Case Law Details
Thakkers Harmony Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
The appeal before CESTAT Mumbai challenged the order of the Commissioner (Appeals), CGST & Central Excise, confirming a service tax demand of ₹90,625 along with applicable interest, an equal penalty, and an additional penalty of ₹20,000 under Section 77(1)(c) and (d) of the Finance Act, 1994. The demand was raised on the basis of the differential amount reflected between the appellant’s VAT Return and ST-3 Return.
The appellant was engaged in providing construction of residential complex services. For the financial year 2015-16, the appellant declared receipts of ₹24,55,000 in the ST-3 Return, while the Profit and Loss Account reflected receipts of ₹49,55,000. After adding 1% VAT of ₹49,550, the department treated ₹50,04,550 as the taxable value and issued a show cause notice demanding service tax with interest and penalties. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order.
Before the Tribunal, the appellant primarily challenged the proceedings on the ground of limitation. It was submitted that although the show cause notice was signed on 31.12.2020, a Postal Department letter dated 12.06.2025 established that the notice was booked for dispatch only on 15.01.2021. According to the appellant, the notice relating to the period from April 2015 to September 2015 was issued after expiry of the limitation period, even after considering the extension available under the Covid-related Ordinance up to 31.12.2020. It was also contended that the Commissioner (Appeals) failed to consider this specific ground, despite its inclusion in the written submissions. The appellant further argued that an invalid show cause notice for the earlier period rendered the entire proceedings unsustainable.
On merits, the appellant submitted that service tax had been discharged under the Point of Taxation Rules based on invoices raised, whereas VAT was paid on the value of agreements upon completion of the residential building. It was contended that an amount of ₹25 lakh reflected in the financial statements for 2015-16 had already been disclosed as receipts for services rendered during October 2014 to March 2015 in the ST-3 Return for that period. The appellant also disputed the calculation of the differential demand of ₹13,375, contending that service tax had been computed at 14.5% instead of the applicable rate of 12.36%.
The Revenue supported the order of the Commissioner (Appeals) and argued that the appellant had not raised the limitation issue before the appellate authority.
After examining the records, the Tribunal noted that the Postal Department’s letter confirmed that the show cause notice was dispatched on 15.01.2021. The Tribunal held that the notice covering the disputed period had been issued beyond five years from the filing of the return on 24.10.2015 and beyond the extended period available under the Covid-related Ordinance. Relying on the facts on record and the precedent cited by the appellant, the Tribunal concluded that the show cause notice was barred by limitation, rendering the service tax demand unsustainable.
The Tribunal also observed that the appellant’s contention regarding the receipts for the two financial years was supported by the findings recorded in paragraphs 10 and 11 of the Order-in-Original, indicating that the payments disclosed in the ST-3 Returns corresponded with those reflected in the VAT Returns.
Holding that the proceedings had been initiated through a show cause notice that was unsustainable in law, the Tribunal quashed the entire proceedings, set aside the order of the Commissioner (Appeals), and allowed the appeal with consequential relief, if any.
FULL TEXT OF THE CESTAT MUMBAI ORDER
Confirmation of demand by the Commissioner (Appeals) of Service Tax of Rs. 90,625/-, alongwith appropriate interest and equal penalty plus penalty of Rs. 20,000/- u/s. 77(1) (c)(d) of the Finance Act, 1994, demanded and confirmed on the basis of differential amount noted in VAT Return and ST-3 Return is assailed in this appeal.
2. Facts, in a nut shell, would go to reveal that appellant had been providing construction of residential complex service. In the Financial Year 2015-16, in the ST-3 Returns, appellant had declared receipt of Rs. 24,55,000/- whereas he had shown receipt of Rs. 49,55,000/- in their Profit & Loss Account for the same Financial Year and if 1% VAT of Rs. 49,550/- is added to it then, it would come to Rs. 50,04,550/-, which was supposed to be taxable value as per department, for which appellant was served with Show-cause-cum demand notice for recovery of the same alongwith interest and equal penalty etc. Matter was adjudicated and demands etc. got confirmed. Unsuccessful attempt by the appellant before the Commissioner (Appeals) against the confirmation of such demand made by the Adjudicating Authority has brought the dispute to this Forum.
3. During the course of hearing, Ld. Counsel for the Appellant, Mr. Rajiv Luthia primarily has raised two grounds while challenging the order passed by the Commissioner (Appeals). The first ground taken by him is that the entire proceedings has to be treated as time barred since Show-cause notice has been issued after five years of demand made for April 2015 to September 2015, as admittedly the date of issue of said Show-cause notice was 15.01.2021, evidenced through postal department letter dated 12.06.2025 , when last date for such service of Show-cause was to be taken as 31.12.2021, which was a period extended by Ordinance for service of notice that could not be served on time due to Covid Pandemic. His further submission, as noted in the ground raised before the Commissioner (Appeals), was that invalidity of Show-cause for the past period renders the entire Show-cause notice as void even for the second half. In placing copy of the written submission dated 25.11.2024 filed before the Commissioner (Appeals), Ld. Counsel for the Appellant submitted that this specific ground was not dealt and completely ignored by the Commissioner (Appeals) since it would have resulted in dropping of the proceedings.
3.1 The second argument laid by him was that service tax was paid on the basis of point of Taxation Rules on value upon raising of invoice, when 1% VAT was paid on the basis of value of agreement entered into upon completion of the residential building, which was paid in the instant case on 29.04.2015 and got reflected in the financial statement of 2015-16. On the contrary, the same amount of Rs. 25 lacs. was shown to have been paid as receipt against service during the period October 2014 to March 2015 in the ST-3 Return filed by the appellant for the said period, which is noted by Ld. Commissioner (Appeals) in his order at para-10 itself. He further submitted that differential amount of Rs. 13,375/- that was added to the demand to make it Rs. 90,625/-, was on account of erroneous calculation of the Service Tax on the differential value @ 14.5% whereas the applicable rate of Service Tax for the relevant period was @12.36%.
3.2 Ld. Counsel for the Appellant concluded his argument in saying that this order is bad in law for the reasons that it had dealt with a Show-cause issued for a period for which limitation period was over and taken figures of VAT Returns which was, in fact, split into two financial years through filing of two separate ST-3 Returns, as payment against service was received in those two fanatical years.
4. Per contra, Authorised Representative Mr. Dhananjay Dahiwale argued in favour of the reasoning and rationality of the order passed by the Commissioner (Appeals) and raised a point that appellant had not taken the limitation issue before the Commissioner (Appeals) for which order passed by the Commissioner (Appeals) need not be interfered with.
5. I have gone through the Appeal Paper Book, submissions made by the parties and other relevant documents filed in support of the stand taken by the appellant. Though Show-cause Notice was signed on 31.12.2020, Postal Department letter dated 12.06.2025, as annexed in the compilation submitted subsequently, goes to show that the said speed post letter number, matching with its envelope content, submitted here, was booked from Nashik Head Office on 15.01.2021. This being the facts on record, when Show-cause notice covering the first period, that contains the disputed demand, was served much after five years of filing of Return on 24.10.2015 including the period covered upto 31.12.2021 in the Ordinance issued to address Covid Pandemic situation, is to be treated as issued beyond the period of limitation and the demand in question is not sustainable for the fact that it is barred by time as has been established by this Tribunal in the order of Naresh Kumar & Co. Pvt. Ltd Vs. Union of India and Ors on 18th April, 2011, as noted in the written submission filed before the Commissioner (Appeals). Therefore, the entire proceedings is required to be quashed as being initiated with a Show-cause which was unsustainable in law, apart from the fact that appellant’s other contention that amount paid by it in 2014-2015 and 2015-16, as revealed from para-10 and para-11 in the Order-in-Original, matches with the payment details reflected for both the periods of two financial years covered under ST-3 returns and under VAT Returns for the Financial Year 2015-16. Hence the order;
The order
6. The appeal is allowed and order passed by the Commissioner (Appeals) CGST & Central Excise, Nashik. vide Order-in-Appeal No. NSK /EXCUS /000/ APPL /507 /2024-25 dated 25.03.2025 is hereby set aside with consequential relief, if any.
(Order pronounced in the open court on 25.06.2026)
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