Service Tax Demand Can’t Survive Once Extended Limitation Is Dropped: CESTAT

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a service tax demand cannot be sustained when the extended period of limitation is set aside, even if the services in question are otherwise taxable. The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that the activities of Baba Finance Company were not confined to document verification. Instead, the company was also developing customers and acting as a facilitator for banks, which clearly falls within the scope of Business Auxiliary Service. M/s Baba Finance Company was engaged as a Direct Marketing Associate (DMA) for banks such as ICICI Bank and Citi Bank. The company assisted in developing customers and completing documentation for loan applications, for which it received commissions. The tax department alleged that the commissions received for these services were liable to service tax under the category of Business Auxiliary Service. A show cause notice was issued demanding ₹10.78 lakh in service tax along with interest and penalties under the Finance Act, 1994. The Additional Commissioner confirmed the entire demand and imposed penalties. However, on appeal, the Commissioner (Appeals) ruled that the extended period of limitation was not applicable, though the demand for the normal period of ₹1,77,398 was upheld along with certain penalties. The appellant contended that its role was limited to verification and processing of documents for finance companies, and therefore its activities should not fall under Business Auxiliary Service. It further argued that since the Commissioner (Appeals) had already set aside the extended period of limitation, the entire show cause notice should fail. According to the appellant, when a notice invokes both the normal and extended period but the extended period is held unsustainable, the demand for the normal period cannot survive. The department argued that the appellant was not merely verifying documents but was actively engaged in developing customers and facilitating loan business for banks, making it liable to service tax under Business Auxiliary Service. The Revenue relied on agreements between the appellant and the banks as well as statements recorded during investigation to support its case. The Tribunal agreed with the Commissioner (Appeals) that the services rendered by the appellant were taxable in principle. Despite agreeing with the department on taxability, the Tribunal noted that the Commissioner (Appeals) had already concluded that there was no fraud, suppression, or wilful misstatement by the appellant, and therefore the extended period of limitation could not be invoked. This finding was not challenged by the department and had attained finality. Relying on judicial precedents, including the Calcutta High Court’s decision in Infinity Infotech Parks Ltd., the Tribunal held that when a show cause notice invoking both normal and extended limitation fails on the extended period, the demand for the normal period also becomes unsustainable in such circumstances. The Tribunal ultimately held that although the services provided by the appellant fall under Business Auxiliary Service, the service tax demand of ₹1,77,398 could not survive due to limitation. Case Details Case Title: M/s Baba Finance Company Versus Commissioner of Central Excise & Service Tax, Chandigarh-I Citation: JURISHOUR-278-CES-2026(CHAN) Case No.: Service Tax Appeal No. 60530 of 2013 Date: 09.03.2026 Counsel For Appellant: Vikrant Kackria, Advocate Counsel For Respondent: Narinder Singh, Authorized Representative Click Here To Read Order Read More: Minute Maid Nimbu Fresh with 5% Fruit Juice Classifiable as Fruit Juice Based Drink: CESTAT Quashes Excise Duty Demand

Service Tax Demand Can’t Survive Once Extended Limitation Is Dropped: CESTAT

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