Service Tax Demand Time-Barred If Department Conducted Periodic Audits Without Raising Objection: CESTAT

The New Delhi Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand raised against Jaipur-based contractor Sohan Lal Mathur, holding that the entire proceedings were barred by limitation since the department was fully aware of the nature of services being provided and had conducted periodic audits without objection. The bench of Justice Ashok Jindal (Judicial Member), and K. Anpazhakan (Technical Member) has observed that periodic audits had been conducted by the department and therefore there was complete knowledge with the Revenue regarding the appellant’s activities. In such circumstances, the Bench held that invocation of the extended period of limitation was unsustainable. The appeal was filed against an Order-in-Original dated 28 June 2019 passed by the Principal Commissioner of CGST & Central Excise, Jaipur, which had confirmed service tax demand under the category of “Works Contract Service” for the period 2008-09 to 2011-12. The show cause notice invoking the extended period of limitation had been issued on 4 October 2013. According to the facts recorded in the order, the appellant had been registered as a service provider since 2004 under the category of “Commercial or Industrial Construction Services” and had been regularly paying service tax from 16 June 2005 onwards. The assessee was also regularly filing ST-3 returns and availing the benefit of abatement under Notification No. 01/2006-ST dated 1 March 2006. The dispute arose after departmental audits conducted during July and October 2012. On scrutiny of books of accounts, financial statements and other records, the audit team formed the view that the activities undertaken by the appellant were more appropriately classifiable under “Works Contract Service” instead of “Commercial or Industrial Construction Service.” Based on this classification change, the department issued a show cause notice seeking recovery of service tax by invoking the extended limitation period. Before the Tribunal, the appellant argued that the department had full knowledge of the nature of activities carried out by the assessee for several years. It was submitted that regular audits had taken place and no objection was ever raised regarding the classification adopted by the appellant. The assessee further pointed out that even for earlier periods, show cause notices had been issued under the category of “Commercial or Industrial Construction Service” itself, and the Tribunal had already granted relief in those proceedings. The appellant contended that in view of the earlier departmental actions and Tribunal decisions, it had a bona fide belief that the services were correctly classifiable under “Commercial or Industrial Construction Service” and that the benefit of Notification No. 1/2006-ST was legitimately available. The Revenue, on the other hand, relied upon the audit findings and maintained that the correct classification of the services was “Works Contract Service.” After considering the rival submissions, the Tribunal observed that the appellant had been duly registered with the department and had consistently discharged service tax liability under the declared category while regularly filing statutory returns. The Bench also noted that the department had earlier raised demands under the same construction service category for previous periods, and those proceedings had already been adjudicated by the Tribunal in favour of the assessee. Holding the entire demand for the period 2008-09 to 2011-12 to be “highly time barred,” the Tribunal allowed the appeal and set aside the impugned order with consequential relief to the appellant. Case Details Case Title: Sohan Lal Mathur Versus Principal Commissioner Of Cgst & Central Excise-Jaipur Citation: JURISHOUR-1258-HC-2026(Ker) Case No.: SERVICE TAX APPEAL NO. 52385 OF 2019 Date: 13/05/2026 Counsel For Appellant: Bipin Garg and Ms. J. Kainaat Counsel For Respondent: Jaya Kumari, Authorised Representative Click Here To Read Order Read More: Govt Hikes Gold & Silver Import Duty to 15%; Jewellery Prices Set to Rise

Service Tax Demand Time-Barred If Department Conducted Periodic Audits Without Raising Objection: CESTAT

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