Recently a Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) in Messung Systems vs. Commissioner of Central Excise, Service Tax, held that the Service Tax demand raised by invoking extended period is unsustainable as there was no suppression of facts.
By virtue of Section 73 of the Finance Act where any service tax has not been levied; or has not been paid; or has been short levied; or has been short paid; or has been erroneously refunded the Central Excise Officer may, within one year 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 or 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. The said limitation of one year will be extended to five years to the department where any service tax has not been paid or has been short paid or short levied or erroneously refunded by reason of – fraud; or collusion; or willful misstatement; or suppression of facts; or contravention of any of the provisions or the rules with intent to evade payment of service.
The appellant, Messung Systems, employed in the manufacture of excisable goods and merchandising of packaged software. The Revenue served a show cause notice to the appellants demanding service tax on the sale of software to their customer based on the audit. The appellant had already informed to the audit that they resale the packaged software obtained from M/s Autovue Electronics to their customers after adding 25-30% to the value of the software towards octroi, courier and for the necessary after sales technical support services. But the adjudicating authority and the Appellate Commissioner upheld the demand of sale tax.
The Counsel for the Appellant, Sri. Sachin Chitnis submitted that the demand was unsustainable as the appellant was selling goods to their customers at 25 to 30% and the same being packaged software is liable to VAT and not liable to service tax. Relying on the case of Tata Consultancy Services vs. State of Andhra Pradesh, he argued that the demand was based on assumption and presumption. He further contended that as there was no suppression of facts, the extended period cannot be invoked. Sri V.R. Reddy, Counsel for the Revenue, reiterated the findings of the appellate authority.
The bench found that the appellant themselves had furnished information to the department regarding the percentage of margin they charge over the software value towards octroi, courier and for extending necessary services. According to the bench the demand was made on services rendered by the appellant post sales and as there were no attempt to suppress the facts of the service, the demand raised by invoking extended period is unsustainable.
The CESTAT Bench comprising of Judicial Member Ramesh Nair and Technical Member Raju observed “The penalties imposed upon the Appellant are not sustainable, for the same reason in terms of Section 80 of the FA 1994. The impugned order is accordingly partially upheld to the extent the demands of service tax for the normal period and interest thereupon shall only prevail. The appeal is partly allowed in the above terms.”
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