2026-VIL-1842-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax - Invocability of extended period of limitation and imposition of penalty where short-payment was pointed out during audit under the proviso to Section 73(1) of the Finance Act, 1994 - Works Contract Service - During audit, the Department alleged short-payment of service tax on the ground that tax was payable upon credit or debit of consideration in the books of account of an associated enterprise under the Explanation to the third proviso to Rule 6(1) of the Service Tax Rules, 1994. The SCN invoked the extended period of limitation - The Respondent contended that the extended period was invocable due to non-disclosure of relevant facts and failure to file ST-3 returns until detection by audit - Whether the extended period of limitation was invocable and the penalties sustainable - HELD - Mere non-payment of duty or failure to obtain registration, in the absence of fraud, suppression or wilful misstatement, is insufficient to attract the extended period of limitation, and invocation of the extended period requires a positive act indicative of wilful default - Apart from the fact that the short-payment was pointed out during audit, there was nothing to establish a deliberate attempt to evade payment of service tax. The extended period of limitation is therefore not invocable. The penalties imposed on the basis of the alleged suppression or wilful default cannot be sustained - The penalties are set aside. The amounts of service tax already paid shall be appropriated towards the corresponding liability, and no further recovery of the tax so paid shall be made. Any remaining demand that is barred by limitation is set aside. The penalties imposed are also set aside - The appeal is disposed of - Confirmation of demand for want of proof of payment despite audit annexure recording payment under Rule 6(1) of the Service Tax Rules, 1994 - The Adjudicating Authority accepted that the Explanation to the third proviso to Rule 6(1) was inapplicable where consideration was actually received. It nevertheless confirmed the demand on the ground that the Appellant had not produced evidence of receipt of consideration and payment of tax - Whether the demand could be confirmed when the record showed that the tax had been paid after the short-payment was pointed out by audit - HELD - Once the Adjudicating Authority held that the Explanation to Rule 6(1) did not apply where consideration was actually received, the decisive question was whether the Appellant had received the consideration and discharged the tax. The annexure to the audit report, enclosed with the appeal memorandum, recorded the service tax as paid before issuance of the SCN, and the Order-in-Original also recorded a further payment appropriated towards the demand. The record therefore supported the claim of the Appellant that the amounts had been paid before issuance of the SCN - The amounts are required to be treated as accepted and paid to the extent established by the records. With no evidence of fraud, no SCN should have been issued and the payments should have been accepted as settling the matter - The service tax and interest already paid are appropriated towards the corresponding liability and no further recovery of the amounts so paid shall be made - Effect of limitation on enforcement of remaining tax demand and voluntary payment of time-barred liability - The entire demand pertained to the extended period, which was held not invocable. The Appellant had paid amounts towards the liability after audit objections - Whether a demand falling beyond the normal period of limitation can be sustained - HELD - Limitation ordinarily bars the remedy for enforcing a liability but does not necessarily extinguish the underlying tax liability - A debt does not cease to exist merely because the remedy for its enforcement is barred by limitation. An assessee may voluntarily pay an amount towards an outstanding liability even where the remedy for compulsory recovery is barred. Such payment may discharge the liability to the extent paid but does not by itself revive a time-barred remedy for recovery of the unpaid balance, unless provided for in law. The sustainability of any remaining demand, including the normal period, must be independently examined, and since the extended period is not invocable, any demand falling beyond the normal period is unsustainable - The impugned order is modified, the remaining demand barred by limitation is set aside.
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