Custom, Excise & Service Tax Tribunal
Halliburton Offshore Services Inc vs Delhi South on 1 April, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH- COURT NO. I
SERVICE TAX APPEAL NO. 50508 OF 2018
(Arising out of Order-in-Original No. 22-23/2017-ST dated 20.06.2017 passed by Additional
Director General of Central Excise Intelligence (Adjudication), New Delhi)
M/s Halliburton Offshore Services Inc. .....Appellant
16th and 17th Floor, Commerz II,
International Business Park, Oberoi Garden City,
Off Western Express Highway, Goregaon (East),
Mumbai - 400063
versus
Additional Director General (Adjudication), .....Respondent
Directorate General of Central Excise Intelligence,
(Adjudication Cell)
West Block - VIII, Wing No.-6, 2nd Floor,
R.K. Puram, New Delhi-110066
APPEARANCE:
Shri Tarun Gulati, Senior Advocate and Shri Vikas Aggarwal, Chartered Accountant
for the Appellant
Shri Rohit Issar and Shri S.K. Meena, Authorized Representatives of the
Department
CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL)
DATE OF HEARING: 01.10.2024
DATE OF DECISION: 01.04.2025
FINAL ORDER NO. 50455/2025
JUSTICE DILIP GUPTA:
M/s. Halliburton Offshore Services Inc. 1 has challenged the order dated
20.06.2017 passed by the Additional Director General, Directorate General
of Central Excise Intelligence (Adjudication Cell), New Delhi 2 by which the
demand of service tax not paid on the compensation received by the
1. the appellant
2. the Additional Director General
2
ST/50508/2018
appellant for "Lost-in-Hole" 3 items during the period 01.10.2010 to
31.03.2016 proposed in the show cause notice dated 19.04.2016 has been
confirmed with interest and penalty.
2. The issues that arise for consideration in this appeal are whether the
compensation received by the appellant for equipments/tools lost in LIH
while providing drilling service to the customers is required to be included in
the value of taxable service for the purpose of payment of service tax and
whether the extended period of limitation could have been invoked in the
facts and circumstances of the case as portion of the demand confirmed falls
in the extended period.
3. The appellant is engaged in providing various oil field services,
including Directional Drilling, Measuring while Drilling and Logging to various
companies by using its own equipments. Since the activities are carried out
beneath the surface of the earth, the equipments used may get stuck or lost
in the oil wells due to uncontrolled situation and it may not be possible for
the appellant to retrieve them. Such equipments, which get stuck or lost and
are not retrievable, are termed as LIH items. The appellant claims that it
pays service tax on the value of service for the use of equipments/tools and
personnel, but not on the LIH items as no service is provided by the
appellant in such a case.
4. The appellant has elaborately described the sequence of events that
typically happen in Drilling Services Contract in the following manner:
a. An agreement is signed between the appellant and
the customer to provide Directional Drilling,
Measuring While Drilling & Logging While Drilling and
Drilling stem testing related services. These services
are drilling oil and gas wells in offshore and onshore
3. LIH
3
ST/50508/2018
environments to pre-defined bottom hole targets
using mud motor/rotary steerable and measurement
drilling tools. Directional drilling is used to tap those
sections of the reservoir section which are
inaccessible with normal conventional vertical drilling
practice.
b. In order to provide the aforesaid drilling services,
special equipments/tools are imported into India. The
drilling services can be provided only by using these
special equipments/tools under the control and
supervision of the appellant.
c. Based on the agreement signed between the
appellant and customer, customer issues Mobilisation
notice, directing type of equipments/tools to be
mobilised. Based on the agreement and Mobilisation
notice, the appellant starts the process of importing
equipments/tools into India.
d. These equipments/tools are imported and cleared for
use against the contract with customer without
payment of customs duties by availing benefit of
Notification dated 17 March 2012. In order to avail
the above exemption the appellant, as an importer,
has to produce an Essentiality Certificate issued by
the Director General of Hydrocarbon (DGH) to the
Customs Authority certifying that the
equipments/tools imported are required for
petroleum operations and have been imported for
execution of a specified contract. As per the terms
4
ST/50508/2018
and conditions of the agreement, after completion of
the project, the equipments/tools have to be re-
exported.
e. In the terms of the aforesaid Notification, an
Essentiality Certificate is given to a customer by the
DGH when an application is submitted by a
customer. On the basis of such a Certificate, the
import takes place without payment of customs duty.
f. The imported equipments/tools are used by the
appellant in providing drilling services which are
carried out beneath the surface of the earth. As
these equipments/tools are specialized equipment,
they are operated by engineers/skilled personnel of
appellant. In relation to such services a monthly
charge in the form of Equipment Rental and
Personnel charges are charged to the customers by
the appellant, on which applicable service tax is paid.
g. There is a possibility that the equipments/tools used
for drilling services may get stuck or lost due to
uncontrollable or unforeseen downhole
environmental situations in the Oil and Gas Well and
may not be retrievable. Such equipments/tools which
are stuck and cannot be retrieved or lost are termed
as Lost-in-Hole ("LIH") equipments/tools. Similarly
equipments/tools used for drilling services may get
stuck but can be retrieved. However, the damage to
the equipments/tools is beyond repair and they
5
ST/50508/2018
cannot be re-used. Such equipments/tools are called
Damage Beyond Repair ('DBR') equipments/tools.
h. When such equipments/tools are lost in hole or
damaged beyond repair, drilling services cannot be
performed until new equipments/tools are made
available by the appellant. The appellant discharges
service tax on the rental value for the use of such
new/replaced equipments/tools arranged and used
for the contract.
i. Further, when the accident of the equipments/tools
occurs, appellant has to immediately inform the
customer for verification of the LIH
equipments/tools. After confirmation of such LIH
equipments/tools by the customer, as per terms and
conditions of the contract, the appellant raises an
invoice to the customer for reimbursement of LIH
equipments/tools as per the calculation provided in
the contract. The customer approves the calculation
and makes payment for LIH equipments/tools only if
the LIH did not occur due to gross
negligence/mistake of the appellant.
j. The customer is also required to then approach the
DGH for getting a Certificate that the import
obligation for claiming customs duty exemption has
been discharged. Accordingly the DGH issues a
Certificate addressed to the customer confirming that
the imported equipments/tools have been lost in hole
and are not retrievable.
6
ST/50508/2018
k. The agreements executed by the appellant with the
customers contain clauses for compensation of such
LIH equipments/tools. In other words, in the event of
any loss of equipments/tools in hole other than
because of gross negligence on part of the appellant,
the customer reimburses the appellant for such lost
equipments/tools as per the contract. Such
compensation is in the nature of accidental damages
due to unforeseen circumstances paid by the
customer.
5. A show cause notice dated 19.04.2016 was issued to the appellant
alleging that the appellant evaded service tax by excluding the cost of LIH
equipments/tools in the taxable value of services provided to the customers.
The appellant was, accordingly, asked to show cause as to why such value
should not be added to the taxable value and why the appellant should not
be asked to pay the service tax on this value. The show cause notice also
invoked the extended period of limitation under the proviso to section 73(1)
of the Finance Act, 1994 4.
6. The main allegations contained in the show cause notice are as
follows:
(i) The equipments/tools lost in hole are consumed in
the course of providing the services;
(ii) Lost in hole equipments/tools are integral part of
taxable services provided by the appellant to the
customers;
4. the Finance Act
7
ST/50508/2018
(iii) The compensation received by the appellant is
towards the cost/expenditure incurred on LIH
equipments/tools as insurance companies did not
cover such losses; and
(iv) The equipments/tools used by the appellant was its
property and there was no transfer of title in respect
of LIH equipments/tools which had been consumed
in the course of provision of service.
7. Another show cause notice dated 26.04.2016 was issued to the
appellant requiring the appellant to show cause as to why Swachh Bharat
Cess on the taxable services for the period commencing from 15.11.2015 to
31.03.2016 may not be recovered from the appellant.
8. The appellant filed detailed replies to the show cause notices dated
19.04.2016 and 26.04.2016 and denied the allegations made therein.
9. The Additional Director General, by order dated 20.06.2017, did not
accept the contentions advanced by the appellant and confirmed the demand
with interest and penalty. The Additional Director General observed that
since the appellant claimed that LIH items have to be treated as
"consumed", then the value would have to be included in the value of
taxable services. The Additional Director General also noticed that it is only
during the drilling process that the items are lost and, therefore, rule 6(2) of
the Service Tax (Determination of Value) Rules, 2006 5 would not be
applicable. The relevant portions of the order are reproduced below:
"31.3 The above mentioned Valuation Rule
specifically excludes, in so far as present case
is concerned, only the damages which do not
relate to the Service provided. In the instant
case, I have already held, after due
5. the 2006 Rules
8
ST/50508/2018
consideration all the evidence available on
record, that the occurrences of LIH items
happened during the rendering of Drilling
Service (a Service on which M/s HOSI are
discharging Service Tax Liability). In light of these
facts and under these circumstances, I reject
the contentions raised by M/s HOSI and I
further hold that the case law M/s. Paul Merchants
Ltd. v. CCE. Chandigarh [(2013-29-STR-257-Tri.
Del.) does not come to the aid of M/s HOSI.
Accordingly I hold that the consideration
received and involved in the instant case has to
be included in the taxable value of Drilling
Service as sought to be in the Show Cause
Notice, since the exclusion clause provided in
the said Rule 6(2)(vi) of Service Tax Rules
2006 is not applicable, as the amount received in
the instant case has direct relation to the drilling
Service provided by M/s HOSI to their clients.
*****
34.1. In my view, all the above contentions revolve around the common ground that amount received on account of accidental damages should not be included in the Assessable Value for the purpose of determining the Service Tax payable. In this regard I have already dealt with this issue hereinabove at para 31.2 and 31.3. Rule 6(2)(vi) which provides for exclusion of the amount in respect of Accidental Damages received by the Service Provider, provided the Accidental Damages should have no relation to the Service rendered. In the present case I have already explained as to how and why the occurrences of "Items Lost in Hole" have direct relation with the service provided in the instant case. Therefore, I hold the shelter provided in Rule 6(2)(vi) of Service Tax Rules 2006 is not available to the present case. Therefore, I hold that the case law, Instrumentation Ltd., vs E. Kuttapaan [1991-(AR2)- GJX-0084-KER] relied upon by the Noticee is not applicable. For the same reason I hold that the Noticee's reliance upon Para 8.6.2 of the CBEC's Education Guide which illustrates the scope of 9 ST/50508/2018 accidental damages is also not applicable to the present case since the second condition, namely "the damages are not related to provisions of service"
stipulated in the said para 8.6.2, is not satisfied in the instant case."
(emphasis supplied)
10. Regarding the invocation of the extended period of limitation, the Additional Director General observed:
"39.3. Thus, based on the above provision the relevant date for the purpose of demanding Service Tax short paid, not paid etc. involving longer period under the proviso clause is 5 years from the date a periodical return for the period involved in the show cause notice is filed. I find that in the instant case the show cause notice demand service tax for the period starting with Invoice raised by the Noticee for LIH item in the month of December 2010 (details as aforesaid). I observe that the periodical return for the period October 2010 to March 2011 was the earliest period involved for demanding service tax short paid by the Noticee and the ST-3 return for the said period was filed by M/s HOSI on 22.04.2011, while the show cause notice was issued and served on M/s HOSI on 19.04.2016, which is well within 5 years of the relevant date as provided under the provisions of Section 73 of the Finance Act, 1994 as discussed above. Hence, I find that the demand is well within the limitation period as prescribed under the provisions. Hence, I reject the contentions of the Noticee in this regard."
(emphasis supplied)
11. The contention advanced by the appellant that it had bona fide believed that the consideration received for the LIH items was not to be included in the value of taxable service was rejected for the following reasons:
10
ST/50508/2018 "40.2 In this context, I find that Rule 6(2)(vi) of Service Tax Rules is quite clear as to what can be excluded from the purview of Service Tax levy, in so far as charges like Damages are received. The Rule is not ambiguous, in as much as, if there is no link between the service provided and the amount in question cannot be included in the Assessable value. The only possible conclusion is that in a situation where the consideration is received while the respective items ("Lost in Hole" items in the instant case) were involved while taxable Service are being provided. ***** ***** 41.3.2. In light of above facts, it is clear that either the Noticee failed to provide the information as required to be provided under the statutory returns or wherever the information has been provided, the same is without any basis of determination and hence cannot be verified. Another related question is what prevented the Noticee in disclosing the complete details of the exempted value and amount payable under Rule 6(3) of CCR, 2004 in the specified columns of ST-3 Returns (as discussed above) and further fulfilling the conditions of sub-
rule 3A of Rule 6 of CCR, 2004, if the Noticee itself considered the LIH as an exempted service?
41.4. As already discussed, the case in hand leaves no doubt about the provisions of law which are quite clear as to how and why the considerations received by the Service provider in the instant case falls within the purview of liability to Service Tax. Therefore, there was no way that the Noticee could have treated the amounts involved herein as relating to Exempt Service. Further, the Noticee has not provided any documentary evidence to show that they have specifically disclosed to the department that they had received the consideration for items that were 'Lost in Hole' and that such items relate to rendering of exempted service. In the Noticee's own words, the LIH Items in themselves are not 11 ST/50508/2018 rendering of any Taxable Service. When there is no separate service, the consideration received during the rendering of Service (Drilling Services) should naturally have been included by the Noticee without waiting for the department to detect the case. Even if the Noticee had reversed the credit in terms of Rule 6 of CCR, 2004 in this regard, unless they communicate the same in clear terms, there was no possibility for the department to know the actual nature and circumstance under which the Noticee had reversed credit in relation to consideration received by them from their clients, in respect of the "Lost in Hole Items". Therefore, I reject their contention in this regard.
***** 42.1. The Noticee have further contended that Larger Period Limitation cannot be applied to the present case as their records for the period 2010 to 2014 were audited by CERA. In this regard I find that in many cases, the Hon'ble CESTAT and Courts have held that the visit of Audit parties cannot be cited as a ground for resisting the applicability of Larger period of Limitation. There is no documentary evidence that these documents were placed before the Central Excise Revenue Audit (CERA) party and there is no further evidence that these documents were examined by CERA from the view of liability to Service Tax. Under the circumstances, I hold that mere visit by CERA to the Unit or mere examination of other records for other purposes cannot lead to the conclusion that there was no suppression of facts on the part of the Noticee."
(emphasis supplied)
12. Shri Tarun Gulati, learned senior counsel for the appellant assisted by Shri Vikas Aggarwal, learned chartered accountant, made the following submissions:
12
ST/50508/2018
(i) Compensation for LIH equipments/tools is on account of an indemnity contract and not on account of any service. In this connection reliance has been placed on the judgment of the Supreme Court in Commissioner of Service Tax vs. Bhayana Builders (P) Ltd. 6 and the decision of the Tribunal in Balaji Enterprises vs. Commissioner of C. Ex. and S.T., Jaipur-I 7. Learned senior counsel also placed reliance upon paragraph 2.3 of the CBEC Education Guide;
(ii) There is no nexus between the amount received for LIH and the taxable service. In this connection reliance has been placed on the judgments of the Supreme Court in:
(a) Collector Of Central Excise vs. Indian Oxygen Ltd.8;
(b) Bhayana Builders;
(c) Moriroku UT India (P) Ltd. vs. State of U.P. 9;
(iii) Compensation is excluded from the value of taxable services in view of the provisions of rule 6(2)(vi) of the 2006 Rules and paragraph 8.6.2 of the CBEC Education Guide;
(iv) The contract between appellant and customers provides that the appellant shall be reimbursed for LIH replacement. This indicates that it is a reimbursement for the loss of equipments/tools and not a payment for the provision of service. It is settled law that reimbursement is not leviable to service tax. In this connection, learned senior counsel placed reliance upon the judgment of the Delhi High Court Intercontinental Consultants & Technocrats Pvt. Ltd. vs. Union of India10, which judgment was upheld by the Supreme
6. 2018 (10) G.S.T.L. 118 (S.C.)
7. 2020 (33) G.S.T.L. 97 (Tri. - Del.)
8. 1988 (36) E.L.T. 730 (S.C.)
9. 2008 (224) E.L.T. 365 (S.C.)
10. 2013 (29) S.T.R. 9 (Del.) 13 ST/50508/2018 Court in Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd. 11;
(v) The impugned order is based on irrelevant considerations; and
(vi) The extended period of limitation could not have been invoked in the facts and circumstances of the case.
13. Shri Rohit Issar and Shri S.K. Meena, learned authorized representatives appearing for the department, however, supported the impugned order and submitted that it does not call for any interference in this appeal. Learned authorized representatives submitted that:
(i) When the Directorate General of Hydrocarbons issued Certificate mentioning that the LIH items shall be treated as "consumed", it is not open to the appellant to contend that the consideration received in terms of the contract would not be includable in the taxable value of the services; and
(ii) The extended period of limitation was correctly invoked in the facts and circumstances of the case.
14. The submissions advanced by the learned senior counsel for the appellant and the learned authorized representatives appearing for the department have been considered.
15. As noticed above, the issue that arises for consideration in this appeal is as to whether the compensation received by the appellant for the LIH equipments/tools while providing drilling service has to be included in the value of taxable service.
16. To appreciate this issue, it would be pertinent to refer to the two contracts between the appellant and the two customers dealing with
11. 2018 (10) G.S.T.L. 401 (S.C.) 14 ST/50508/2018 compensation to be provided to the appellant for such LIH equipments/tools on account of unforeseen circumstances beyond the control of the appellant.
17. The first contract is between the appellant (Contractor) and M/s. B.G. Exploration and Production India Limited (Company). The relevant clauses 15.5 and 15.5.1 are reproduced below:
"15.5 CONTRACTOR'S Down-Hole Equipment below the Rotary Table 15.5.1 Notwithstanding the provisions of clauses 15.4, COMPANY shall be responsible for, indemnity, defend and hold CONTRACTOR GROUP harmless against any and all expenses in respect of loss of or damage to CONTRACTOR GROUP's down-hole equipment, arising out of or in connection with this CONTRACT, when such down-hole equipment is below the rotary table, except to the extent that such loss or damage is caused or contributed to by normal wear and tear or the negligence, breach of duty (statutory or otherwise) or WILFUL MISCONDUCT of CONTRACTOR GROUP."
18. The second contract is between the appellant (Contractor) and M/s. Gujarat State Petroleum Corporation Limited (Company) and the relevant clause 11.6 is reproduced below:
"11.6 Contractor's Material, Equipment and Property The Unit/ equipments/ tools (here referred to as Equipments) to be deployed by the Contractor under the Contract shall continue to remain Contractor's property and shall always remain in the possession/control of the Contractor with the exclusive right to use of such equipments by the Contractor for providing services under the Contract. Contractor shall be responsible at all times, including time in storage, in transit, on the rig or at Company's well location, for damage to or destruction of Equipment and any other property of Contractor or any of its subcontractors and their respective employees or agents unless such loss, 15 ST/50508/2018 damage or destruction is caused by or contributed to by the Gross Negligence of Company Group.
Notwithstanding the foregoing, Company shall defend, indemnify and hold Contractor Group harmless from any and all claims relating to any material, equipment and any of the property of Contractor Group while lost or damaged in the hole, or as a result of uncontrolled well conditions. Provided such loss or damage is not due to normal wear and tear, in which cases, Company shall (i) exert its best efforts to recover such property of material, equipment for Contractor at Company's sole risk and expense, or (ii) reimburse Contractor LIH replacement cost less depreciation ..............."
19. The contention of the learned senior counsel for the appellant is that since the customers have to compensate the appellant for LIH equipments/tools which are not consumed as they are lost/damaged because of conditions beyond the control of the appellant, the value of the compensation should not form part of the taxable value for the purpose of levy of service tax.
20. The appellant had imported equipments/tools claiming waiver of customs duty in terms of the exemption notification dated 17.03.2012. In order to avail this exemption, the appellant had to produce an Essentiality Certificate issued by the Directorate General of Hydrocarbons to the customs authorities certifying that the equipments/tools imported were required for petroleum operations and had been imported for execution of a specified contract. As per the terms and conditions of the Agreement, the equipments/tools have to be re-exported for which a Certificate has again to be obtained by the customers from the Directorate General of Hydrocarbons. The appellant has also to inform the customers immediately about the LIH equipments/tools so that it can be verified by the customers. It is only after 16 ST/50508/2018 confirmation by the customers that an application can be filed to the Directorate General of Hydrocarbons for issuing a Certificate to the effect that during the drilling operations, the equipments/tools, as specified, were LIH. The Directorate General of Hydrocarbons would then issue a Certificate confirming that the given equipments/tools were LIH during drilling and were not retrievable and, therefore, the said equipments/tools would have to be treated as "consumed".
21. It is this Certificate issued by the Directorate General of Hydrocarbon that has persuaded the Additional Director General to hold that since the LIH equipments/tools were "consumed", compensation received by the appellant from the customers would have to be included in the taxable value of services.
22. It needs to be noted that the term "consume" used by the Directorate General of Hydrocarbons in the Certificate would have no bearing to the facts of the present case. It is for the purpose of availing exemption, that an importer has to produce Essentiality Certificate issued by the Directorate General of Hydrocarbons to the customs authorities. After completion of the project, again a Certificate has to be obtained from the Directorate General of Hydrocarbons. This Certificate certified that:
"the equipment/tools is lost in the hole during drilling operation and is not retrievable. Hence, the equipment/tools as such is to be treated as consumed."
23. The term "treated as consumed" has been used in the Certificate for the reason that LIH equipments/tools were actually not consumed but should be "treated as consumed". The LIH equipments/tools could not have been consumed as they were lost, which fact is also noted in the Certificate when it declares that the equipments/tools were lost in hole. "Lost" and 17 ST/50508/2018 "consumed" have distinct meaning and implication. The word "consume" in the Certificate is in the context of the Customs Act and does not have relevance to the word "consumed" used in service tax law. The Additional Director General, therefore, committed an error in placing reliance upon the word "consumed" for the purpose of including the value of compensation to the taxable value service.
24. The contention advanced by the learned senior counsel appearing for the appellant is that the compensation received by the appellant from the customers for LIH equipments/tools is on account of an indemnity contract and not on account of any service and, therefore, this amount cannot be included in the value of taxable service. In this connection, learned senior counsel placed reliance on the decision of the Tribunal in Balaji Enterprises.
25. The contention advanced by the learned senior counsel for the appellant deserves to be accepted. Once the equipments/tools are declared as LIH equipments/tools, the appellant would not receive any charges for the same from the customer since such equipments/tools would not be assisting in the drilling. In fact, these equipments/tools are replaced and then the replaced equipments/tools are used for drilling purposes. The appellant did not receive any amount towards the services as what the appellant received was compensation, which is an amount in terms of the contract and not towards any service. Thus, the compensation amount is not towards any "consideration" for a taxable service.
26. This is what was observed by the Tribunal in Balaji Enterprises and the relevant portions of the decision of the Tribunal are reproduced below:
"34. The submission made by learned Counsel for the Appellant deserves to be accepted. The Appellant did receive a fixed commission for marketing the 18 ST/50508/2018 services of Tata Tele Services for the works enumerated in schedule A of the Agreement. This schedule does not refer to buying and selling of handsets at lower prices and neither does the Agreement provide for payment of any subsidy, much less for promotion or marketing of Tata Tele Services. The subsidy, on the other hand, is paid to the Appellant by Tata Tele Services to compensate for the loss incurred by the Appellant on the sale of mobile handsets at a lower price and cannot be said to have any relation to the service of promotion or marketing. Thus, in the absence of any services provided by the Appellant to Tata Tele Services, service tax could not have been levied on the amount of subsidy received by the Appellant.
35. In this connection, reference can be made to decision of the Punjab and Haryana High Court in Nahar Industrial Enterprises Ltd.
[2010 (19) STR 166 (P&H)]. The Central Government, by a letter dated 23 January, 2003, directed the assessee to maintain a buffer stock of free sale sugar and to compensate the assessee the Government extended a buffer stock subsidy towards storage, interest and insurance charges for the said buffer stock of sugar. The Revenue contended that the amount received by the assessee as buffer subsidy was covered under the definition of "storage and warehousing services". The High Court held that service tax could be levied only if storage and warehousing service was provided. The assessee had stored goods in the compliance of the directions of Government of India and had received subsidy not on account of services rendered to the Government of India but as compensation on account of loss interest, and cost of insurance incurred on account of maintenance of stock.
36. This apart, what has also to be noticed is whether the amount received as subsidy is a "consideration" for taxable service under 67(1) of the Act and hence liable to service tax. The 19 ST/50508/2018 Supreme Court in Bhayana Builders Pvt. Ltd. held that for valuation of taxable service, a provision has been made in the section 67 of the Act that provides that it would be the gross amount charged by the service provider for such service provided or to be provided by him‟. Thus, the amount should be charged for such service provided. Therefore, it is not any amount charged which can become a basis value on which service tax becomes payable. The amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. The Supreme Court further held that by using the word for such service provided, the Act has provided for a nexus between the amount charged and the service provided and, therefore, any amount charged which has no nexus with taxable service is not a consideration for the service provided nor does it become a part of the value taxable under section 67 of the Act."
(emphasis supplied)
27. In view of the aforesaid decision of the Tribunal in Balaji Enterprises, the compensation amount cannot be included in the assessable value for the purpose of payment of service tax.
28. It would also be pertinent to refer to rule 6 of the 2006 Rules. Sub- clause (1) of rule 6 deals with the value of taxable services which have to be included, and sub-rule (2) deals with the value of taxable services which would not be included. Rule 6(2)(vi) of the 2006 Rules is as follows:
"6(2)(vi) accidental damages due to unforeseen actions not relatable to the provision of service; and"
29. Thus, the amount received towards accidental damages due to unforeseen actions are not relatable to the provisions of services and would have to be excluded from the value of taxable services. 20
ST/50508/2018
30. In this connection, learned senior counsel for the appellant also placed reliance upon paragraphs 2.3 and 8.6.2 of the CBEC Education Guide. The relevant portions are reproduced below:
"2.3 Activity for a consideration The concept 'activity for a consideration' involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. An activity done without such a relationship i.e. without the express or implied contractual reciprocity of a consideration would not be an 'activity for consideration' even though such an activity may lead to accrual of gains to the person carrying out the activity.
***** 8.6.2. What is the scope of the exclusion entry related to accidental damages due to unforeseen actions not relatable to the provisions of service?
This inclusion has been inserted vide the Serviced Tax (Determination of Value) Second Amendment Rules, 2012. In terms of this exclusion accidental damages are not to be included in the value of service provided the following two conditions are specified:
The damages are due to unforeseen actions.
The damages are not related to provisions of service.
Examples-
• Insurance Companies provide insurance services to the clients for which the premium is charged. The premium charged is a consideration for the insurance service provided. However, in case due to an unforeseen action, like an accident etc., a compensation is paid by the insurance company to the client then the money would not be included as part of value 21 ST/50508/2018 of taxable service as it is not relatable to the provisions of service but is only in the nature of consequence of provisions of insurance service.
• In case a landlord who has rented out his office building to a tenant receives compensation from the tenant for the damage caused to the building by an unforeseen action then such compensation would not form part of the value of taxable service related to tenant of his building as an unforeseen damage caused by the tenant is not relatable to provision of service of renting of the office building."
(emphasis supplied)
31. The aforesaid provisions of the CBEC Education Guide explain the scope of the exclusion entry relating to accidental damages due to unforeseen actions not relatable to the provisions of service in the context of the 2006 Rules. It has been clarified that accidental damages are not to be included in the value of service provided the damages are due to unforeseen actions and are not related to the provisions of service. The example of an insurance company that has been referred to in the CBEC Education Guide is in connection with compensation paid to a client due to unforeseen action like an accident. It clarifies that the compensation paid by the insurance company to the client in such circumstances is not to be included in the value of taxable service, as it is not relatable to the provision of service but is only in the nature of consequence of provisions of insurance service.
32. Likewise, compensation that is paid by the customers to the appellant for the LIH items will not be included in the value of taxable service as it is not relatable to the provision of service but is only in the nature of consequence of provisions of drilling service.
33. Another issue that would arise for consideration is whether the Additional Director General was justified in holding that the extended period 22 ST/50508/2018 of limitation was correctly invoked. For this purpose, the appellant has placed a chart containing details of the amount covered in the normal period and the amount covered under the extended period of limitation. This chart is reproduced below:
Period Taxable Rate of Service Tax Normal Relevant Date on which Whether value Service Payable period date show cause extended Tax notice to be period or issued normal (considering period normal period) 2010-2011 12,688,530 12.36% 1,568,302 18 months 25.04.2011 25.10.2012 Extended (From period 30.09.2010) 2011-2012 13,081,789 12.36% 1,616,909 18 months 25.04.2012 25.10.2013 Extended period 2012-2013 19,887,972 12.36% 2,458,153 18 months 25.10.2012 25.04.2014 Extended (upto period 30.06.2012) 2012-2013 204,446,425 12.36% 25,269,578 18 months 25.04.2013 25.10.2014 Extended (July 2012 period onwards) 2013-2014 36,355,773 12.36% 4,493,574 18 months 25.04.2014 25.10.2015 Extended period Demand for 35,406,516 extended period 2014-2015 156,996,291 12.36% 19,404,742 18 months 25.04.2015 25.10.2016 Normal period April, 2015 to 8,998,220 12.36% 1,112,180 18 months 25.10.2015 25.04.2017 Normal May, 2015 period June, 2015 to 4,313,816 14.00% 603,934 18 months 25.04.2016 25.10.2018 Normal 14 November period 2015 15 November 19,895,853 14.50% 2,884,899 18 months 25.04.2016 25.10.2018 Normal 2015 to 31 period March 2016 (including cess) Demand for 24,005,755 normal period Total 476,751,932 59,412,270.94
34. In connection with the invocation of the extended period of limitation, the show cause notice mentions that under the self-assessment regime, it was the responsibility of the appellant to determine the service tax liability correctly and submit the ST-3 Returns properly, but the appellant deliberately suppressed the fact that it was receiving consideration for the LIH items and this amount was not included in the taxable value. The show 23 ST/50508/2018 cause notice also mentions that non-payment of service tax on the compensation received for LIH items would have not come to the notice of the department, had investigation not been carried out by the Directorate General of Central Excise Intelligence 12.
35. The appellant filed a detailed reply to the show cause notice and in the context of the invocation of the extended period of limitation, pointed out that the compensation received for the LIH items was not to be included in the value of taxable services; sufficient disclosure was made by the appellant in the Returns filed before the department and in any case there was no wilful mis-statement of facts with intent to evade payment of service tax. The appellant also pointed out that the unit was audited by the Central Excise Revenue Audit 13 for the period April 2010 to March 2014 and, therefore, also the extended period could not have been invoked as facts were in the knowledge of the department.
36. The Additional Director General did not accept the contention of the appellant that it had bona fide believed that the compensation received for the LIH items was not be included in the assessable value, as according to the Additional Director General the provisions of rule 6(2)(vi) of the 2006 Rules are very clear. The Additional Director General also did not accept the contention of the appellant that it had made sufficient disclosure in the Returns.
37. Though, the Additional Director General accepted that the appellant had declared payment in the Returns filed for July 2012 to September 2012, but the Additional Director General observed such Returns did not show the value of exempted services. The contention of the appellant that the extended period could not have been invoked since the records of the
12. DGCEI
13. CERA 24 ST/50508/2018 appellant for the period 2010 to 2014 were audited by CERA was not accepted for the reason that there was no documentary evidence to substantiate that relevant documents were placed before CERA and further there was no evidence to support that these documents were examined by CERA. The observations made by the Additional Director General in paragraph 42 of the order, also need to be noted. The Additional Director General found that the allegation of suppression of facts can be upheld since the department came to know about the transactions only when the officers of the DGCEI detected the case and, therefore, concluded that the extended period of limitation would be applicable.
38. In order to appreciate these contentions, it would appropriate to reproduce section 73 of the Finance Act as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows:
"73(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, 25 ST/50508/2018 by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "eighteen months", the words "five years" had been substituted."
39. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word "eighteen months", the word "five years" has been substituted.
40. It is correct that section 73 (1) of the Finance Act does not mention that suppression of facts has to be "wilful‟ since "wilful‟ precedes only misstatement. It has, therefore, to be seen whether even in the absence of the expression "wilful" before "suppression of facts" under section 73(1) of the Finance Act, suppression of facts has still to be willful and with an intent to evade payment of service tax. The Supreme Court and the Delhi High Court have held that suppression of facts has to be "wilful‟ and there should also be an intent to evade payment of service tax.
41. Before adverting to the decisions of the Supreme Court and the Delhi High Court, it would be useful to reproduce the proviso to section 11A of Central Excise Act, 1944 14, as it stood when the Supreme Court explained "suppression of facts" in Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay 15. It is as follows:
"11A. Where any duty of excise has not been levied or paid or has been short-levied or short-pain or erroneously refunded, by the reason of-
(a) fraud; or
14. the Central Excise Act
15. 1995 (78) E.L.T. 401 (SC) 26 ST/50508/2018
(b) collusion; or
(c) any wilful misstatement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Act of the rules made thereunder with intent to evade payment of duty by any person chargeable with the duty, the Central Excise Officer shall, within five years from the relevant dated, serve notice on such person requiring him to show cause why he should not pay the amount specified in the notice along with interest payable thereon under Section 11AA and a penalty equivalent to the duty specified in the notice."
42. In Pushpam Pharmaceuticals Company, the Supreme Court examined whether the department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Central Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows;
"4. Section 11A empowers the Department to re- open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the 27 ST/50508/2018 word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
(emphasis supplied)
43. This decision was relied upon by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise 16 and the observations are as follows:
"26...........This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression "suppression of facts" in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:-
"In taxation, it ("suppression of facts") can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
16. 2005 (188) E.L.T. 149 (SC) 28 ST/50508/2018
27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act."
(emphasis supplied)
44. In Easland Combines, Coimbatore vs. Collector of Central Excise, Coimbatore 17 the Supreme Court observed that for invoking the extended period of limitation, duty should not have been paid because of fraud, collusion, wilful statement, suppression of fact or contravention of any provision. These ingredients postulate a positive act and, therefore, mere failure to pay duty which is not due to fraud, collusion or wilful misstatement or suppression of facts is not sufficient to attract the extended period of limitation.
45. The aforesaid decisions of the Supreme Court were relied upon by the Supreme Court in Uniworth Textiles Ltd. vs. Commissioner of Central Excise, Raipur 18 and the relevant portion of the judgment is reproduced below:
17. (2003) 3 SCC 410
18. 2013 (288) E.L.T. 161 (S.C.) 29 ST/50508/2018 "12. We have heard both sides, Mr. R.P. Batt, learned senior counsel, appearing on behalf of the appellant, and Mr. Mukul Gupta, learned 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 willful misstatement or suppression of facts is, in our opinion, untenable. If that were to be true, we fail to understand which form of nonpayment 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)
46. The Supreme Court in Continental Foundation Joint Venture vs. Commissioner of Central Excise, Chandigarh 19 also observed in connection with section 11A of the Central Excise Act, that suppression means failure to disclose full information with intention to evade payment of duty and the observations are as follows:
"10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as "fraud‟ or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full
19. 2007 (216) E.L.T. 177 (S.C.) 30 ST/50508/2018 information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with knowledge that the statement was not correct."
(emphasis supplied)
47. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication) 20 also examined the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act, 1994 21 and held as follows:
"27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression" in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. "fraud, collusion, wilful misstatement". As explained in Uniworth (supra), "misstatement or suppression of facts" does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty.
***** Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention."
*****
20. 2018 (12) GSTL 368 (Del.)
21. the Finance Act 31 ST/50508/2018 The Revenue has not been able to prove an intention on the part of the Appellant to avoid tax by suppression of mention facts. In fact it is clear that the Appellant did not have any such intention and was acting under a bonafide belief."
(emphasis supplied)
48. It would also be appropriate to refer the decision of the Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and others 22. The Delhi High Court observed that merely because MTNL had not declared the receipt of compensation as payment for taxable service, does not establish that it had wilfully suppressed any material fact. The Delhi High Court further observed that the contention of MTNL that receipt was not taxable under the Act is a substantial one and no intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return. The relevant portion of the observations are:
"28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main question to be addressed is whether the allegation that MTNL had
22. W.P. (C) 7542 of 2018 decided on 06.04.2023 32 ST/50508/2018 suppressed material facts for evading its tax liability, is sustainable.
*****
41. In the facts of this case, the impugned show cause notice does not disclose any material that could suggest that MTNL had knowingly and with a deliberate intent to evade the service tax, which it was aware would be leviable, suppressed the fact of receipt of consideration for rendering any taxable service. On the contrary, the statements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL‟s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return."
(emphasis supplied)
49. It is, therefore, clear from the aforesaid discussion that the extended period of limitation could have been invoked only if there was suppression of facts with intent to evade payment of service tax.
50. In the present case, as noticed above, the Additional Director General observed that since there was suppression of facts, the larger period of limitation could be invoked.
33
ST/50508/2018
51. The contention of the appellant is also that it bona fide believed that compensation for LIH equipments/tools was not to be added to the value of taxable service because of rule 6(2)(vi) of the 2006 Rules and it cannot be said that the belief of the appellant is mala fide merely because it may ultimately be held that the appellant is not entitled to the compensation amount. This contention deserves to be accepted.
52. In this connection, it may be pertinent to refer to the decision of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd. 23. The Supreme Court held that if an assessee bona fide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be mala fide. If a dispute relates to interpretation of legal provisions, the department would be totally unjustified in invoking the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bona fide manner. The relevant portion of the judgment is reproduced below:
"23. We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a mala fide belief particularly when such a belief was emanating from the view taken by a Division Bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co-
exist. In such cases of disputes of
23. 2023 (385) E.L.T. 481 (S.C.)
34
ST/50508/2018
interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bona fides. In any scheme of self-assessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bona fide manner.
24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. *****. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee's action of including the value of deemed exports within the value of domestic clearances."
(emphasis supplied)
53. The show cause notice also alleged that in an era of self-assessment an assessee in required to correctly discharge the duty liability, but the appellant still did not include the compensation amount.
54. The approach of the Commissioner cannot be countenanced. It is the duty of the officers scrutinizing the returns to examine the information disclosed by an assessee and the department cannot be permitted to take a plea that it is the duty of the assessee to disclose correct information and it is not the duty of the officers to scrutinize the returns. 35
ST/50508/2018
55. In this connection, reference can be made to the decision of the Tribunal in M/s. Raydean Industries vs. Commissioner CGST, Jaipur 24. The Tribunal, in connection with the extended period of limitation, observed that even in a case of self-assessment, the department can always call upon an assessee and seek information and it is the duty of the proper officer to scrutinize the correctness of the duty assessed by the assessee. The Division Bench also noted that departmental instructions issued to officers also emphasise that it is the duty of the officers to scrutinize the returns. The relevant portion of the decision of the Tribunal in Raydean Industries is reproduced below:
"24. It would be seen that the ER-III/ER-I returns filed by the applicant clearly show that the applicant had categorically declared that it had cleared the final products by availing the exemption under the notification dated 17.03.2012. The applicant had furnished the returns on the basis of self assessment. Even in a case of self assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 20028 that the assessee is expected to self assess the duty and sub-rule (3) of rule 12 of the 2002 Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is,
24. Excise Appeal No. 52480 of 2019 decided on 19.12.2022 36 ST/50508/2018 therefore, not possible to accept the contention of the learned authorized representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules.
25. Departmental instructions to officers also emphasise upon the duty of officers to scrutinize the returns. The instructions issued by the Central Board of Excise & Customs on December 24, 2008 deal with "duties, functions and responsibilities of Range Officers and Sector Officers". It has a table enumerating the duties, functions and responsibilities and the relevant portion of the table is reproduced below:
*****
26. The Central Excise Manual published by CBEC on May 17, 2005, which is available on the website of CBEC, devotes Part VI to SCRUTINY OF ASSESSMENT.
*****
27. It is thus evident that not only do the 2002 Rules mandate officers to scrutinise the Returns to verify the correctness of self assessment and empower the officers to call for documents and records for the purpose, Instructions issued by the department also specifically require officers at various levels to do so."
(emphasis supplied)
56. The view that has been taken by the Commissioner was also not accepted by the Tribunal in G.D. Goenka and the observations are as follows:
"16. Another ground for invoking extended period of limitation given in the impugned order is that the appellant was operating under self-assessment and hence had an obligation to assess service tax correctly and take only eligible CENVAT credit and if it does not do so, 37 ST/50508/2018 it amounts to suppression of facts with an intent to evade and violation of Act or Rules with an intent to evade. We do not find any force in this argument because every assessee operates under self-assessment and is required to self-assess and pay service tax and file returns. If some tax escapes assessment, section 73 provides for a SCN to be issued within the normal period of limitation. This provision will be rendered otiose if alleged incorrect self-assessment itself is held to establish wilful suppression with an intent to evade. To invoke extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed simply because the assessee is operating under self-assessment."
(emphasis supplied)
57. In this connection, it may be pertinent to refer to the decision of the Tribunal in M/s. India Glycols Limited vs. Commissioner of CGST & Central Excise 25. The Tribunal held:
"39. What, therefore, transpires from the aforesaid decisions is that there can be a difference of opinion between the department and Revenue and an assessee may genuinely believe that it is not liable to pay duty. On the other hand, the department may have an opinion that the assessee is liable to pay duty. The assessee may, therefore, not pay duty in the self-assessment carried out by the assessee, but this would not mean that the assessee has wilfully suppressed facts. To invoke the extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed merely because the assessee is operating under self assessment. If some duty escapes assessment, the officers of the department can always call upon the assessee to submit further documents and he may also conduct an enquiry. In fact when the audit was conducted, the officers of the audit team would
25. Excise Appeal No. 52129 of 2019 decided on 20.08.2024 38 ST/50508/2018 have scrutinized the records and, therefore, notice should have been issued within the stipulated time from the date the audit was conducted. Even otherwise merely because facts came to light only during the audit does not prove that there was an intent on the part of the assessee to evade payment of duty."
(emphasis supplied)
58. The Tribunal in Sunshine Steel Industries vs. Commissioner of CGST, Customs & Central Excise, Jodhpur 26 observed that the department cannot be permitted to invoke the extended period of limitation by merely stating that it is a case of self-assessment. The relevant observations are:
"20. The Department cannot be permitted to invoke the period of limitation by merely stating that it is a case of self-assessment as even in a case of self-assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 2002 that the assessee is expected to self-assess the duty and sub-rule (3) of rule 12 of the Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is, therefore, not possible to accept the contention of the learned authorized
26. (2023) 8 Centax 209 (Tri.-Del.) 39 ST/50508/2018 representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules."
(emphasis supplied)
59. Civil Appeal No. 4246 of 2023 (Commissioner of CGST, Customs and Central Excise vs. Sunshine Steel Industries) filed by the department before the Supreme Court to assail the aforesaid decision of the Tribunal in Sunshine Steel Industries was dismissed by the Supreme Court on 06.07.2023 and the judgment is reproduced below:
"Delay condoned.
2. Heard learned counsel for the appellant.
3. This Court is not inclined to interfere with the impugned order of the High Court (Sic).
4. The appeal is dismissed.
5. Pending applications, if any, are disposed of."
60. In the present case, the records of the appellant for the period 2010 to 2014 were also audited by CERA. A finding has been recorded by the Additional Director General that the extended period of limitation could still be invoked because there was no documentary evidence to establish that the relevant documents were placed before CERA and further there was no evidence that these documents were also examined by CERA. This view of the Additional Director General cannot be accepted. When an audit is carried out it is for the officers to properly scrutinize all the records and it is not open to the department to take a plea that there could be a possibility that all the records were not produced or the documents were not examined by the audit.
61. The Additional Director General also observed that though the appellant had disclosed the factual position in the Returns filed for July 2012 to September 2012 but such Returns did not show the value of the 40 ST/50508/2018 exempted services. If that be so, it was for the officers scrutinizing the Returns to have required the appellant to produce the relevant documents.
62. In this connection, it would also be relevant to refer to the decision of the Tribunal in M/s. Kalya Constructions Private Limited vs. The Commissioner, Central Excise Commissionerate, Udaipur 27, wherein it was observed:
"11. Both the SCNs further state that had the audit not conducted scrutiny of the records, the short paying the service tax would not have come to notice. It is a matter of fact that all the details were available in the records of the appellant. The appellant was required to furnish returns under section 70 with the Superintendent of Central Excise which it did. It is for the Superintendent to scrutinize the returns and ascertain if the service tax had been paid correctly or not. If the assessee either does not make the returns under section 70 or having made a return, fails to assess the tax in accordance with the provisions of Chapter or Rules made thereunder, the Superintendent of Central Excise can make the best judgment assessment under section 72. For this purpose, he may require the assessee to produce such accounts, documents or other evidence, as he may deem necessary. Such being the legal position, if some tax has escaped assessment which came to light later during audit, all it shows is that the Superintendent of Central Excise with whom the returns were filed had either not scrutinized the returns or having scrutinized then found no error in self-assessment but the audit found so much later. Had the Superintendent scrutinized the returns calling for whatever accounts or records were required, a demand could have been raised within the normal period of limitation. The fact that the alleged short payment came to light only during audit does not prove the
27. Service Tax Appeal No. 54385 of 2015 decided on 15.11.2023 41 ST/50508/2018 intent to evade payment of service tax by the appellant, but it only proves that the Range Superintendent had not done his job properly. For these reasons, we find that the demand for the extended period of limitation cannot be sustained."
(emphasis supplied)
58. The chart contained in paragraph 33 of the order gives a breakup of the demand confirmed for the extended period and the demand confirmed for the normal period. For the reasons stated above, the demand confirmed for the extended period cannot be sustained and would have to set aside. However, the demand confirmed for the entire period cannot be sustained as on merits also the demand could not have been confirmed.
59. Thus, for all the reasons stated above, the impugned order dated 20.06.2017 passed by the Additional Director General deserves to be set aside and is set aside. The appeal is, accordingly, allowed.
(Order Pronounced on 01.04.2025) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) Shreya