Commr. of Cus. and C. Ex. vs Indian Institute of Chemical Technology

V.V.S. Rao, J.—These two appeals can be disposed of by a common order as they arise out of a common order passed by 1 On appeal from 2010 (17) S.T.R. 420 the Customs, Excise and Service Tax Appellate Tribunal, Bangaluru (CESTAT), in Appeal Nos. S.T./461 & 470/2008, dated 19-5-2009 (2009) 18 STJ 380 . M/s. Indian Institute of Chemical Technology (IICT), Hyderabad, is a constituent research and consultation laboratory under the over all administrative control of the Council of Scientific & Industrial Research (CSIR), Government of India. As per Sections 65(92) and 105(za) of the Finance Act, 1994 (the Act), "Scientific and Technical Consultancy Service" is liable to service tax at the applicable rate. The Officers of the Director General of Central Excise Intelligence Unit (DGCEI), gathered intelligence and found that for the period from 16-7-2001 to 9-9-2004 IICT did not pay the service tax. Therefore, the Commissioner of Customs and Central Excise, Hyderabad-III Commissionerate, issued a show cause notice u/s 73(1) of the Act calling upon the IICT to show case as to why an amount of Rs. 1,38,68,461/- being the service tax payable on the value of Scientific and Technical Consultancy services during the above mentioned period should not be demanded under the said provision; interest as applicable u/s 75 of the Act should not be paid by the assessee and penalty should not be paid by them under Sections 76 and 78 of the Act for violation of the provisions of the Act.

The IICT submitted its replies on 29-5-2006, 9-6-2006 and 28-12-2007. It explained that an amount of Rs. 61,73,714/- was paid towards service tax during 2005-2006 towards arrears on all the old receipts in respect of sponsored and collaborative projects except grant-in-aid from Government Department/Ministries; that in respect of grant-in-aid consultations, service tax is not payable as per the guidelines issued by the Central Excise Department and CSIR and that the short payment of service tax was under bona fide condition of not properly classifying the funds received by IICT under dutiable consultation charges and exempted charges.

By order-in-original dated 31-1-2008 the Commissioner dropped the proceedings for the levy of penalty, but confirmed the demand for an amount of Rs. 79,84,670/- and also applicable interest thereon. The Commissioner observed that the guidelines/instructions issued by CSIR in the matter of payment of service tax cannot be shown as an excuse for non-payment of service tax from the date of levy as IICT was registered independently with the Central Excise Department on 1-3-2002. Insofar as the penalty aspect is concerned, relying on Section 80 of the Act, the Commissioner came to the conclusion that there was a bona fide doubt regarding the activity covered by the Act and the activity exempted from the Act from payment of service tax, and therefore, it is not a case for imposing penalty. Being aggrieved, IICT as well as the Revenue preferred appeals. By a common order, the appeal of IICT was allowed and the other was dismissed, aggrieved by which, the two present appeals are filed.

The Senior Standing Counsel for Central Excise and Customs would submit that the exoneration of the assessee from penalty proceedings in view of Section 80 of the Act cannot be a ground to draw an inference that the proceedings u/s 73 of the Act are barred by limitation. According to him, the proceedings for recovery of service tax not levied u/s 73 and the proceedings for levying penalty under Sections 76, 77, 78 and 79 are different and the lenient view taken in the matter of penalty cannot be a ground for invalidating the recovery proceedings.

There is no dispute that as per the notification dated 9-7-2001 vide F.No. B.11/1/2001-TRU issued by C.B.E.C., the consultation provided in relation to the research projects funded by grand-in-aid by the Government, no service tax is payable. During the course of interlocutory proceedings IICT took the stand that they did not pay the service tax insofar as five projects namely, (i) Project CLP 0050-Gas Authority of India Ltd., (ii) Project CLP 0052 - Ministry of Industries, (iii) Project CLP 0059-Centre for High Technology, Thiruvananthapuram, (iv) Project CLP 0060-Aeronautical Development Agencies and (v) Project CLP 0068-DRDL, Hyderabad. Before the Tribunal a specific plea was raised that the recovery proceedings were initiated beyond the period of one year, and therefore, barred.

There is also no dispute that if any service tax has not been levied or has been short levied or short paid or erroneously refunded, within a period of one year from relevant date, the competent Central Excise Officers can serve a notice on the person chargeable requiring him to show cause as to why he should not pay the amount. In this case, the proceedings were initiated with the issue of show cause notice dated 21-2-2006 requiring IICT to pay the service tax for the period from 16-7-2001 to 9-9-2004. As per sub-section (1) of Section 73 of the Act the period of one year would expire by September 2005. Therefore, the proceedings are clearly beyond the period of limitation. When the Commissioner found that the non-payment of service tax in respect of five above named projects is due to bona fide doubt regarding the activity, the non-payment, in our considered opinion, and as rightly found by the CESTAT, does not fall within any of the circumstances/situations mentioned in proviso to sub-section (1) of Section 73 of the Act. Needless to mention that when there is fraud, collusion, willful misstatement, suppression of facts or contravention of any provisions of the Act, the period of limitation of one year extends to five years. If for the purpose of Section 80 of the Act, the assessee is not liable to pay the penalty because of bona fide doubt they entertained, for the same reason it cannot be said that the case falls in any of the categories under the proviso to Section 73(1) of the Act.

The Senior Counsel for the Central Excise is right when he submits that a provision like Section 80 of the Act is absent in Central Excise Act, 1944, and therefore, the penalty proceedings have to be viewed separately. Even under Central Excise Act the penalty proceedings are not automatic and there ought to be necessary material to show that the assessee is guilty of willful suppression, fraud and misrepresentation. u/s 80 of the Act if the assessee proves that there was a reasonable cause for the failure to pay the service tax, the competent authority can always drop the penalty proceedings. The question of penalty proceedings would arise only when there could be valid recovery proceedings u/s 73(1) of the Act. That is the reason when the ''non obstante'' clause in Section 80 refers to only Sections 76, 77 and 78 and not to Section 73 of the Act When the limitation period u/s 73(1) of the Act has expired and when the case does not fall under the proviso thereto, the question of penalty proceedings would not arise. In this case as the Tribunal found, the initiation proceedings were beyond the period of limitation and whether or not penalty proceedings were dropped is immaterial. In the result, for the above reasons, we see no ground to admit these appeals. They are accordingly dismissed.