Non-Filing Of Service Tax Returns Alone Doesn't Prove Tax Evasion; CESTAT Chennai Quashes ₹37.54 Lakh Demand

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of ₹37.54 lakh against SPI Technologies India Pvt. Ltd., holding that the Department could not invoke the extended limitation period merely because the alleged tax liability surfaced during a departmental audit.

The tribunal held that the revenue had failed to establish the wilful suppression or intent to evade tax required to invoke the extended period.

A bench of Judicial Member Ajayan T.V. and Technical Member M. Ajit Kumar allowed the appeal.

Observing that non-registration, non-filing of returns, or non-declaration of activities does not by itself establish suppression of facts or intent to evade service tax, the tribunal held:

“We are of the opinion that mere non-registration, non-filing of ST-3 returns, or non-declaration of activities does not by itself establish suppression of facts or intent to evade service tax. It may equally arise from a bona fide belief that the activity was not taxable.”

The dispute related to the period between 2004-05 and 2006-07. During an audit, the Department found that SPI Technologies had subcontracted data capturing and data processing of books and journals to its wholly owned subsidiary, Apex Abstracting & Editing Services Pvt. Ltd. It treated those activities as business auxiliary services and, following Apex's amalgamation with SPI Technologies, sought to recover service tax from the appellant.

A show cause notice dated July 24, 2009, demanded ₹37.54 lakh in service tax with interest and penalties. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld it.

Before the tribunal, SPI Technologies argued that the notice was time-barred and that there was neither suppression of facts nor any intention to evade tax. The revenue contended that the liability came to light only during audit.

Holding that the limitation was a jurisdictional issue, the tribunal found the notice had been issued beyond the normal limitation period and that the Revenue had failed to establish deliberate suppression or wilful misstatement.

Setting aside the demand, the tribunal held, “Revenue has hence not established a case for invoking the extended period of limitation. Hence the impugned order is void, and a nullity in the eye of law. It hence merits to be set aside on grounds of lack of jurisdiction.”

The tribunal consequently set aside the impugned order and granted consequential relief, without examining the remaining issues on classification, amalgamation, taxability, or penalties.

For Appellant: Advocate Radhika Chandrasekar,

For Respondent: M. Selvakumar, Authorised Representative