Extended limitation cannot be invoked without evidence of wilful suppression or intent to evade service tax.

RND Softech Pvt. Ltd., a 100% Export Oriented Unit engaged in providing medical transcription services to doctors in the USA, enabled certain doctors to access dictation recordings hosted by Ecostentel, a US-based “dial and dictate” recording company.

In some cases, the appellant remitted Ecostentel’s charges on behalf of the doctors and recovered the same from them as part of its transcription charges.

The Department alleged that Ecostentel provided “Business Auxiliary Service” to the appellant and that service tax was payable by the appellant under the reverse-charge mechanism under Section 66A of the Finance Act, 1994.

A show-cause notice dated 28 August 2014 invoked the extended limitation period and proposed service tax, interest and penalty for 2009–10 to 2011–12.

The adjudicating authority confirmed the demand and imposed an equivalent penalty under Section 78. The Commissioner (Appeals) upheld that order, leading to the present appeal.

1. Whether the demand of service tax was wholly barred by limitation under Section 73 of the Finance Act, 1994?

2. If the demand was not barred by limitation, whether the demand, interest and penalty were sustainable on merits?

Section 73(1) of the Finance Act, 1994 prescribed an eighteen-month limitation period for issuing a notice demanding service tax, extendable to five years only where non-payment resulted from fraud, collusion, wilful misstatement, suppression of facts, or contravention of the Act or rules with intent to evade tax.

Section 73(6) determined the relevant date for computing limitation.

The burden lay on the Revenue to establish the taxable service, the alleged service-provider relationship and the circumstances justifying invocation of the extended period.

The Tribunal relied on CCE v. H.M.M. Ltd., Pushpam Pharmaceuticals Co. v. CCE, Stemcyte India Therapeutics Ltd. v. CCE & ST, Uniworth Textiles v. CCE, and Bharat Hotels Ltd. v. Commissioner of Central Excise (Adjudication) for the principle that suppression or intent to evade cannot be presumed merely from non-payment of tax.

It further followed Commissioner of Customs, Central Excise & Service Tax v. Monsanto Manufacturer Pvt. Ltd., Commissioner of Customs, Mumbai v. B.V. Jewels, and E.T.A. General Pvt. Ltd. v. Additional Commissioner of Central Excise for the rule that once a demand is held time-barred, the adjudicating appellate forum should not decide the merits.

The Tribunal found that the appellant’s transactions were recorded in its books and that payments to Ecostentel were made through normal banking channels.

The Revenue produced no evidence of fraud, wilful suppression, misstatement, or any positive act intended to evade service tax.

Consequently, the statutory conditions for invoking the five-year limitation period were not established.

The demand, covering 2009–10 to 2011–12 and raised through the notice dated 28 August 2014, could not be sustained beyond the normal limitation period.

The Tribunal also noted that the show-cause notice failed to identify the specific limb of the statutory definition of “Business Auxiliary Service” under Section 65(19) allegedly attracted, and did not adequately establish the contractual or service relationship between the appellant and Ecostentel.

However, adhering to the principle that a time-barred demand should be disposed of without entering into the merits, the Tribunal refrained from giving a final merits determination.

The impugned Order-in-Appeal was set aside, and the appeal was allowed.

The consequential demand of interest and penalty under Section 78 was also set aside, with the appellant made entitled to consequential relief in accordance with law.