Non-Issuance of Invoice Bars Extended Limitation for Service Tax Demand under Section 73, Finance Act 1994

Introduction

The Patna High Court in Anil Kumar Singh v. The Union of India (Civil Writ Jurisdiction Case No. 9105 of 2024) addressed two inter-related questions in Government contract taxation: whether royalty deducted by a State Government from a public works contractor’s bills amounted to “service” under the Finance Act, 1994 and whether the tax authorities could invoke the five-year extended limitation period under Section 73(1) on grounds of “suppression of facts” when no invoice was issued by the Government department. The petitioner, a road-and-building contractor, challenged a demand-cum-show-cause notice served in April 2022 seeking service tax on royalty of ₹20,38,629/- (with demand of tax ₹3,05,794/- plus interest and penalty) for the 2016-17 financial year. He contended that (a) his broad contracting activity was exempt under Mega Exemption Notification No. 25/2012-ST, and (b) the notice was time-barred as no invoice under Rule 4A, Service Tax Rules, 1994 was ever issued by the Government department.

Summary of the Judgment

The Division Bench (Prasad and Pandey, JJ.) held:

The petitioner’s core works-contract services fell under the Mega Exemption Notification 25/2012-ST and thus were not automatically taxable.
Royalty deducted by the Government did constitute a “service” (assignment of right to use natural resources) taxable on a reverse-charge basis after 1 April 2016 under Notification 22/2016-ST, read with Notification 30/2012-ST (as amended).
Rule 4A of the Service Tax Rules, 1994 mandates that every provider of a taxable service must issue an invoice, bill, or challan within 30 days of service completion or receipt of payment. The Government department concededly issued none.
Absence of any invoice meant the petitioner lacked notice of his reverse-charge liability and rate of tax, negating any finding of “wilful suppression” necessary to extend limitation beyond thirty months under Section 73(1). Relying on Pushpam Pharmaceuticals Co. v. Collector of Central Excise, (1995 Supp 3 SCC 462), the Court reiterated that “suppression” entails a deliberate, fraudulent omission to disclose correct information.
The show-cause notice dated 19 April 2022 (Annexure P/2) and the confirmation order dated 31 October 2023 (Annexure P/4) were quashed as time-barred and lacking jurisdiction for extended limitation.

Analysis

Precedents Cited

Pushpam Pharmaceuticals Co. v. Collector of Central Excise, (1995 Supp 3 SCC 462) – The Supreme Court clarified that “suppression of facts” under the proviso to Section 11A (now Section 73) must be a deliberate, intentional omission to evade duty or tax, not a mere oversight. The Patna High Court applied this principle to reject any notion that non-issuance of invoice by the Government equated to petitioner’s fraud or willful suppression.

Legal Reasoning

1. Scope of Exemption vs. Reverse‐Charge Liability: The Court accepted that the petitioner’s main works-contract services were exempt under Notification 25/2012-ST. When Government-deducted royalty was classified as a reverse-charge service under Notification 22/2016-ST (inserting Entry 61 in 25/2012) and Notification 30/2012-ST (as amended by 18/2016-ST), the petitioner became receiver of a taxable service.

2. Mandatory Invoice Rule (Rule 4A): Rule 4A requires service providers to issue a serially numbered invoice, bill or challan within 30 days of service completion or payment. The statutory text is mandatory—absent compliance, the recipient cannot be put on notice of taxable value or rate. The Government’s admitted failure to issue any such document defeated any finding that the petitioner “knew or ought to have known” of the liability.

3. Limitation under Section 73(1), Finance Act, 1994: Section 73(1) prescribes a 30-month window (formerly 18 months) from the relevant date to issue a show-cause notice, extendable to five years only if fraud, collusion, wilful mis-statement, suppression of facts or other contraventions with intent to evade service tax are established. Here, no deliberate suppression by the petitioner could be demonstrated, as he was never formally informed via invoice. Therefore, the extended five-year limitation could not be invoked; the notice dated 19 April 2022 fell outside the 30-month standard period.

Impact on Future Cases

Tax authorities must strictly comply with invoice-issuance requirements under Rule 4A before holding recipients liable on a reverse-charge basis.
Extended limitation under Section 73(1) will no longer be mechanically applied; departments must independently establish deliberate suppression or fraud by the taxpayer.
Service recipients who genuinely lack notice of liability (due to absence of invoice) can successfully challenge demands as time-barred.
Government departments acting as providers of reverse-charge services must institute robust billing procedures to avoid invalidating their own assessments.

Complex Concepts Simplified

Reverse-Charge Mechanism (RCM): A tax collection mechanism under which the recipient, not the provider, pays service tax. Here, the contractor (petitioner) was the recipient of Government’s service of permitting use of royalty-bearing materials.
Relevant Date: The date from which the limitation clock starts under Section 73. For reverse-charge services, it is typically the date of payment or service completion.
Service Tax Exemption Notifications: Mega Exemption Notification 25/2012-ST generally exempts Government works contracts; however, Notification 22/2016 and Notification 30/2012 carve out reverse-charge on natural-resource usage (royalty).
Invoice Requirement under Rule 4A: A procedural safeguard mandating formal documentation so that recipients are put on notice of taxable transactions.
Extended Limitation Proviso: Allows a five-year window only if the taxpayer’s own deliberate wrongdoing (fraud, suppression, etc.) caused the revenue loss.

Conclusion

The judgment in Anil Kumar Singh v. The Union of India establishes a critical precedent: Government departments providing reverse-charge services must issue invoices under Rule 4A, failing which any subsequent demand notices beyond the standard limitation cannot be sustained on grounds of “suppression of facts.” The decision underscores the interplay of procedural safeguards (invoice issuance), substantive tax obligations (reverse-charge on royalty), and limitation principles (strict vs. extended period). It will guide tax authorities and taxpayers alike in administering and challenging reverse-charge service tax demands.