CESTAT Sets Aside Service Tax Demand Based on ST-3 & Trial Balance Difference

ITC Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai)

The CESTAT Chennai heard an appeal filed by the appellant against the Order-in-Appeal upholding the confirmation of service tax demand, interest and penalty arising from alleged short payment of service tax under the category of “Transport of Goods by Road.” The dispute originated from a CERA audit which compared the taxable value declared in the appellant’s ST-3 Returns with the figures reflected in the Trial Balance for the financial year 2008-09. On finding that the Trial Balance reflected a higher value than the ST-3 Returns, the Department issued a show cause notice demanding differential service tax of Rs.12,39,137/- along with interest and penalty by invoking the extended period under Section 73(1) of the Finance Act, 1994. The adjudicating authority confirmed the demand, interest under Section 75, and equivalent penalty under Section 78, and the Commissioner (Appeals) upheld the order.

The appellant contended that the Trial Balance and ST-3 Returns were prepared under different accounting methods, resulting in differences that required reconciliation before alleging short payment. It submitted that service tax on GTA services was correctly discharged under the Reverse Charge Mechanism on the basis of actual payments in accordance with Rule 6 of the Service Tax Rules. According to the appellant, the demand had been confirmed merely by comparing ST-3 Returns with the Trial Balance and presuming that all debit entries represented taxable GTA payments. The appellant also relied upon a reconciliation statement and a Chartered Accountant’s certificate certifying that no short payment of service tax had occurred. It further argued that the Department bore the burden of establishing that the differential amount represented consideration for taxable services, that the extended period of limitation was not invocable, and that the issue was revenue neutral since any service tax paid would have been available as CENVAT credit.

The Revenue supported the findings of the lower authorities and sought dismissal of the appeal.

The Tribunal observed that the demand had been confirmed solely on the basis of differences between the figures appearing in the ST-3 Returns and the Trial Balance, coupled with the presumption that all debit entries related to GTA services. It noted that the appellant had produced a reconciliation statement and a Chartered Accountant’s certificate explaining that the Trial Balance was prepared on an accrual basis whereas the ST-3 Returns were prepared on the basis of actual payments.

Referring to earlier Tribunal decisions, the CESTAT held that the issue was no longer res integra and that no service tax demand can be sustained merely by comparing ST-3 Returns with Balance Sheet or Trial Balance figures in the absence of evidence establishing that the differential amounts represented receipts for taxable services. The Tribunal reiterated that the burden of proving taxability rests upon the Department, which had failed to produce corroborative evidence linking the differences to taxable services.

The Tribunal also examined the Chartered Accountant’s certificate and reconciliation statement furnished by the appellant. It observed that the certificate had been issued after verification of the appellant’s books of account and contained a detailed reconciliation of freight payments and corresponding service tax liability. The Tribunal found that the adjudicating authority had rejected the certificate without examining its correctness or providing any legal basis for doing so. It held that a Chartered Accountant’s certificate possesses evidentiary value and cannot be disregarded without cogent reasons or contrary expert evidence. The Tribunal further held that the Department had failed to establish that the differences between the ST-3 Returns and the Trial Balance represented payments received towards taxable services.

The Tribunal also considered the appellant’s contention regarding revenue neutrality. Referring to earlier decisions, it observed that where service tax is payable under the reverse charge mechanism and corresponding CENVAT credit is available, the principle of revenue neutrality applies. It further noted that the entire demand was raised by invoking the extended period of limitation. The Tribunal also observed that the invocation of the extended period on the ground that the alleged non-payment was detected during audit was not sustainable, since the discrepancies could have been identified through timely scrutiny of the returns by the Department.

In view of these findings, the Tribunal held that the service tax demand was unsustainable. Consequently, the demand of interest and the penalties were also set aside. The impugned Order-in-Appeal dated 09.02.2015 was set aside, the appeal was allowed, and consequential relief, if any, was granted in accordance with law.

Cases Discussed

• Saraf Service Private Limited Vs. Commissioner of Service Tax, Kokota, [2024 (12) TMI 795-CESTAT Kolkata]
• Principal Commissioner, CGST Vs. SBI Life Insurance Company Ltd. (CESTAT Mumbai), [2024-TIOL-202-CESTAT-Mumbai]
• Tata Motors Limited v. Commissioner of Central Excise. Jamshedpur, [2024 (6) TMI/370-CESTAT Kolkata]
• South Eastern Coalfields Ltd Vs. Commissioner of Central Excise and Service Tax, Raipur, Final Order No.54519-54520/2024 dated 29.02.2024
• Commissioner of GST & Central Excise v. Royal Enfield, [2023 (3) TMI 496 CESTAT Chennai]
• M/s. Vandana Global Ltd Versus Commissioner (Appeals) Central GST, Central Excise & Customs, Raipur, [2022 (12) TMI 450 – CESTAT NEW DELHI]
• M/s. Asmitha Microfin Ltd. Versus Commissioner of Customs Central Excise & Service Tax, Hyderabad-III Commissionerate, [2019 (9) TMI 122 – CESTAT HYDERABAD]
• Go Bindas Entertainment Pvt. Ltd. Vs. Commissioner of Service Tax, Noida, [2019 (27) GSTL 39- (Tri. All.)]
• M/s. Go Bindas Entertainment Pvt. Ltd. Versus Commissioner of Service Tax, (Noida), [2019 (5) TMI 1487-CESTAT ALLAHABAD]
• M/s. Kush Constructions Versus CGST NACIN, ZTI, Kanpur, [2019 (5) TMI 1248 – CESTAT ALLAHABAD]
• GEPS Projects Vs. Commissioner of Central Excise & Service Tax, [2018 (9) TMI 1517- CESTAT, Allahabad]
• CST, Service Tax, Delhi Vs. Conhergys India Services Pvt Ltd., [2018 (1) TMI 1174-CESTAT Chandigarh]
• The Supreme Industries Ltd v. Commissioner of Central Excise. Mumbai, [2017 (2) TMI 310-CESTAT Mumbai]
• Jet Airways (I) Ltd. Vs. Commissioner of Service Tax, [2016 (8) TMI 989 – CESTAT MUMBAI]
• Business Overseas Corporation v. CC, New Delhi, [2015 (317) E.L.T. 637 (Tri. Del.)]
• Hero Motocorp Ltd. Vs. Commissioner of C.Ex. (Import & General), [2014 (302) E.L.T. 501 (Del.)]
• Commissioner of Central Excise & Customs, Guntur v. Crane Betel Nut Powder Works, [2011 (274) ELT 113 (Tri. – Bang)]
• Commissioner of C.Ex., Guntur vs. Empee Sugar & Chemicals, [2007 (2011) E.L.T. 293 (Tri. Bang.)]
• Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut (Supreme Court), [2005 (188) ELT 149 (SC)]

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts of the case are that M/s. ITC Limited, Vivekanandapuram, Thekkampatty Village, Mettupalayam (hereinafter referred to as ‘Appellant’) are the holders of Service Tax Registration No. AAAC15950LST024 and paying service tax under the category of “Transport of Goods by Road”.

1.2 During the Audit of accounts by CERA, and on cross-verification of the taxable value declared by the Appellant in the ST-3 Returns when compared with the Trial Balance for the Financial year 2008-09, it was noticed by the officers that the value shown in the Trial Balance for 2008-09 was higher than the value declared in their ST 3 Returns, i.e., Taxable Value was shown as Rs.15,37,97,401/- as per Trial Balance whereas the same was declared as Rs.11,36,95,869/- as per the ST-3 Returns. After according abatement, the Service Tax paid was alleged to be short paid. Consequently, the Appellant was issued with a SCN No. 58/2013-ST-ADC dated 23.09.2013 in which the differential Service Tax on the above said Taxable Value which worked out to Rs.12,39,137/-was demanded along with appropriate interest and proposal to impose penalty, invoking the extended period under Section 73(1) of Finance Act.

1.3 The Appellant has contended that the Balance Sheet/Trial Balance and ST-3 Returns were prepared under different accounting procedure and therefore, the difference would exist. It is an established principle to reconcile such differences before levelling allegation of short payment.

During the relevant period, the service tax was paid, and the ST-3 Returns were maintained on ‘actual payment’ basis. The Appellant submits that the extended period is not invokable and the demand is barred by limitation of time. Further, the entire issue is revenue neutral as the Appellant can avail CENVAT credit and therefore the question of interest and imposition of penalty will not arise.

1.4 After the due process of the adjudication, the Joint Commissioner of Central Excise & Service Tax, Salem vide Order-in-Original. No. 39/2014 dated 07.10.2014 has confirmed the demand of service tax of Rs.12,39,137/- along with appropriate interest under Section 75 of Finance Act, 1994 and imposed a penalty of Rs. 12,39,137/- under Section 78 of the Finance Act, 1994.

1.5 Being aggrieved by the order, the Appellant has filed an appeal before the Commissioner of Customs, Central Excise and Service Tax (Appeals-I), Coimbatore who rejected the appeal by upholding the Order-in-Original No. 39/2014 dated 07.10.2014 passed by the Joint Commissioner. Aggrieved by the said order of the Commissioner (Appeals), the Appellant has preferred this appeal and is now before this Tribunal.

2. The Ld. Advocate Ms. Manasa Srinivasan appeared and argued for the appellant. She has submitted that the findings in the impugned order are incorrect and therefore merits to be set aside. She would submit: –

i. that they have been rightly discharging Service Tax under Reverse Charge Mechanism on GTA services when payments are made towards taxable services in terms of Rule 6 of the Service Tax Rules. The demand has been confirmed based on assumptions and presumptions.

ii. that the Impugned Order has confirmed the demand solely by comparing the ST-3 Returns with the figures in the Trial Balance.

iii. that it is a settled position of law that demand of Service tax based solely on the difference between ST-3 returns and books of accounts cannot be sustained, and onus is on the Department to establish that the differential amount is payable towards taxable services and placed Reliance on the following cases: –

a. Saraf Service Private Limited Vs. Commissioner of Service Tax, Kokota [2024 (12) TMI 795-CESTAT Kolkata]

b. GEPS Projects Vs. Commissioner of Central Excise & Service Tax [2018 (9) TMI 1517- CESTAT, Allahabad]

c. CST, Service Tax, Delhi Vs. Conhergys India Services Pvt Ltd. [2018 (1) TMI 1174-CESTAT Chandigarh]

d. Go Bindas Entertainment Pvt. Ltd. Vs. Commissioner of Service Tax, Noida [2019 (27) GSTL 39- (Tri. All.)]

iv. that the demand is confirmed merely because of the difference between ST-3 Returns and Trial Balance, and on the presumption that all debits are payments towards GTA services and therefore the Impugned Order merits to be set aside on this ground alone.

v. that the burden to establish taxability of differential amount as per books of accounts is on the Department.

vi. she has highlighted that the reconciliation statement as well as Chartered Accountant’s Certificate indicating that there is no short payment of service tax by the Appellants during the disputed period.

vii. that the difference between ST-3 Returns and Trial Balance is bound to occur as Trial Balance is prepared on accrual basis whereas ST-3 Returns are filed based on actual payment towards GTA Services.

viii. that the Service tax liability has been rightly discharged by the Appellant based on actual payment towards GTA services in terms of Rule 6 of the Service Tax Rules. The very basis of the demand that all debit entries imply payment towards Service tax is incorrect and contrary to accounting principles.

ix. that the impugned order has brushed aside the documents submitted by the Appellant without any sound reasoning. It is also a well settled position of law that a Certificate issued by a professional should not be disregarded in the absence of evidence to the contrary. Reliance is placed on the following cases in this regard: –

a. Tata Motors Limited v. Commissioner of Central Excise. Jamshedpur [2024 (6) TMI/370-CESTAT Kolkata]

b. Commissioner of Central Excise & Customs, Guntur v. Crane Betel Nut Powder Works, [2011 (274) ELT 113 (Tri. – Bang)]

c. The Supreme Industries Ltd v. Commissioner of Central Excise. Mumbai [2017 (2) TMI 310-CESTAT Mumbai]

d. Commissioner of GST & Central Excise v. Royal Enfield [2023 (3) TMI 496 CESTAT Chennai]

x. that the Department has failed to discharge the burden to prove that the difference between ST-3 Returns and the trial balance is attributable to payments made towards taxable services.

xi. she has argued that by assuming without admitting that the entire value of Rs.15,37,97,401/- is the gross amount paid towards transportation expenses, the differential service tax payable works out to Rs.4,38,476/- and not Rs. 12,39,137/- as computed below: –

xii. that the impugned order has confirmed the demand by invoking extended period of limitation under proviso to Section 73(1) of the Act. The entire demand for the period between April 2008 to March 2009 is under extended period of limitation.

xiii. that suppression cannot be alleged when information is taken from the books of accounts of Appellant and the demand is based on audit of books maintained by the Appellant, and

xiv. that mere non-payment of tax is not a sufficient ground for invocation of extended period and the Department must prove some positive act of suppression with the intention to evade payment of tax. Reliance in this regard is placed on Anand Nishikawa Co. Ltd. Vs. Commissioner of Central Excise, Meerut [2005 (188) ELT 149 (SC)]

With these submissions, it was prayed to set aside the impugned Order-in-Appeal No. 43/2015 dated 09.02.2015 by allowing the appeal filed.

3. The Ld. Authorized Representative Mr. N. Satyanarayana appeared for the Respondent and reiterated the findings in the impugned Order-in-Appeal No. 43/2015 dated 09.02.2015 by the Lower Authority and submitted that there is no merit in the Appeal and it is liable to be dismissed.

4. We have heard both sides and perused the records and also the case laws submitted as relied upon.

5. We observe that the demand is confirmed/upheld merely because of the difference between ST-3 Returns and Trial Balance, and on the presumption that all debits are payments towards GTA services. The Appellant has submitted a reconciliation statement as well as Chartered Accountant’s Certificate indicating that there is no short payment of service tax by the Appellants during the disputed period.

6. Thus, the main issue for consideration is whether service tax can be demanded on the basis of the difference in the figures as reflected in the Trial Balance and ST-3 Returns. The issue is no longer res-Integra as submitted by the learned Counsel for the appellant referring to the decisions in M/s. Go Bindas Entertainment Pvt. Ltd. Versus Commissioner of Service Tax, (Noida) [2019 (5) TMI 1487-CESTAT ALLAHABAD] and M/s. Kush Constructions Versus CGST NACIN, ZTI, Kanpur [2019 (5) TMI 1248 – CESTAT ALLAHABAD], wherein it has been held that no demand can be confirmed by comparing the ST-3 Returns with Balance sheet figures in the absence of any evidence to prove that income in the balance sheet reflects receipts for providing taxable services. The relevant finding reads as below: –

“4. After hearing both the sides duly represented by Learned Advocate Shri Kamal Jeet Singh for appellant and Learned AR Shri Sandeep Kumar Singh, Deputy Commissioner for Revenue, we note that the entire case of Revenue is based upon the comparison of figures, as pointed out in the balance sheet with the figures reflected in the ST-3 returns. The appellant has explained that such difference has occurred on account of the accounting system as per the Income Tax Law, which explanation, in principle, stands accepted by the lower authorities. Even then the lower authorities have gone ahead and confirmed the demand.

In any case and in view of the declaration, we note that it is well settled law that no demand can be confirmed by comparing the ST-3 return figures with balance sheet figures, in the absence of any evidence to the contrary that income in the balance sheet, if excess, reflects the providing of taxable services. It is the Revenue who is making the allegations and as such, the onus to prove said allegation lies very heavily upon the Revenue. Inasmuch as, the same has not been done and in view of the foregoing discussions, we find no merits in the Revenue’s stand.”

7. Since it is Revenue who is making the allegations as such, the onus to prove the said allegation lies heavily upon Revenue. We may also refer to the decision in the case of Principal Commissioner, CGST Vs. SBI Life Insurance Company Ltd. [2024-TIOL-202- CESTAT-Mumbai], where also the Tribunal reiterated the principle that demand or penalty on the basis of difference between ST-3 Returns and Income Tax Returns of any period without further examination to establish the differences on account of consideration received towards the charge of services cannot be sustained. Following the said principles, the Learned Single Member of the Tribunal in the case of the appellant titled as South Eastern Coalfields Ltd Vs. Commissioner of Central Excise and Service Tax, Raipur Final Order No.54519-54520/2024 dated 29.02.2024 decided the issue observing that mere difference in figures appearing in the Trial Balance as compared to the ST-3 Returns without any corroborative evidence that taxable services had indeed been provided by the appellant cannot be upheld. In case of M/s. GEPS Projects Vs. Commissioner of Central Excise & Service Tax, Noida [2018 (9) TMI 1517-CESTAT, ALLAHABAD], it was held that issuance of Show Cause Notice demanding differential duty for difference in the receipts as per Balance Sheet as compared to ST-3 Returns as unsustainable which reads as below: –

“5. Being aggrieved the appellant is before the Tribunal. The learned counsel for the appellant points out that the show cause notice is misconceived. It is a clear case of misreading the financial statement and the returns of the appellant. From the very reading of the show cause notice and the table referred to herein above, which is reproduced from the show cause notice, we are satisfied that the show cause notice is wholly misconceived as the amount of gross receipts shown in the balance sheet, is the adjusted amount after adjusting the opening and closing sundry creditors debtors, if any. Further, gross receipts/sales is the credit balance in the accounts and Sundry Debtors in the debit balance, as on the Balance sheet date. These can never be clubbed. It appears the authority issuing the show cause notice – the Commissioner, lacks the basic concept of accounting, thus resulting into misreading of the financial statement and issuing a wholly misconceived and vague show cause notice. We further take notice that Revenue have not found any fault and/or error in the books of accounts and the financial statements which have been duly audited by a Chartered Accountant as required under the other Taxation Acts etc. We further take notice of the ruling of Coordinate Bench of this Tribunal in the case of Commissioner of Service Tax, Delhi vs. Convergys India, wherein vide Final Order No. dated 22 January, 2018 in Appeal No. ST/55636/2013-DB, wherein under similar circumstances show cause notice demanded differential duty for the apparent difference in the receipts as per balance sheet as compared to the ST-3 returns this Tribunal held that the receipt declared in the balance sheet is for accounting purposes or for the purpose of Income Tax and the same cannot be considered as Revenue for levy of service tax. We also note that the book of accounts are not rejected and without rejecting the assumption of the gross receipt as taxable service, is untenable, and grossly wrong.”

8. Further, we take note of the fact that the Appellant has furnished a certificate from a Chartered Accountant along with the required reconciliation statement to substantiate that demand of service tax would not arise. That such a certificate was provided by an independent Chartered Accountant, after verification of books of accounts, which is an independent and unbiased opinion regarding correctness or otherwise of the demand of service tax thereon. After thorough examination of the Appellant’s Accounts, the Chartered Accountant has furnished a very detailed reconciliation statement / certificate giving his opinion which reads in his own words: –

“4. To the best of my knowledge, as per explanations given to me and based on the checks conducted by me, the following is the summary of Freight paid and the corresponding service tax as per Table below

The said Tax has been paid during the respective months as and when due as per law.”

9. In the impugned order, however, the Ld. Adjudicating Authority, without commenting upon the correctness of such certificate, completely brushed the same aside without any legal basis. This issue was not looked into by the Commissioner (Appeals) also. We do not agree with the reason given by the Ld. Adjudicating / Appellate Authority to reject the CA Certificate in the absence of any cogent reasons. It is trite law that a certificate from an expert in the accounting profession has immense evidentiary value. Therefore, such a certificate ought to have been objectively examined. We observe that this view has been held in the case of Hero Motocorp Ltd. Vs. Commissioner of C.Ex. (Import & General) [2014 (302) E.L.T. 501 (Del.)]. Further, such a certificate cannot be brushed aside without providing another expert opinion to the contrary. This view has been held in the case of Commissioner of C.Ex., Guntur vs. Empee Sugar & Chemicals [2007 (2011) E.L.T. 293 (Tri. Bang.)] and Business Overseas Corporation v. CC, New Delhi [2015 (317) E.L.T. 637 (Tri. Del.)]. Department has failed to discharge the burden to prove that the difference between ST-3 Returns and the trial balance is attributable to payment received towards taxable services. Further in the case of The Supreme Industries Ltd. Vs. Commissioner of Central Excise, Mumbai [2017 (2) TMI 310-CESTAT MUMBAI] it was held that if a Chartered Accountant’s Certificate needs to be rejected then there has to be some concrete basis for rejection of the same. The finding of Tribunal, Mumbai has been extracted below for ease of reference: –

”5.1 It is a fact that the appellant had filed price list along with Chartered Accountant s certificate and the same were approved. The assessments were finalised and the RT-12 were also approved. In the show-cause notice it has been alleged that certain expenses viz., depreciation and financial expenses have not been considered in the assessable value. The appellants have vehemently sought the basis of this assertion by the Revenue. They have also sought the data on the basis of which the said expenses have been quantified, in the second round of litigation also. Revenue has not only failed to provide the same but also refused to provide the same. If a Chartered Accountant s certificate needs to be rejected then there has to be some concrete basis for rejection of the same. Similarly, if any amount needs to be included in assessable value that revenue has to be some concrete basis for quantification of such amount. The same also needs to be communicated to the appellant to enable them to defend their case. In the instant case, revenue has failed to do so. In the absence of any reasonable ground for rejection of the Chartered Accountant s certificate, the same cannot be rejected.”

10. The other submission of the Ld. Counsel for the Appellant is based on the principle of revenue neutrality. The Tribunal in the case of M/s. Asmitha Microfin Ltd. Versus Commissioner of Customs Central Excise & Service Tax, Hyderabad-III Commissionerate [2019 (9) TMI 122 – CESTAT HYDERABAD] has already held that the entire demand is under reverse charge mechanism, and if the applicant had paid the service tax, they would have been entitled to avail CENVAT credit of the same. Referring to the decision of the Hon’ble Supreme Court has held in Jet Airways (I) Ltd. Vs. Commissioner of Service Tax [2016 (8) TMI 989 – CESTAT MUMBAI] that extended period of limitation cannot be invoked in revenue neutral cases, and that the entire demand was hit by limitation. The same principle would apply in the present case and there is no reason to differ from the same as the entire demand proposed in the show cause notice falls within the extended period of limitation and, therefore, is liable to be set aside.

11. The extended period of limitation has been invoked on the ground that the non-payment would not have come to knowledge but for the audit conducted. Reference has been made to the decision in M/s. Vandana Global Ltd Versus Commissioner (Appeals) Central GST, Central Excise & Customs, Raipur [2022 (12) TMI 450 – CESTAT NEW DELHI], where it has been held that it is not correct to say that, had the audit not been conducted, the alleged errors in assessment would not have come to light because they would have come to light if the officers had scrutinized the returns in time and called for any data or records which they needed. The fact that audit has pointed out the alleged mistakes only shows that the officers have not scrutinized the Returns properly. Thus, the extended period of limitation cannot be invoked in the present case.

12. Since the demand of service tax is not sustainable, the question of demanding interest and imposing penalties would not arise and accordingly, the same are set aside.

13. In view of the above discussions, we set aside the impugned Order-in-Appeal No. 43/2015 dated 09.02.2015 passed by the Commissioner of Customs, Central Excise and Service Tax (Appeals-I) and allow the appeal filed by the Appellant with consequential relief, if any, as per law.

(Order pronounced in open court on 26.06.2025)