Extended Limitation for Service Tax Recovery Requires Conclusive Proof of Willful Intent to Evade

The Petitioner, a private limited company established in 2002, operates a hospital and diagnostic center in Dibrugarh, Assam

It claimed exemption from service tax under Notification No. 25/2012-Service Tax for healthcare services

On 17.09.2020, the Commissioner of Central GST issued a Show Cause Notice (SCN) alleging suppression of taxable value for FY 2014-15 to 2017-18 based on third-party data from the Income Tax Department (Form 26AS)

The SCN invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994

Despite the Petitioner’s detailed reply asserting that its income source (health care services) was exempt and that payments like directors' remuneration and bank interest were non-taxable, the Respondent No. 2 passed an Order-in-Original dated 25.03.2022

The order confirmed a demand of ₹10,13,56,425/- plus interest and equivalent penalty, holding that the Petitioner failed to correlate its Form 26AS data with exempted services and willfully suppressed facts

1. Whether the Revenue can determine service tax liability solely on the basis of Form 26AS data and inferences without establishing the taxability of the underlying transactions.

2. Whether the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 was legally sustainable in the absence of a conclusive finding of "willful suppression" or "intent to evade."

3. Whether the writ petition is maintainable under Article 226 despite the availability of an alternative statutory remedy of appeal.

The court applied Section 73 of the Finance Act, 1994, which mandates a five-year extended limitation only in cases of fraud, collusion, willful misstatement, or suppression

It relied on the "three stages of taxation" principle from Chatturam Horilram Ltd. v. CIT

The rule from A.V. Fernandez v. State of Kerala that tax cannot be imposed by inference or analogy

Regarding limitation, it followed Continental Foundation Joint Venture Holding v. CCE and CCE v. Chemphar Drugs & Liniments, establishing that "suppression" requires a deliberate act with intent to evade, not mere omission

On maintainability, it applied Whirlpool Corporation v. Registrar of Trade Marks and Godrej Sara Lee Ltd. v. Commissioner, holding that alternative remedies do not bar a writ if the order is wholly without jurisdiction or violates natural justice

The Court observed that the Adjudicating Authority mechanically levied tax based on Form 26AS receipts without verifying if they pertained to "healthcare services" exempt under Notification 25/2012

It noted that 26AS only reflects TDS and cannot determine the nature of service tax liability

Linking this to the principle that there can be no assessment without an established liability, the Court found the demand based on "analogy" invalid

Regarding jurisdiction, the Court found that the Revenue failed to provide a conclusive finding that the Petitioner acted with "intent to evade"

Mere non-filing of ST-3 returns, when the assessee holds a bona fide belief of exemption, does not constitute "willful suppression"

Thus, the assumption of jurisdiction under the proviso to Section 73(1) was deemed "colorable" and "unauthorized" as the mandatory preconditions were absent

It concluded that healthcare services provided by the clinical establishment were exempt and that bank interest and director salaries (under the specific facts) were wrongly taxed

The Court answered the issues in the negative, finding the Order-in-Original and the SCN time-barred and legally flawed

Consequently, the Court issued a writ of certiorari setting aside the Impugned Demand-cum-Show Cause Notice dated 17.09.2020 and the Order-in-Original dated 25.03.2022

The writ petition was allowed with no order as to costs