Service Tax - Commercial Training or Coaching services - 240 Cr Demand consigned to Limitation
AS reported in these columns yesterday, the huge demand by the Service Tax department on an educational institution, was set aside by CESTAT by majority on the ground of limitation.
The issue was the taxability of the appellant's service of providing coaching for engineering and medical admission tests, along with the regular intermediate course. The CESTAT by majority held that such coaching is liable to Service Tax under "commercial training or coaching". The tribunal also by majority held that the demand was time barred.
On the issue of limitation, the Members made some interesting observations.
Member (T):
- If the submissions made by the learned counsel are accepted, if a tax payer takes a stand that he is not liable to pay even after being informed on some ground or the other the moment department writes a letter to him, the limitation clock starts striking and within one year if the show-cause notice is not issued, no extended period could be invoked for the demand.
- If this claim is accepted, persons who defy the law and law enforcement agency and avoid complying with the directions and requests and force the department to undertake coercive measures would be better off than a law abiding citizen who likes to pursue the matter in a legal and proper manner.
- Question arises then what would be legal and proper procedure for doing this. If a law abiding citizen would have taken the registration and filed the returns with the relevant information showing the service tax payable but would not have paid the same if he really felt he would not be liable to pay. This is the proper legal course to adopt which would mean that there is no suppression of facts on the part of the assessee since the information required has been given and the self-assessment procedure, which is the procedure at present adopted under service tax matters has been followed.
- When an assessee files returns showing the service tax payable but does not pay the same and he has a bona fide belief that he does not have to pay and gives a covering letter with the same, the department is bound to issue a show-cause notice within the normal period and i.e. the time when the bona fide belief would come into play since the appellant has complied with the legal requirements. This was the proper procedure which was to be followed by the assessee, if they were intending to claim that no extended period was invokable.
- On the contrary, departmental officers also could have entertained a belief that in any case they have 5 years' time for issuing the show-cause notice since the appellant has defied the law and was not cooperating and was not providing the information and was not following the law by taking registration and filing returns.
- Naturally the departmental officers after requesting the assessee for two years proceeded to conduct search operations, investigation, recovery of records and issue of show-cause notice.
- There has to be some difference between a person who tries to abide with the law, and tries to cooperate and tires to ensure that he understands the law and implements the same and another person who simply takes a stand and goes on putting hurdles and goes on corresponding without proceeding to undertake actions in accordance with law which is required of him.
- The claim of the appellant that extended period is not invokable because the information was not called for and therefore they had not violated any provisions is not at all acceptable.
- It is also to be taken note of that service tax is an indirect tax and all that the appellants had to do was to charge service tax to the students and pay it to the government. Unlike several cases that come before us day in and day out wherein department would have issued show cause notice after a number of years imposing liability to tax which would not have been collected but would have to be paid with interest besides suffering penalty, this is a case where department informed the appellants within 15 days of service tax imposition on the activity.
- If an assessee has to plead a bona fide belief, such a bona fide belief has to be pleaded during the relevant time and not on the basis of subsequent decisions. In this case, when the assessee intimated the department that assessee being a charitable trust was not liable to service tax, there were no decisions of any judicial forum taking such a view. Such decisions came only in 2008 and thereafter.
Member (J):
- Delay in furnishing information sought for by Revenue from the appellant, cannot be a ground for invocation of extended period.
- All the powers of a Court with regard to attendance of witness, discovery of information/documents, etc. are vested in the adjudicating authority.
- Only for failure on the part of the adjudicating authority to exercise jurisdiction vested in him, extended period is not invokable.
The Third Member (also Judicial)
- The Appellant took a plea that it is a charitable institute and not covered within the definition of "Commercial Training or Coaching Centre". It is true that this view was supported by the catena decisions of the Tribunal. But, this was resolved against the Appellant by inserting Explanation under Section 65(105)(zzc) of Act, with retrospective amendment by Finance Act, 2010 that the expression "Commercial Training or Coaching Centre" shall include a Trust or a Society with or without profit motive. So, the finding of the Adjudicating Authority that the Appellant tried to mislead the department by stating that their committee is non-commercial nature with an intention to evade payment of tax, cannot be accepted.
- It cannot be said that there was a suppression of facts with intent to evade payment tax.
- In any event, the difference of opinion on the leviability of Service Tax in the present case would also support the bonafide belief of the Appellant of the leviability of tax.
- I agree with the order of learned Member (Judicial) and the demand of tax is barred by limitation.
We bring you this huge (in length and amount of demand) judgement today. Please see Breaking News.