Full Judgment Text
$~2
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ SERTA 3/2017 & CM 19834 of 2017
ROMA HENNY SECURITY SERVICE PRIVATE
LIMITED ..... Appellant
Through: Mr. J. K. Mittal with Mr. Rajveer Singh,
Advocates.
Versus
COMMISSIONER OF SERVICE TAX, DELHI ..... Respondent
Through: Mr. Sanjeev Narula, CGSC with
Mr. Abhishek Ghai, Advocate.
CORAM:
JUSTICE S.MURALIDHAR
JUSTICE PRATHIBA M. SINGH
O R D E R
% 17.10.2017
Dr. S. Muralidhar, J. :
1. This is an appeal by the Assessee under Section 35G of the Central Excise
Act, 1944 read with Section 83 of Chapter V of the Finance Act, 1994
nd
(„FA‟) challenging an order dated 2 March 2017 passed by the Customs,
Excise & Service Tax Appellate Tribunal („CESTAT‟).
2. Admit . The following substantial questions of law are framed for
consideration:
(i) Whether in the facts and circumstances of the case, the impugned
nd
order dated 2 March 2017 passed by the CESTAT is perverse and
SERTA 3/2017 Page 1 of 13
without application of mind?
(ii) Whether in the facts and circumstances of the case, the CESTAT
was right in holding that the extended period of limitation in terms of
clause (d) of the proviso to Section 73 of the FA has been rightly
invoked?
3. This Court has heard the submissions of Mr. J.K. Mittal, learned counsel
for the Appellant Assessee and Mr. Sanjeev Narula, learned counsel for the
Respondent Service Tax Department („Department‟).
4. The background facts are that the Assessee was granted licences by the
Airports Authority of India („AAI‟) for sale of airport entry tickets to
visitors to the IGI airport, Delhi and the Chhatrapati Shivaji International
th th
Airport, Mumbai on 13 December 2001 and 20 August 2004 respectively.
5. The Assessee states that it was not allowed by the AAI to collect service
st
tax on the entry tickets during the period from 20th September 2004 to 1
March 2005. The AAI granted the Assessee the authority to collect service
nd
tax by a letter dated 2 March 2005 whereupon the Assessee got itself
nd
registered and started collecting service tax from 2 March 2005 onwards.
The fact that the Assessee has been collecting and depositing the service tax
nd
on entry tickets sold by it with the Government from 2 March 2005 is not
in dispute.
st
6. After the Assessee obtained registration it was issued summons on 31
May 2005 by the Department. The case of the Assessee is that in response to
SERTA 3/2017 Page 2 of 13
th
the above submission it submitted a reply on 14 July 2005 in which inter
alia it provided the details of services rendered at various stages along with
st
the agreements with the AAI, statements of bank accounts from 1 April
st
2004 to 31 March 2005 and also complete ledger account for the sale of
entry tickets.
7. During the course of hearing today Mr. Narula, learned counsel for the
th
Department, doubted whether the aforementioned reply dated 14 July 2005
was in fact received by the Department. According to him, the subsequent
th
show cause notice („SCN‟) issued to the Assessee on 4 March 2008 did not
specifically refer to such reply. The Court will advert to this aspect in a short
while.
th
8. Continuing the chorology of events, on 7 November 2005 another
summons was issued by the Department to the Assessee. In response
th
thereto, a reply was furnished by the Assessee on 19 November 2005
enclosing the following documents:
(i) Copy of licence agreement entered into with the AAI.
(ii) Details of all payments made to the AAI.
(iii) Details of payment made to contractors for services created and
maintained at the airport.
(iv) Details of services provided to organizations other than those of
AAI.
(v) Copies of income tax returns along with details of balance sheet
th
9. As far as the above response is concerned, para 2 of the SCN dated 4
March 2008 acknowledges it and states as under:
SERTA 3/2017 Page 3 of 13
“2. Pursuant to the intelligence gathered, the authorized person of the
th
company was summoned on 8 November 2005 and asked to furnish
relevant documents (RUD-1). In response, the company submitted
th th
copy of Licence Agreement dated 13 December 2001 and dated 20
August 2004 signed by them with the Airport Authority of India,
license fee paid to the Airports Authority of India and Balance Sheet
for the fiscal year 2004-05 (RUD-II).
10. It appears that after the above response of the Assessee for almost a year
th
nothing transpired. From para 5 of the SCN it appears that on 4 December
th
2006 and 26 March 2007, the “voluntary statements” of the Manager of the
Assessee were recorded by the Department. The SCN further notes that on
th
16 March the Assessee took „Centralized Registration‟ at Commissionerate
of Service Tax, Delhi' in respect of airport services and that by its letter
th
dated 18 October 2007 it supplied the month-wise sales and service tax
th
collected/deposited from all the sites from 10 September 2004 to March
2005.
11. The SCN dated 4th March 2008 was issued to the Assessee for its failure
th st
to collect service tax during the period from 10 September 2004 to 1
March 2005 by invoking the extended period of limitation under clause (d)
of the proviso to Section 73 (1) of the FA. The specific averment to this
effect is to be found in para 13.2 of the SCN which reads as under:
“13.2 It further appears that the company has never disclosed the fact
of providing taxable service to the department at any point of time and
suppressed the facts with intent to evade payment of service tax,
hence provision of Section 73 of the Act to demand service tax for an
extended period of five years from the relevant date are applicable in
the instant case.”
12. Therefore, one of the main questions that arises in the present case is
SERTA 3/2017 Page 4 of 13
whether the Department was justified in invoking the extended period of
limitation under clause (d) of the proviso to Section 73 (1) of the FA?
th
13. The SCN ended in an adjudication order dated 6 May 2009 being
passed by the Additional Commissioner of Service Tax (ACST). In para 3 of
th
the said order it was noted that summons was issued to the Appellant on 7
November 2005 pursuant to which the Assessee had submitted a copy of the
th th
licence agreements dated 13 December 2001 and 20 August 2004 entered
into with the AAI, apart from the licence fee paid to the AAI and the balance
sheet for the financial year 2004-05.
14. As regards the contention of the Assessee that the SCN was barred by
limitation, the ACST held that the failure of the Assessee to pay service tax
for the above period amounted “to non-disclosure of facts to the
Department, resulting into contravention of various provisions of the Act
and said Rules aforesaid with intent to evade payment of service tax and
education cess as applicable .......”
15. The date of the aforementioned order, i.e. 6th May 2009, is significant
th
because prior thereto on 19 December 2007 in P.C. Poulose v.
Commissioner of Customs & Central Excise (Appeals), Cochin 2008 (10)
STR 335 (Tri. Bang), the South Zonal Bench of the CESTAT at Bangalore
held in similar circumstances, that the ultimate liability to collect service tax
rested with the AAI which was actually providing the services. It was held
by the CESTAT that “a person who simply collects the entrance fee cannot
be equated with the service provider.” However, the ACST in the above
adjudication order distinguished the aforesaid decision and held it to be
SERTA 3/2017 Page 5 of 13
inapplicable.
16. Aggrieved by the above adjudication order, the Assessee went before the
th
Commissioner (Appeals), Service Tax (CAST) who by an order dated 6
January 2011 dismissed the appeal and concurred with the ACST. The
CAST observed that “even if the appellant was not empowered to collect the
Service Tax from the visitors, then also he was supposed to pay the
appropriate tax, considering the amount collected as inclusive of tax and the
demand has been calculated accordingly only the clarification was received
by the appellant from the Airport Authority to the appellant on 02.03.2005."
It was further observed that “the Appellant company was well aware about
their liability but visitor suppressed the facts from the department in that
equation.”
17. By the time the CAST decided the appeal, another development that
th
took place was that on 10 July 2009 in Commissioner of Central Excise v.
P.C.Paulose 2010 (19) STR 487 (Ker.) the Kerala High Court reversed the
decision of the CESTAT in P.C. Poulose v. Commissioner of Customs
( supra ) and held that the Respondent in that case being the service provider
was in fact liable to pay service tax.
18. Aggrieved by the orders of the ACST as well as the CAST the Assessee
went before the CESTAT. It appears that there was an issue raised by the
Department regarding the maintainability of the above appeal before the
CESTAT. The counsel for the Assessee filed detailed written arguments
th
before the CESTAT on 25 November 2014 with an advance copy to the
learned counsel for the Department. In para 2 of the said written submissions
SERTA 3/2017 Page 6 of 13
the Assessee adverted to the fact that it had in response to the summons
st th
dated 31 May 2005 replied to the Department by its letter dated 14 July
2005 enclosing copies of the license agreements with the AAI, the bank
statements as well as details of the sale of entry tickets. A reference was also
th
made to the subsequent summons issued on 7 November 2005 and the
th
reply thereto on 19 November 2005. It appears that the said written
submissions were not replied to by the Department.
th
19. Thereafter on 16 December 2014 the CESTAT passed a detailed
interim order which reads as under:
“Before dealing with the stay application, we have gone through the
order dated 19.11.2014. On the said date, Revenue took the objection
that the appeal filed by the applicant is beyond the period of
limitation, therefore, the appeal is non-maintainable. The matter was
argued at length on the same day and this Tribunal observed that
having regard to the fact that the appeal filed in March, 2013 is still
pending adjudication for stay application, we direct Revenue, if do so
desire to file appropriate petition along with supporting documents by
16.12.2014. If no such application is filed by Revenue, we will
proceed on the principle of non-traverse, to the pleadings regarding
receipt of the impugned order only on 06.02.2013.
2. No application has been filed by Revenue till date. Therefore,
proceed to consider the stay application holding that the impugned
order is received by the applicant only on 06.02.2013 and thereafter
the appeal is filed within the period of limitation.
3. Brief facts of the case are that the applicant is engaged in the
activity of sale of tickets for visitors at IGI Airport, New Delhi. From
10.09.2004, levy of service tax came on the activity of Airport
Services, litigation was going on between the Airport Authority of
India (AAI) and Service Tax Department whether on the services
provided at airport are taxable or not and the applicant was not
allowed by AAI to collect the service tax. Therefore, the applicant did
SERTA 3/2017 Page 7 of 13
not collect the service tax during the period 10.09.2004 to 01.03.2005.
As and when the AAI allowed the! applicant to collect service tax
w.e.f. 02.03.2005, the applicant took service tax registration and from
that day onwards paying the service tax on the activity of sale of
tickets to the visitors. After taking the registration, Revenue started
proceedings against the applicant asking the details of services
provided prior to 02.03.2005, on which the applicant replied and after
completion of the investigation against the applicant, a Show Cause
Notice was issued to them on 04.03.2008 to demand the service tax
for the period 10.09.2004 to 01.03.2005. Thereafter, the Show Cause
Notice was adjudicated and demand of service tax along with interest
and various penalties were confirmed by way of impugned order. At
this stage, the applicant is seeking waiver of pre-deposit. The first
appellate authority has confirmed the demand, which was levied by
the adjudicating authority.
4. Ld. counsel for the applicant submits that there was a dispute of
levy of service tax during the impugned period. Therefore, under
bonafide belief they are not liable to pay the service tax. In these
circumstances, the extended period of limitation is not invocable. He
also submits that in the case of P.C. Paulose Vs. CCE (Appeals)s
Cochin [2008 (10) STR 335 (Tri. - Bang.)], the Tribunal held that on
sale of tickets to visitors, service tax is not leviable. Ld. counsel fairly
admits that the said decision was reversed by the Hon'ble High Court
of Kerala vide its order dated 10.07.2009 and the Hon'ble Apex court
also held that the service tax is leviable on the said activity vide order
dated 13.012011 [2011 (21) STR 353 (S.C.) ]. In these circumstance,
he pleaded as the applicant was under bona fide belief that the activity
was not leviable for service tax, therefore, they did not pay the service
tax during the impugned period and sought waiver of pre-deposit.
5. On the other hand, ld. Departmental Representative opposed the
contentions of the ld. counsel and submitted that on merits, it is an
admitted fact that during the impugned period, applicant was received
the payments and are liable to pay service tax. It is further submitted
that the dispute between the AAI and the Service Tax Department has
nothing to do with the liability of the applicant to pay the service tax.
Therefore, the applicant be directed to make the pre-deposit at this
SERTA 3/2017 Page 8 of 13
stage. She further submitted that the extended period of limitation was
rightly invoked as they have provided the details only in 2007.
6. We have considered the submissions made by both the sides. Prima
facie, we are of the view that as per the decision of the Tribunal in
the case of P.C. Paulose, (supra), the activity of sale of tickets for
visitors is not leviable to service tax. Therefore as there are contrary
views in that case, allegation and suppression cannot be alleged
against the applicants. In these circumstances, extended period of
limitation is not invokable. Therefore, prima facie, the applicant has
made out a good case for complete waiver of pre-deposit.
Accordingly, we waive the pre-deposit and stay the recovery of
impugned adjudicated liability during the pendency of the appeal.”
20. It is significant that in para 3 of the above interim order the CESTAT
took note of the fact that it was the Assessee‟s case that it had not been
th
permitted by the AAI to collect service tax for the period from 10
st
September 2004 to 1 March 2005 and that as soon as the AAI allowed the
nd
Assessee to do so with effect from 2 March 2005, the Assessee obtained
service tax registration and from that date onwards was paying service tax. It
was observed by the CESTAT in the context of the decision of the
CESTAT, Bangalore which was reversed by the Kerala High Court that the
Supreme Court had subsequently affirmed the Kerala High Court and since
there were contrary views, suppression cannot be alleged.
21. The Court finds that the CESTAT has in the impugned final order dated
nd
2 March 2017 committed errors, some of which may be inadvertent but not
all. For instance, the impugned order mentions the date of final hearing as
th th
14 February 2013 whereas the interim order itself was passed on 16
December 2014. Obviously the appeal was heard only thereafter.
SERTA 3/2017 Page 9 of 13
22. Even if the above error could be said to be inadvertent, what is
perplexing is that in para 6 of the impugned order the CESTAT purports to
set out para 5 of the decision of the Supreme Court in P.C. Paulose,
Sparkway Enterprises v. Commissioner of Central Excise & Customs
(2011) 21 STR 353 whereas it has in fact set out para 5 of the CESTAT‟s
order in that case which in fact was in favour of the Assessee. This is an
obvious instance of non-application of mind by the CESTAT.
23. The central issue that had to be addressed by the CESTAT was whether
the Department was justified in invoking the extended period of limitation of
five years in terms of Clause (d) of the proviso to Section 73 (1) of the FA.
On this aspect the CESTAT appears to have failed to note certain important
dates and therefore came to the erroneous conclusion that the invocation of
extended period of limitation by the Department was justified.
th
24. It may be recalled that the period for which the SCN was issued was 10
st
September 2004 to 1 March 2005. In terms of Section 73 (1) of the FA
which states that the period within which the Assessee had to be served the
st
notice for failure to collect service tax was one year from 1 March 2005,
th
i.e., 28 February 2006. Within this period a series of events took place.
nd
One was that the Appellant obtained service tax registration on 2 March
2005 and commenced collecting and depositing service tax. The Department
st
was obviously aware of this fact. It issued summons to the Assessee on 31
May 2005 which was replied to by the Assessee on 14th July 2005.
25. As noted earlier, Mr. Narula doubted whether the Department had in fact
received the aforementioned reply dated 14th July 2005 of the Assessee .
SERTA 3/2017 Page 10 of 13
However, Mr. Narula is unable to dispute that the Department did issue
th th
summons to the Appellant on 7 November 2005 which was replied to 19
November 2005. The Assessee did furnish with the said reply the
agreements, payments made to AAI , payments to contractors, copies of
ITRs, details regarding sale of entry tickets etc. pursuant to the licence
agreement with the AAI to the Department. This was sufficient for the
Department to proceed under Section 73 (1) of the FA within the period of
one year. In any event, therefore, there was no question of the Assessee
suppressing any material facts regarding the sale of entry tickets and its
failure to collect service tax thereon for the above period from 10th
September 2004 to 1st March 2005.
26. The Assessee does not deny that it did not collect service tax for the
above period. But it has a valid explanation for not doing so. It is right in
questioning the invocation by the Department of the extended periodof
limitation under cause (d) of the proviso to Section 73 (1) FA since the
above facts, far from being suppressed, were known to the Department
before the one year period from 1st March 2005 expired.
27. Mr. Narula then argued that the mere failure to pay the service tax was
by itself is sufficient to conclude that there was suppression of material facts
by the Assessee. That contention stands negatived by the decision of the
Supreme Court in Uniworth Textiles Limited v. Commissioner of Central
Excise, Raipur 2013 (288) ELT 161 (SC) where in para 12 the Supreme
Court observed as under:
“12. We have heard both sides, Mr. R.P. Bhatt, learned senior counsel
appearing on behalf of the Appellant, and Mr. Mukul Gupta, learned
SERTA 3/2017 Page 11 of 13
Senior counsel appearing on behalf of the Revenue. We are not
convinced by the reasoning of the Tribunal. The conclusion that
mere non-payment of duties is equivalent to collusion or wilful
misstatement or suppression of facts is, in our opinion, untenable.
If that were to be true, we fail to understand which form of non-
payment would amount to ordinary default? Construing mere
non-payment as any of the three categories contemplated by the
proviso would leave no situation for which, a limitation period of
six months may apply. In our opinion, the main body of the
Section, in fact, contemplates ordinary default in payment of
duties and leaves cases of collusion or wilful misstatement or
suppression of facts, a smaller, specific and more serious niche, to
the proviso. Therefore, something more must be shown to
construe the acts of the Appellant as fit for the applicability of the
proviso .” (emphasis supplied)
28. Consequently, the Court is not satisfied in the present case that the
Department was justified in invoking the extended period of limitation under
clause (d) of the proviso to Section 73 (1) of the FA.
29. Resultantly, Question (i) framed by the Court is answered in favour of
the Assessee and against the Department by holding that the impugned order
nd
dated 2 March 2017 passed by the CESTAT is without application of
mind. Question (ii) is also answered in favour of the Assessee and against
the Department by holding that the CESTAT erred in holding that the
extended period of limitation in terms of the proviso to Section 73 (1) of the
FA was rightly invoked by the Department.
nd
30. The impugned order dated 2 March 2017 of the CESTAT, the order
th th
dated 6 May 2009 passed by the ACST, the order dated 6 January 2011
th
passed by the CAST and the SCN dated 4 March 2008 are hereby set aside.
SERTA 3/2017 Page 12 of 13
31. The appeal is accordingly allowed but in the facts and circumstances of
the cases, no orders as costs. The application is disposed of.
S. MURALIDHAR, J.
PRATHIBA M. SINGH, J.
OCTOBER 17, 2017
Rm
SERTA 3/2017 Page 13 of 13