The Bombay High Court has dismissed a departmental appeal challenging the setting aside of a ₹21.92 crore service tax demand against a beer manufacturer, holding that the extended limitation period could not be invoked without establishing fraud, collusion, wilful misstatement or suppression of facts with an intention to evade tax.
The Bench of Justice Nitin B. Suryawanshi and Justice Abasaheb D. Shinde observed that the principle of consistency is “sacrosanct” in revenue matters and the tax department cannot challenge an appellate ruling in one case after accepting the same conclusion in another case involving almost identical facts.
The petitioner/assesee had entered into an agreement dated April 1, 2005 with United Breweries Ltd. Under the arrangement, Millennium manufactured and sold alcoholic beverages to customers and indenters of United Breweries in accordance with the latter’s instructions.
Following an investigation initiated in 2010, the department issued a show-cause-cum-demand notice on December 19, 2012. The notice sought recovery of ₹21,92,03,724 in service tax for the period from September 23, 2009 to November 15, 2011, along with interest and penalties under Sections 76, 77 and 78 of the Finance Act, 1994.
The adjudicating authority confirmed the entire demand through an order dated April 30, 2014. Millennium challenged that order before the CESTAT, which allowed its appeal and held that the demand was barred by limitation.
The department approached the Bombay High Court under Section 35G of the Central Excise Act, 1944, read with Section 83 of the Finance Act.
The department contended that Millennium was liable to pay service tax on the services allegedly rendered to United Breweries between April 1, 2010 and November 15, 2011.
It argued that the liability could not be extinguished merely because the amalgamation scheme was made applicable from an earlier appointed date. According to the department, April 1, 2010—the appointed date under the amalgamation scheme approved by the Board for Industrial and Financial Reconstruction—could not be treated as the effective date of amalgamation.
The department maintained that the relevant date should be November 16, 2011, when the Registrar of Companies issued the certificate of incorporation following amalgamation.
It further alleged that the manufacturing arrangement between Millennium and United Breweries had not been disclosed to the department. On this basis, it sought to justify the invocation of the extended limitation period.
Millennium raised a preliminary objection to the maintainability of the appeal. It pointed out that an identical demand had been raised against another similarly situated assessee, SAB Miller Breweries Pvt. Ltd.
Both Millennium and SAB Miller had challenged their respective demands before the CESTAT. The Tribunal allowed both appeals on the same grounds.
However, while the Revenue accepted the Tribunal’s decision in SAB Miller’s case, it challenged the corresponding decision concerning Millennium.
The High Court compared the two matters and found that the date of the show-cause notice, the date of the adjudication order, the date of amalgamation, the demand period and the method used to calculate the demand were substantially identical. The grounds on which the Tribunal allowed the appeals were also the same.
The Bench consequently found that the Revenue had applied different standards by accepting the CESTAT ruling in one case while challenging it in another involving comparable facts.
Relying on the Supreme Court’s decisions in Birla Corporation Ltd. v. Commissioner of Central Excise and Union of India v. Kaumudini Narayan Dalal, the High Court held that the Revenue cannot be permitted to adopt conflicting positions in cases involving almost identical facts without just cause.
“The Principle of Consistency is sacrosanct in revenue matters and the revenue cannot be permitted to take different stand when the facts are almost identical,” the Court observed.
Permitting the department to adopt such inconsistent stands would be contrary to the principles of fairness and equity, the Bench added.
Turning to the merits, the High Court said that the central question was whether the department was entitled to invoke the extended limitation period.
The Bench referred to the Supreme Court’s ruling in Uniworth Textiles Ltd. v. Commissioner of Central Excise, Raipur, which held that an extended period can be invoked only where the show-cause notice contains specific and explicit allegations concerning the assessee’s mala fide conduct.
The Court noted that the burden of establishing fraud, collusion, wilful misstatement or suppression of facts with an intention to evade payment of duty lies upon the Revenue.
A show-cause notice must clearly inform the assessee which particular act or omission falling within the statutory proviso is being alleged. Unless the notice identifies the specific allegation, the assessee would have no proper opportunity to answer the department’s case, the Bench said.
In the present matter, the High Court found that the Revenue had failed to prove any fraud, collusion or suppression of material facts attributable to Millennium with an intention to evade payment of tax.
The assessee had also maintained that its transaction with United Breweries before the amalgamation had been disclosed to the department. It had paid service tax on consideration of ₹5 per case in relation to intellectual property services. The Tribunal’s factual finding on disclosure was supported by the record and had not been successfully dislodged by the Revenue.
The High Court held that, in the absence of evidence showing deliberate tax evasion or suppression, the department could not resort to the extended limitation period.
Accordingly, the demand-cum-show-cause notice issued on December 19, 2012, long after the relevant transactions, was held to be barred by limitation.
The Bench affirmed the CESTAT’s finding that the demand was time-barred, observing that the conclusion was based on an appreciation of evidence and could neither be characterised as erroneous nor perverse.
It further held that the Revenue’s appeal did not involve any substantial question of law, which is a prerequisite for entertaining an appeal under Section 35G of the Central Excise Act.
The High Court therefore dismissed the Revenue’s appeal and upheld the CESTAT order granting relief to the assessee.
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