COVID Limitation Extension Can't Revive Time-Barred Service Tax Demands: CESTAT Kolkata

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata, has ruled that the COVID-19-related extension of limitation cannot revive tax demands that had already become time-barred under the statute.

A coram of Judicial Member R. Muralidhar and Technical Member K. Anpazhakan observed, "The subsequent exclusion of limitation during the pandemic cannot revive a cause of action or breathe life into a demand which had already become time-barred under the statute. The law relating to exclusion of limitation was intended to preserve subsisting rights; it was never intended to resurrect proceedings which had already become barred by efflux of time."

Holding that the Revenue's show cause notice had been issued after the normal limitation period had expired, the tribunal set aside a service tax demand of ₹1.99 crore raised against S.K. Logitech Private Limited.

The bench also held that the Department could not invoke the extended limitation period because it failed to establish fraud, willful suppression, or an intention to evade tax.

It further found that the mandatory pre-show cause notice consultation had not been conducted before issuing the show cause notice.

The dispute arose after the department compared the company's Form 26AS, an income tax statement recording payments received and tax deducted at source, with its ST-3 returns, the periodic returns filed by service tax assessees declaring taxable services and tax liability.

The comparison, covering October 2014 to June 2017, revealed differences in the reported receipts. Based on this, the Department issued a show cause notice on December 30, 2020, demanding ₹1.99 crore in service tax, interest and penalties. The demand was later upheld by the adjudicating authority and the Commissioner (Appeals).

Before the tribunal, the company argued that the demand was based entirely on statutory records already available with the Department. It contended that there was no fraud or suppression to justify invoking the extended limitation period.

It also argued that the normal limitation period had already expired before the show cause notice was issued and that the Department could not rely on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The company further submitted that the mandatory pre-show cause notice consultation had been bypassed.

The Revenue argued that discrepancies between Form 26AS and the ST-3 returns, along with material gathered during its investigation, justified invoking the extended limitation period.

Rejecting that contention, the tribunal observed that the entire demand rested on statutory records that had always been available to the Department.

It found that no independent investigation had established fraud, wilful suppression or deliberate concealment. The bench observed that the extended limitation period could not be used to compensate for departmental inaction where the information was already capable of verification.

The tribunal noted that the last service tax return was filed on September 5, 2017, making March 5, 2020 the last date for issuing a demand within the normal limitation period. Since the show cause notice was issued only on December 30, 2020, it was time-barred.

The bench held that TOLA did not assist the department because the limitation had already expired before March 20, 2020, when the COVID-19 relaxation became relevant. It also held that the failure to conduct the mandatory pre-show cause notice consultation independently vitiated the proceedings.

The tribunal set aside the tax demand, interest, and penalty under Section 78 but upheld the ₹10,000 penalty under Section 77 for delayed filing of service tax returns.

For Appellant: Advocate Aditya Dutta,

For Revenue: Argho Mukherjee, Authorized Representative