant cannot claim
exemption from service tax on the direct expenses. In fact in Coal
Handlers (supra), the Court held that a clearing and forwarding agent
has to bear the transport expenses of the goods. We therefore hold that
appellant firm is also liable to pay the said amount of service tax on
direct expenses along with interest indicated hereinafter.
41. The appellant has also undertaken the work of bending and bundling
the goods of the said two companies. This area of work, however, clearly
falls outside the scope of clearing and forwarding services. The clearing
and forwarding services will only include the incidental works required to
carry out the actual act of clearing and forwarding goods. For
illustration, the act of storing the goods in a proper place, namely in a
warehouse house. For this purpose, a clearing and forwarding agent may
need to purchase or rent a warehouse.
42. Bending and Bundling of goods have an impact on the nature of the
goods. It amounts to reshaping of the goods. Bending and Bundling may
change the character of the goods. The duty of a clearing and forwarding
agent is not to develop or change the character of the goods. In other
words, a clearing and forwarding agent is not concerned with the quality
and merits of the goods. A clearing and forwarding agent is indeed aware
of the nature of goods to preserve the goods. The service tax of Rs 3, 71,
610 (three lakhs seventy- one thousand and six hundred and ten) raised
towards the Bending and Bundling services for the period September,
1999- March, 2004 thus cannot be claimed under the head Clearing and
Forwarding Services. The said demand of service tax under the tax
bracket of Clearing and Forwarding services is thus quashed. The
revenue authority will, however be at liberty to tax the same under
appropriate tax heading, if any, under the Central Excise Act or
applicable tax laws and rules in accordance with law.
43. The appellant has also assisted the said two companies in the
stock verification of the goods received. The process of stock verification
is different from the preservation of the goods. Admittedly, the appellant
has educated employees of the two companies in ascertaining the quality
of the goods. The appellant thus had entered into the merits and quality
of the goods. The service of the stock verification of goods therefore does
not fall within the meaning of Clearing and Forwarding services.
44. The process of stock verification is not simply preservation of the
goods, which a Clearing and Forwarding agent is obliged to do. It is one
step ahead of it. The said companies have learnt about the goods from
the appellant. The imparting of the said learning is not required of a
Clearing and Forwarding agent. The service tax of 80, 402 (eighty
thousand and four hundred and two only for the period) raised for the
period September 1999- March 2004 towards stock verification charges
therefore cannot be levied under the head Clearing and Forwarding
services. The said demand of service tax thus is quashed. The revenue
will, however, at liberty to tax the said stock verification services of the
appellant provided to the said companies under the appropriate tax head
in accordance with the law.
III. WHETHER THE CLAIM OF DUES OF SERVICE TAX IS BARRED BY
LIMITATION UNDER SECTION 73
45. The appellant has argued that the claim of service tax is time-barred.
The show cause notice was issued on September 13, 2004. It demanded
the payment of service tax for the periods beginning from September
1999.
46. It is thus argued that the show cause notice was issued 4 years
after the cause of action for the payment of service tax arose in
September, 1999. The un-amended Sec. 73 of the Finance Act, 1994,
provides for two different periods of limitation (discussed hereinafter).
One was 1 year and other was 5 years.
47. The appellant has argued that it is covered by the un-amended
Sec.73. The appellant has argued that the period of limitation of 1 year
under Section 73 of the Finance Act applies to the issuance of the said
show cause notice. The show cause notice thus ought to have been
issued within one year from the September 1999.
48. In Union of India &Ors. v. Rajeev Bansal reported in 2024
INSC 754, it was held that the law existing on the date of the show
cause notice shall apply to the tax payer. Section 73 was amended by the
Finance Act, with effect from September 10, 2004. By the said
amendment, the period of limitation was increased from 1 year to 1 year
6 months. The said show cause notice was issued on September 13,
2004, i.e. 3 days after the said amendment. Thus, the amended section
73 will apply to the appellant in view of the decision in Rajeev Bansal
supra. Para no. 48 of Rajeev Bansal supra is set out below:-
48. Notices have to be judged according to the law existing on the
date the notice is issued...
49. Section 73 has undergone several amendments. Any legislation
should be read along with its subsequent amendments. The said
conjoint reading aids the interpretative exercise. Reference in this regard
may be made to decision in Rajeev Bansal (supra) wherein it was held
as follows:-
56.......The principle which emanates from Shamrao V Parulekar
(supra) is that after an amendment, the legislation has to be read
along with the amended provisions.
57. The legislative practice of amendment by substitution is often used
by the legislatures. The process of substitution of a statutory provision
generally involves two steps: first, the existing rule is deleted; and
second, the new rule is brought into existence in its place. The deletion
effectively repeals the existing provision. Thus, an amendment by
substitution results in the repeal of an earlier provision and its
replacement by a new provision. The repealed provision will cease to
operate from the date of repeal and the substituted provision will
commence operation from the date of its substitution. After the
substitution, the legislation must be read and construed as if the
altered words have been written into the legislation "with pen and ink
and the old words scored out." Therefore, after amendment by
substitution any reference to a legislation must be construed as the
legislation as amended by substitution.
50. The amended section 73 applicable to the appellant firm is set out
below:-
Section 73- Recovery of service tax not levied or paid or short-levied
or short-paid or erroneously refunded-
(1) Where any service tax has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, The Central
Excise Officer) may, within eighteen months] from the relevant
date, serve notice on the person chargeable with the service tax
which has not been levied or paid or which has been short-
levied or short-paid of the person to whom such tax refund has
erroneously been made, requiring him to show cause why he
should not pay the amount specified in the notice:
Provided that where any service tax has not been
levied or paid or has been short-levied or short-paid
or erroneously refunded by reason of
(a) fraud; or
(b) collusion, or
(c) wilful mis-statement, or
(d) suppression of facts; or
(e) 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 or his agent, the
provisions of this sub-section shall have effect, as if, for the
words eighteen months), the words "five years" had been
substituted.
Explanation- Where the service of the notice is stayed by an order of
a court, the period of such stay shall be excluded in computing the
aforesaid period of "[eighteen months) or five years, as the case may
be.
(1A) Where any service tax has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, by reason of
fraud collusion or any willfulmis-statement or suppression of
facts, or contravention of any of the provisions of this Chapter or
the rules made thereunder, with intent to evade payment of
service tax, by such person or his agent, to whom a notice is
served under the proviso to sub-section (1) by the Central Excise
Officer, such person or agent may pay service tax in full or in
part as may be accepted by him, and the interest payable thereon
under section 75 and penalty equal to twenty-five per cent of the
service tax specified in the notice or the service tax so accepted
by such person within thirty days of the receipt of the notice"
(2) The [Central Excise Officer, shall after considering the representation,
if any. made by the person on whom notice is served under sub-section
(1), determine the amount of service tax due from, or erroneously
refunded to, such person (not being in excess of the amount specified
in the notice) and thereupon such person shall pay the amount so
determined.
"Provided that where such person has paid the service tax in
full together with interest and penalty under sub-section
(1A), the proceedings in respect of such person and other
persons to whom notices are served under sub-section (1)
shall be deemed to be concluded:
Provided further that where such person has paid service tax
in part along with interest and penalty under sub-section
(1A), the Central Excise Officer shall determine the amount of
service tax or interest not being in excess of the amount
partly due from such person.
(3) Where any service tax has not been levied or paid or has been short-levied
or short-paid or erroneously refunded, the person chargeable with the
service tax, or the person to whom such tax refund has erroneously been
made, may pay the amount of such service tax, chargeable or erroneously
refunded, on the basis of his own ascertainment thereof, or on the basis
of tax ascertained by a Central Excise Officer before service of notice on
him under sub-section (1) in respect of such service tax, and inform the
[Central Excise Officer) of such payment in writing, who, on receipt of
such information shall not serve any notice under sub-section (1) in
respect of the amount so paid:
Provided that the [Central Excise Officer) may determine the
amount of short payment of service tax or erroneously
refunded service tax, if any, which in his opinion has not
been paid by such person and, then, the [Central Excise
Officer) shall proceed to recover such amount in the manner
specified in this section, and the period of "[thirty months)
referred to in sub-section (1) shall be counted from the date
of receipt of such information of payment.
Explanation 1 -For the removal of doubts, it is hereby declared
that the interest under section 75 shall be payable on the
amount paid by the person under this sub-section and also on
the amount of short payment of service tax or erroneously
refunded service tax, if any, as may be determined by the
Central Excise Officer) but for this sub-section
Explanation 2-For the removal of doubts, it is hereby declared that no penalty
under any of the provisions of this Act or the rules made thereunder shall be
imposed in respect of payment of service-tax under this sub-section and
interest thereon.]
(4) Nothing contained in sub-section (3) shall apply to a case where any
service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded by reason of
(a) fraud; or
(b) collusion; or
(c) wilfulmis-statement; or
(a) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the
rules made thereunder with intent to evade payment of service tax.
(4A) Notwithstanding anything contained in sub-section (4), where
during the course of any audit, investigation or verification, it is
found that any service tax has not been levied or paid or has been
short-levied or short-paid or erroneously refunded, but the true
and complete details of transactions are available in the
specified records, the person chargeable to service tax or to whom
erroneous refund has been made, may pay the service tax in full or
in part, as he may accept to be the amount of tax chargeable or
erroneously refunded along with interest payable thereon under
section 75 and penalty equal to one per cent of such tax, for each
month, for the period during which the default continues, up to a
maximum of twenty-five per cent of the tax amount, before service
of notice on him and inform the Central Excise Officer of such
payment in writing, who, on receipt of such information, shall not
serve any notice under sub-section (1) in respect of the amount so
paid and proceedings in respect of the said amount of service tax
shall be deemed to have been concluded:
Provided that the Central Excise Officer may determine the
amount of service tax, if any, due from such person, which in his
opinion remains to be paid by such person and shall proceed to
recover such amount in the manner specified in sub-section
(1).
Explanation.-For the purposes of this sub-section and section 78,
"specified records" means records including computerized
data as are required to be maintained by an assesse in
accordance with any law for the time being in force or where
there is no such requirement, the invoices recorded by the
assesse in the books of account shall be considered as the
specified records.
(5) The provisions of sub section (3) shall not apply to any case where the
service tax had become payable or ought to have been paid before the
14th day of May. 2003.
(6) For the purposes of this section, "relevant date" means,-
(i) in the case of taxable service in respect of which service tax has not
been levied or paid or has been short-levied or short-paid-
(a) where under the rules made under this Chapter, a
periodical return, showing particulars of service tax paid
during the period to which the said return relates, is to be
filed by an assessee, the date on which such return is so
filed,
(b) where no periodical return as aforesaid is filed, the last
date on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to
be paid under this Chapter or the rules made thereunder;
(ii) in a case where the service tax is provisionally assessed under this Chapter
or the rules made thereunder, the date of adjustment of the service tax after
the final assessment thereof;
(iii) in a case where any sum, relating to service tax, has erroneously been
refunded, the date of such refund.
51. Section 73 is lengthy. Its fundamental purpose, however, is that it
enables the revenue authority to recover the unpaid service tax by
issuing a show cause notice. Section 73 provides periods of limitation for
the initiation of recovery proceedings. Sec. 73 contemplates two
situations under which the correct amount of service tax may not be
credited to the revenue authorities.
52. The first situation is when the taxpayer has honestly filed its returns,
the amount of service tax however appears to the revenue authorities
under-assessed. The revenue authority in that event can raise a claim
within 1 year 6 months from the relevant date. The relevant date is
defined under sub-section of Section 73. It will be discussed presently.
This fundamental purpose of Sec. 73 has remained un-amended.
53. The second situation is when the taxpayer suppressed information from
the revenue authorities. As a result, the assessment of the service tax
was undervalued or no service tax returns and consequently no service
taxhave been paid at all. In that event, the revenue authorities will also
be entitled to raise a claim within 5 years from the relevant date. This
fundamental purpose of Sec. 73 has also remained un-amended. The
nature of the amendments effected in Section 73 may be summarized
below:-
a) When the taxpayer pays the unpaid service tax before the
issuance of the show cause notice, the amount of penalty
that may be imposed.
b) When the taxpayer has paid the unpaid service tax
immediately upon the service of the show cause notice
upon him, the amount of penalty that may be imposed.
c) The length of the period of limitation that should apply to
the issuance of a show cause notice when the taxpayer is
not at fault but the revenue authority is at fault, for the
under-assessment of service tax.
d) The length of the period of limitation that should apply to
the issuance of a show cause notice when the taxpayer
has suppressed information to evade tax.
54. Clearly therefore, the amendments introduced to Section 73 is to
ensure that taxable services do not go un-assessed or under-assessed, as
the case may be. This is evident from the amendment to the period of
limitation. The period of limitation has been increased from time to time.
This is further evident from a higher period of limitation fixed to recover
unpaid service tax, when the taxpayer has suppressed information to
evade tax.
55. Amendments to Section 73 have encouraged a taxpayer to duly pay
the correct amount of service tax. In that regard, section 73 has provided
that if a person pays the unpaid service tax before the issuance of the
show cause notice, the penalty will be lesser. Whereas when paid after
the issuance of the show causes notice, the penalty will be higher.
Clearly therefore, the period of limitation under Sec.73 should be
interpreted in a way that encourages the taxpayer to pay the unpaid
service tax.
56. Section 73 prescribes two different periods of limitation for the said
two situations. A limitation period of 1 year 6 months has been fixed for
recovering unpaid service tax in the first situation. Whereas, a limitation
period of 5 years is fixed for recovering unpaid tax in the second
situation.
57. In the first situation, the service tax has remained unpaid due to
the fault of the revenue authority. In the second situation the service tax
remained unpaid because the tax payer made misleading statements in
its returns.
58. The fixation of different limitation periods has a purpose. The
Legislature has indeed taken note of the situation at ground zero and
genuine difficulties faced by the revenue authority to trace unpaid service
tax. In a case where the taxpayer has suppressed facts to evade tax, the
revenue authority may not be able to immediately call out the said action
of the taxpayer and raise a claim. The revenue authority may need to be
tipped off or conduct its own research to know that an entity is evading
tax. Thus, a higher period of limitation is fixed i.e. 5 years.
59. However, when the taxpayer has presented all relevant facts before
the revenue authority in its returns, a lower period of limitation is fixed
to recover the unpaid service tax i.e. 2 years. The latter case is based on
the premise that a citizen should not suffer due to the fault of the state.
The Legislature expected that the revenue authority will act swiftly to
detect any under-assessed return, when the taxpayer had filed correct
tax returns, hence, a lower period of limitation has been prescribed.
60. In light of the above, the plea for an extended period limitation has to be
considered.
61. The appellant has argued that the claim of service tax relates to the
financial year 1999 onwards. The show cause notice for the said claim
however was issued on September 13, 2004. The appellant has argued
that it is covered by the first situation of section 73, where the taxpayer
is not at fault. The limitation period therefor will be of 1 year and 6
months. The said claim is thus time barred having been issued after 4
year whereas it ought to have been issued within 1 years and 6 months
from September, 1999.
62. This Court notes that the cause of action for the show-cause notice
dated September 13, 2004, stood revived on January 29, 2004. On
January 29, 2004, the revenue authority visited the official premises of
the appellant. On that very date, the Appellant paid Rs 5, 32, 744, (
rupees five lakhs, thirty-two thousand and seven hundred and forty-four)
and Rs 20 lakhs(twenty lakhs) towards the past service tax dues i.e. from
September 1999 onwards.
63. The principle flowing from Section 18 of the Limitation Act, 1936
can be applied to the said payments. Indeed Section 18 provides for
acknowledgement of debt before the expiration of period of limitation.
The said Section however codifies the principle that when the debtor
comes forward and admits his liability, the said admission renews the
cause of action. Reference in this regard may be made to the decision in
Il & Fs Financial Services Limited Appellant (S) Versus
AdhunikMeghalaya Steels Private Limitedreported in 2025 INSC
911, wherein it was held as follows:-
27. It will be clear from the above passage that an
acknowledgment of debt merely renews the debt and does not
create a new right of action. It is further essential that the
acknowledgment must relate to a subsisting liability and must
indicate the jural relationship between the parties such as that of
debtor and creditor, and it must appear that the statement is
made with the intention to admit such jural relationship. It was
also held that such intention can be inferred by implication from
the nature of the admission and need not be expressed in words.
It has also been held that in construing the words used in the
statements, surrounding circumstances can always be considered
and that Courts lean in favour of a liberal construction of such
statements, though intention cannot be fastened by an involved
or far-fetched process of reasoning.
64. The said payment has established the jural relationship between
the appellant and revenue authority i.e. relationship between the
taxpayer and tax-collector. The jural relationship was with regard to
'Clearing and Forwarding' services provided by the appellant to the said
two companies. The amount of the said payment by the appellant,
however, did not cover all the past dues of service tax. Accordingly, the
general manager of the appellant was interrogated on June 10, 2004. On
September 13, 2004, the Show Cause Notice was issued.
65. Thus, assuming that the appellant did not commit any wrong and
thus the limitation period of 1 year and 6 months will apply, then also,
the show cause notice was issued within 2 years from January 29, 2004,
when the appellant made the said payment towards past service tax
dues.
66. The said payments are covered under sub-section 4A of Section 73.
The said sub-section 4A of Section 73 stood omitted by the Finance Act ,
2015 w.e.f. 14.05.2015. Since the payment was made on January 29,
2004 before sub-section 4A was omitted, it would apply to the said
payment. Sub section 4A of section 73 is set out below:-
(4A) Notwithstanding anything contained in sub-section (4), where during
the course of any audit, investigation or verification, it is found that
any service tax has not been levied or paid or has been short-levied or
short-paid or erroneously refunded, but the true and complete details
of transactions are available in the specified records, the person
chargeable to service tax or to whom erroneous refund has been made,
may pay the service tax in full or in part, as he may accept to be the
amount of tax chargeable or erroneously refunded along with interest
payable thereon under section 75 and penalty equal to one per cent of
such tax, for each month, for the period during which the default
continues, up to a maximum of twenty-five per cent of the tax amount,
before service of notice on him and inform the Central Excise Officer of
such payment in writing, who, on receipt of such information, shall not
serve any notice under sub-section (1) in respect of the amount so paid
and proceedings in respect of the said amount of service tax shall be
deemed to have been concluded:
Provided that the Central Excise Officer may determine the
amount of service tax, if any, due from such person, which in his
opinion remains to be paid by such person and shall proceed to
recover such amount in the manner specified in sub-section
(1).
Explanation.-For the purposes of this sub-section and section 78,
"specified records" means records including computerized
data as are required to be maintained by an assesse in
accordance with any law for the time being in force or
where there is no such requirement, the invoices recorded by
the assesse in the books of account shall be considered as
the specified records.
67. Sub section 4A of Section 73 covers a situation where the tax payer
has cleared the past service tax dues upon the investigation or
verification conducted by the revenue authority. On January 29th, 2004,
the revenue authority visited the office premises of the appellant. The
said visit thus falls within the scope of investigation or verification under
sub-section 4A of Sec.73.
68. During the said visit, the revenue authority came to learn about
the deficit payment of service tax by the appellant. Admittedly, the
revenue authority has issued the said show cause notice based on the
information revealed during the office visit of the appellant and from the
invoices produced by the general manager of the appellant during
interrogation. Thus, the information has been fetched from the specified
records adverted to under Subsection 4A of Section 73. Subsection 4A is
unique in the sense that it says that the taxpayer may have suppressed
information, but the taxpayer has properly maintained his business
records in its custody. It has brought all his business returns on its
books. The taxpayer has, however, not supplied the same to the revenue
authority. The proper maintenance of records with the appellant firm has
enabled the revenue authority to assess the service tax.
69. The appellant firm on January 29th, 2004 made payments of Rs.
5, 32,744 (Rupees five lakhs, thirty-two thousand and seven hundred
and forty-four) and Rs 20 lakhs towards past dues. Thus, the appellant
has made the said payment before issuance of the said show cause
notice on September 13, 2004. The appellant therefore is squarely
covered under the said sub-section 4A of Section 73.
70. The proviso to the sub-section 4A states that after the payment of
the unpaid service tax by the taxpayer when the revenue authority finds
that the taxpayer needs to pay more, the revenue may issue a show
cause notice calling upon the taxpayer to pay the rest.
71. The appellant has paid the said amounts towards the past service
tax dues. Thereafter, the revenue authority on finding a deficit on the
said payment has issued the said show cause notice. Subsection 4A does
not provide for a period of limitation in it. It refers to the period of
limitation provided subsection (1) of Section 73 to recover the said deficit
service tax. The appellant will be covered by the 5 years of limitation
since the appellant has suppressed information available to it. The period
of 5 years will begin from the relevant date. The relevant date is
explained under sub section 6 of Section 73 of the Finance Act, 1994 as
follows:-
(6) For the purposes of this section, "relevant date" means,-
(i) in the case of taxable service in respect of which service tax has not
been levied or paid or has been short-levied or short-paid-
(a) where under the rules made under this Chapter, a
periodical return, showing particulars of service tax paid
during the period to which the said return relates, is to be
filed by an assessee, the date on which such return is so
filed,
(b) where no periodical return as aforesaid is filed, the last
date on which such return is to be filed under the said rules;
(c) in any other case, the date on which the service tax is to
be paid under this Chapter or the rules made thereunder;
72. Service tax for the clearing and forwarding services is to be paid
periodically. Sub clause a(i) of sub-section 6 of section 73 is thus
attracted. It says that the relevant date for periodical filing of a return is
the date on which the same is actually filed. Since on January 29 2004,
the said payment was made, the 5-year time period will begin from that
date.
73. Thus, the show cause notice was issued in terms of sub section 4A
to Section 73. The cause of action under the said sub section 4A arose on
January 29, 2004 when the appellant made payments to the past service
tax dues. Subsection 4A also provides for the penalty to be imposed on
the taxpayer.
74. Sub section 1A and 3 of Section 73 are inapplicable to the
appellant firm. Sub-section 1A provides when the past service tax dues
has been paid after the issuance of the show cause notice. In the present
case, the appellant made the payment towards the past dues before the
issuance of the show cause notice. Sub-section 3 is also not applicable
since the same is applicable to the payment of past service tax which is
to be paid after May, 2004. In the present case the appellant ought to
have paid the service tax from September, 1999.
75. We are conscious of the fact that the services of the appellant came
under the radar of the authorities, for the first time on April 19, 2002.
On that said date, the revenue authority conducted a search and seizure
operation in the office premises of the appellant. Indeed, the revenue
authority did not immediately act qua the appellant from the said date of
the search and seizure.
76. This Court however cannot ignore the intervening event that took
place after the date of search and seizure i.e. 37 days from the said
seizure and search operation, the appellant registered itself under the
Central Excise Act. The appellant therefore made an attempt to
represent itself as a purported honest taxpayer.
77. Indeed, the revenue authority ought to have called upon the
appellant to clear all past Service Tax dues as a condition precedent for
the said registration. Even otherwise, the revenue authority ought to
have issued notice under sec. 73 of the Finance Act to the appellant to
clear the service tax dues. The inefficiency and lackadaisical approach of
the revenue authority should not however be read to confer an advantage
to a tax evader, when the tax dues can be legally recovered.
78. The appellant having paid some amounts towards the past dues of
service tax has revived the cause of action. The said payment was
voluntary. The cause of action for the show cause notice thus clearly
arose on January 29, 2004, when the appellant made payments to the
past dues of the service tax.
79. The appellant even otherwise has consciously omitted to file its
returns under Section 70. It did not file its return for the period
beginning from September 1999 when the appellant started to provide
clearing and forwarding services to TISCO and TRL.
80. The first part of the sub clause (a) of Section 73 (1) is thus
applicable to the appellant firm. The revenue authority did not have any
information from the appellant as regards its business transactions with
the TISCO and TRL in Kolkata from September, 1999 till April 19, 2002
when the said search and seizure was carried out in the office premises
of the appellant firm.
81. Thus, the limitation period of 5 years applies to the claim of service
tax against the appellant. In view of the above, the revenue authority
had 5 years to raise a claim against the appellant from the date when it
made the payment on January 29, 2004 towards the past service tax
dues under sub-section 4A to Section 73 of the Finance Act. Reference in
this regard may be made to the decision in M/S. Stemcyte India
Therapeutics Pvt. Ltd. V. Commissioner Of Central Excise And
Service Tax, Ahmedabad - III reported in 2025 INSC 841, wherein it
was held as follows:-
9.3. It is a settled principle of law that, for the department to invoke the
extended period of limitation, there must be an active and deliberate
act on the part of the assessee to evade payment of tax. Mere non-
payment of tax, without any element of intent or suppression, is not
sufficient to attract the extended limitation period....
9.4. Therefore, in the absence of fraud, collusion, wilful misstatement, or
suppression of facts with an intent to evade payment of service tax, the
invocation of the extended period of limitation under Section 73 of the
Finance Act, 1994 is wholly unwarranted. Mere non-payment of service
tax, by itself, does not justify the invocation of the extended limitation
period. Accordingly, the show cause notice issued by the department is
clearly time-barred. On this ground alone, the impugned order deserves
to be set aside.
CONCLUSIONS-
82. In view of the above, it is ruled that the appellant firm has provided
clearing and forwarding services to the companies, TISCO and TRL. To
that extent, the decision of the first authority and the appellate tribunal
is upheld.
83. The claim of service tax for bending and bundling services and
stock verification services raised by the revenue authority under the head
Clearing and Forwarding services is hereby quashed. The revenue
authority will be at liberty to tax the said services in accordance with
law.
84. The appellate tribunal has not decided the point of limitation
discussed hereinabove. It is evident from the above that the Ld. Tribunal
had clear and adequate evidence before it to rule on the point of
limitation and the quantum of penalty. This Court notes with anguish,
an attitude of "passing the buck" and abdication of responsibility on the
part of the Tribunal. The judgment and order dated May 29, 2008 of the
Ld. Tribunal to the extent that it that the remanded issue of limitation
and imposition of penalty to the first authority is thus set aside.
85. A remand can only be made when the evidence on record is
inadequate for the appellate authority to rule upon the point raised.
Consequently, the issue is remanded to the first authority for recording
of evidence and decision. An order of remand is also made when the first
authority has not decided an issue and the appellate forum to ensure
that parties do not lose a forum passes an order of remand.
86. This Court having ruled on the point of limitation and having held
that the show cause notice dated September 13, 2004 was not time
barred, it is now incumbent upon this Court to decide the point of
imposition of penalty.
87. The first authority and appellate tribunal has not considered the
application of Section 4A of section 73 of the Finance Act, 1994 to the
appellant firm. The same, inter alia, provides for the imposition of
penalty. Thus the following is ordered on the quantum of penalty to be
imposed:-
A. Under subsection 4A of Section 73, the minimum amount of
penalty is 1% of the tax amount and the maximum amount is
25% thereof. The amount of penalty is computed on monthly
basis. This Court is of the view that a penalty at the rate of
15% of the tax amount shall be imposed on the appellant
firm.
B. The appellant shall therefore pay a 15% penalty on the
amount of service tax to be computed on monthly basis from
the total service tax of Rs. 49,27,918 (Rupees forty-nine
lakhs, twenty seven thousand, and nine hundred and eighty
only). The said total amount thus shall be broken up month-
wise. The said service tax is raised for the period September
1st, 1999 to 31st, March, 2002.
C. The appellant shall pay 15% penalty on the on the amount of
service tax to be computed on monthly basis from the total
service tax of Rs 36,56,555 (thirty-six lakhs, fifty-six
thousand and five hundred and fifty- five). The said amount
shall be broken up month-wise. The said amount is raised for
the period September, 1999- March 2004.
D. The appellant shall finally pay 15% penalty on the amount
of service tax to be computed on monthly basis from the total
service tax of Rs 48,396 (Forty eight thousand and three
hundred and ninety six). The said amount shall be broken up
month-wise. The said amount is raised for the period
September 27, 2002 to May 10, 2004.
88. Since the appellant has voluntarily registered itself under the
Central Excise Act after the search and seizure operation conducted by
the revenue authority, the court has leaned in favour of a reduction of
penalty. The conduct of the revenue authority in not immediately issuing
a show cause for the payment of service tax after the search and seizure
operation has also persuaded us to lean in favour of the said reduction.
The penalty however has to be imposed in view of the deliberate omission
of the appellant firm to pay the service tax from the period September
1999.
89. The appellant and the revenue authority have submitted that the
former has deposited security money as a condition precedent for the
hearing of the subject appeal with the Registrar, Original Side.
90. Thus, the revenue authority shall raise a fresh demand within 7
days from the date of pronouncement of this judgment as regards the
service tax for the clearing and forwarding services upon the appellant
strictly in terms of paragraphs nos.39 and 40of this judgment. The said
paragraphs have upheld the amount of service tax levied upon the
appellant for clearing and forwarding services. There shall be a simple
interest of 10% per annum on the consolidated amount of the service tax
to be paid by the appellant under the tax bracket of 'Clearing and
Forwarding services'. The said interest shall be computed from the date
of filing of this appeal to the date of the actual payment by the appellant.
91. The revenue authority shall also raise a demand for the amount of
the penalty strictly in terms of paragraph no. 81(b), 81(c) and 81(d). The
demand of service tax and penalty shall be raised at once.
92. The aforesaid demands of the service tax along with interest and
the amount of penalty shall be furnished to the appellant and to the
Registrar General of this Court. The latter shall ascertain as to whether
the security money so deposited by the appellant meets the amount of
service tax and penalty raised afresh by the respondent revenue
authority as stated above.
93. The Registrar General of this Court, shall thereafter pay the
security money to the revenue authority. After such payment by the
Registrar General, if the appellant still continues to be liable to pay, it
shall pay the rest within 7 days from the date of the payment made by
the Registrar General to the revenue authority. The Registrar General
shall file a compliance report within 2 months from date.
94. With the aforesaid discussions and directions, CEXA 49 of 2009
stands disposed off.
(RAJASEKHAR MANTHA, J.)
I agree.
(AJAY KUMAR GUPTA, J.)
