When there is no mens rea, no demand will sustain on ground of limitation

The CESTAT Kolkata has ruled that a demand for service tax and penalties beyond the normal limitation period is invalid if there's no evidence of 'mens rea', meaning an intent to evade tax. In this case, an ex-servicemen welfare organisation was found to have not suppressed information when filing their returns, despite excluding certain reimbursements from taxable value. Therefore, the extended period of limitation could not be invoked, and the demand and penalty were set aside.

The CESTAT, Kolkata in M/s. Bhootpurva Sainik Kalyan Sangh v. Commissioner of Central Excise & Service Tax [Service Tax Appeal No.566 of 2011 dated May 11,2023] held that, there should be mens rea to evade payment of service tax for demand of service tax and penalty beyond period of limitation.

Facts

M/s. BhootpurvaSainik Kalyan Sangh(“the Appellant”) a Welfare and Rehabilitation Organization of Ex-Servicemen providing Security Agency Service mainly to Govt. departments/Public Sector Undertakings. The Appellant has taken service tax registration and paying service tax on the service charges received but did not include the wages, EPF, ESI, Bonus, Gratuity, House Rent Allowance, etc., in the taxable value for the purpose of payment of service tax.

A show cause notice demanding Service tax of Rs.6,83,312, including interest, penalty equal to the service tax under section 78 of the Finance Act 1994 was issued for the period from April 2004 to March 2006 dated January 9, 2009 (“the SCN”). Subsequently, the demand raised in the SCN was confirmed by the Adjudicating Authority vide Order-in-Original dated March 23, 2010 (“the OIO”).

Aggrieved by the OIO, the Appellant filed an appeal before the Commissioner (Appeals), who upheld the demand confirmed vide the OIO (“the Impugned Order”).

Aggrieved by the Impugned order, the Appellant filed an appeal before the CESTAT, Kolkata and contended that the Appellant was not  a commercial concern and during the relevant period i.e., prior to June 16, 2005, Service Tax was payable only by a commercial concern rendering Security Agency Service and also stated that they were not aware that the reimbursement charges such as wages, EPF, ESI, Bonus, Gratuity, House Rent Allowance were to be included in the taxable value for the purpose of payment of service tax and was also regularly filing Service Tax returns during the period April 2004 to March 2006 and intimating the gross value on which they have paid Service Tax vide  ST-3 returns were regularly filed by them.

Issue

Whether the Appellant was liable to pay service tax on wages, EPF, ESI, Bonus, Gratuity, House Rent Allowance, etc., and whether the notice issued by the department invoking the extended period of limitation is valid?                                                                                                                        

Held

The CESTAT, Kolkata in [Service Tax Appeal No.566 of 2011]held as under:

The Appellant has not disputed the liability of payment of service tax for the security agency service rendered by them to their customers and regularly filing Service Tax returns during the period April 2004 to March 2006 and intimating the gross value on which they have paid Service Tax. Thus, the Appellant has not suppressed any information from the department and declared the taxable value in the ST-3 returns filed by them.

Held that, there is no evidence brought on record to substantiate the claim that the Appellant has suppressed the taxable value from the department as there should be mens rea to evade payment of service tax, therefore, the SCN issued on October 9, 2009 for an extended period is not valid.

Hence, the demand of service tax and interest confirmed, and the penalty imposed under section 78 of the Finance Act 1994, in the impugned order cannot be upheld due to ground of limitation.