CESTAT Mumbai Sets Aside ₹90,625 Service Tax Demand Over Time-Barred Show Cause Notice

On 25 June, the Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that a show cause notice issued beyond the prescribed limitation period was invalid, and accordingly set aside a service tax demand of Rs 90,625 raised against the appellant.

Judicial Member Dr. Suvendu Kumar Pati allowed the appeal filed by Thakkers Harmony and set aside the order of the Commissioner (Appeals), CGST & Central Excise, Nashik, which had upheld the demand of service tax, interest, and penalties. The Bench held:

“This being the facts on record... Show-cause notice... was served much after five years... is to be treated as issued beyond the period of limitation and the demand in question is not sustainable... Therefore, the entire proceedings is required to be quashed as being initiated with a Show-cause which was unsustainable in law.”

The dispute arose after the department alleged a mismatch between the turnover reflected in the appellant's ST-3 returns and the figures shown in its VAT returns and Profit & Loss Account for the financial year 2015–16, leading to issuance of the show cause notice and consequent demand.

Before the Tribunal, the appellant contended that the notice was time-barred. It was submitted that although the notice was signed on 31 December 2020, it was actually dispatched only on 15 January 2021, which fell beyond the extended limitation period available due to Covid-19 relaxation.

It further argued that there was no actual suppression or discrepancy, as the receipts were already disclosed in ST-3 returns pertaining to different financial years, and the apparent mismatch arose due to different tax bases under service tax and VAT.

Further, the Bench examined postal records and found that the show cause notice had been booked for dispatch only on 15 January 2021. Holding that the notice was issued beyond the permissible limitation period, the Tribunal concluded that the entire demand was legally unsustainable.

It also accepted the appellant's explanation on the turnover reconciliation, noting that the figures in the ST-3 returns for the relevant periods matched the VAT disclosures, indicating that the department had proceeded on an incorrect comparison of financial records.

Accordingly, the CESTAT allowed the appeal, set aside the order of the Commissioner (Appeals), and granted consequential relief to the appellant.

Appearance for the Petitioner: Shri Rajiv Luthia, Advocate

Appearance for the Respondent: Shri Dhananjay Dahiwale, Deputy Commissioner (Authorised Representative)