Extended Limitation Inapplicable Where Tax Is Payable Under Reverse Charge: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has set aside a service tax demand of Rs. 10.35 lakh along with interest and penalties raised against assessee holding that the extended period of limitation was wrongly invoked and that service tax liability under the reverse charge mechanism cannot be fastened upon the service provider. The bench of Sanjiv Srivastava (Technical Member) has observed that even if the service recipient had failed to discharge service tax, the demand could not have been raised against the service provider. It noted that the appellant had sufficient grounds to entertain a bona fide belief that it was not required to pay service tax on the consideration received for the services in question. The dispute arose from an investigation initiated on the basis of data received from the Income Tax Department, which indicated a difference of ₹69.06 lakh between the gross receipts reflected in Form 26AS and Income Tax Returns and the taxable value declared in ST-3 returns for the financial year 2016-17. Relying on this data, the department alleged that Protectwell Security Services had suppressed taxable value and failed to pay service tax amounting to ₹10,35,930. A show cause notice dated 21 October 2021 was issued invoking the extended limitation period under the proviso to Section 73(1) of the Finance Act, 1994, along with proposals for recovery of interest and imposition of penalties under Sections 77 and 78. The adjudicating authority confirmed the demand, interest and penalties, holding that the non-payment of service tax came to light only through income tax information and that the assessee had wilfully suppressed facts with intent to evade tax. The Commissioner (Appeals) upheld the order, primarily on the ground that the appellant failed to produce complete agreements, invoices and conclusive evidence to establish that service tax had been discharged by the service recipients under the reverse charge mechanism. The appellant contended that it was engaged in providing manpower supply and security services, which were fully covered under the reverse charge mechanism in terms of Notification No. 30/2012-Service Tax as amended by Notification No. 07/2015-Service Tax. The appellant argued that under the statutory scheme, the liability to pay service tax in respect of such services rested entirely on the service recipients and not on the service provider. The appellant further submitted that multiple show cause notices were issued due to technical duplication of service tax registrations, leading to confusion, and that there was no intention to suppress facts or evade tax. The Tribunal held that in cases where service tax is payable entirely under the reverse charge mechanism, the liability of the service recipient is independent and distinct from that of the service provider. The Tribunal found that the invocation of the extended period was unsustainable in the absence of any evidence of fraud, wilful misstatement or deliberate suppression of facts. Relying on a catena of judgments of the Supreme Court, including Uniworth Textiles Ltd., Chemphar Drugs and Liniments, Padmini Products and the recent decision in Stemcyte India Therapeutics Pvt. Ltd., the Tribunal reiterated that mere non-payment of tax or reliance on interpretational issues cannot justify the invocation of the extended limitation period. It further noted that the Commissioner (Appeals) failed to record any specific findings on limitation and bona fide belief, despite these issues being specifically raised by the appellant. The Tribunal held that the service tax demand of Rs. 10.35 lakh, along with applicable interest and penalties, could not be sustained in law. Accordingly, the impugned order was set aside and the appeal filed by Protectwell Security Services was allowed. Case Details Case Title: M/s Protectwell Security Services Versus Commissioner of Central Goods & Services Tax, Noida Case No.: Service Tax Appeal No.70812 of 2025 Date: 30 January, 2026 Click Here To Read Order Read More: 12% Interest On Excise Refund Can’t Be Claimed As A Matter Of Right : CESTAT

Extended Limitation Inapplicable Where Tax Is Payable Under Reverse Charge: CESTAT

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