By TIOL News Service

ALLAHABAD, APR 24, 2014: AGAINST the CESTAT order, both, the appellant and the Revenue have filed appeals before the Allahabad High Court.

The Tribunal held that the extended period of limitation of five years could not have been invoked by the Revenue u/s 73 of the FA, 1994 on the ground that there was no suppression of facts by the assessee. Having held that the demand beyond a period of one year was time barred, the Tribunal entered into the merits of the appeal filed by the assessee and came to the conclusion that since storage of goods in the cold storage was an essential part of the clearing and forwarding operations of the assessee, cold storage charges are required to be added in the taxable value of services rendered.

So, as mentioned, Revenue is against the portion of the order holding the demand time barred and the appellant assessee contends that once the Tribunal had held that the demand was barred by time, there was no occasion for the Tribunal to enter into the merits and, hence, that part of the reasoning of the Tribunal which deals with the merits of the dispute would have to be set aside.

Facts of the case:

The assessee had an agreement with HLL dated 1 May 2001 under which it was to render services as a clearing and forwarding agent and, in addition, provide a facility for the storage of goods belonging to HLL in a cold storage owned by the assessee. The compensation structure stipulated that the assessee would receive a fixed charge of Rs.3.50 lakhs per month for providing the facility of a cold storage and a reimbursement for clearing and forwarding agent expenses at a stipulated rate.

A notice to show cause was issued to the assessee on 21 July 2006 by which an amount of Rs.9,46,766/- towards service tax along with interest was demanded – computed on rent charges received from HLL for cold storage/warehousing of frozen products - the period involved is from 2001-02 and 2004-05.

The Tribunal while holding that the extended period of limitation could not be invoked observed thus –

"13. Coming to issue of limitation, we find that for the first time the Revenue wrote a letter dated 27.9.2002 asking assessee to pay tax for the period September 2001 to July 2002. Assessee replied this letter vide their letter dated 8.11.2002. Thereafter there was correspondence on 20.11.2002 from the department and replied by assessee on 9.12.2002. We find that fact that assessee is not paying duty on cold storage was known to department in 2002. Quantum of cold storage charges is already part of agreement and is fixed on monthly basis. We are therefore of the view that extended period based on suppression of fact cannot be invoked in the present case and therefore demand beyond period of one year is time-barred in the present case. Decisions relied on by ld. D.R. do not support the case of the department as those decisions are in respect of clandestine removal of goods where one cannot ascertain the relevant dates defined under Section 11-A of the Act."

The High Court took up the Revenue appeal first.

The High Court held that it was clear that the fact that the assessee was not paying service tax on the fixed monthly charges was known to the Department on 27 September 2002 and, therefore, the Tribunal was justified in coming to the conclusion that the extended period of limitation could not be invoked since there was no suppression of facts on the part of the assessee.

Nonetheless, the Counsel for the Revenue urged that at-least a part of the demand would fall within the original period of limitation of one year and the same needed to be confirmed.

The High Court referred to the definition of the expression “relevant date” mentioned in section 73 and observed –

"…in the present case, it is admitted that under the Rules, a half yearly return is required to be filed by the assessee by the 25th of the month following the particular half year. The terminal date of the period governed by the show cause notice is 31 March 2005 for which the assessee was required to file a return by 25 April 2005. Consequently, the notice to show cause dated 21 July 2006 was even beyond the original period of one year of the relevant date."

The appeal by the Revenue was dismissed.

Adverting to the appeal by the assessee, the High Court referred to the apex court decision in State Bank of India Vs. B.S. Agricultural Industries (I) (2009) 5 SCC 121 , where the Supreme Court dealt with a situation where the consumer forum had held that the complaint was barred by limitation but had nonetheless proceeded to decide the issue on merits and held that this would amount to an illegality.

And, therefore, the High Court held -

"Consequently, since the Tribunal was justified, as we have held, in coming to the conclusion that the demand was time barred, there was nooccasion for the Tribunal to enter upon the merits of the dispute. We, accordingly, answer the question of law as framed by the assessee in the affirmative and in favour of the assessee."

So, the Revenue appeal was dismissed and the assessee appeal was disposed of.

(See 2014-TIOL-550-HC-ALL-ST)