CESTAT Remands Service Tax Demand as Form 26AS & Work Orders Were Not Considered

Saket Auto Traders Vs Commissioner of Central Excise & CGST (CESTAT Allahabad)

The appeal was filed against Order-in-Appeal No. 164/ST/Alld/2022 dated 01.08.2022 passed by the Commissioner (Appeals), Allahabad. The appellant was registered for providing Insurance Auxiliary Services and Maintenance or Repair Services under the Finance Act, 1994. Based on information received from the Income Tax Department, the Department found that during the period October 2014 to June 2017, the appellant had reported gross receipts of ₹1,31,74,925 in its income tax records, whereas the taxable value disclosed in ST-3 returns was only ₹20,36,069. The resulting difference of ₹1,11,38,856 led the Department to compute a service tax short payment of ₹15,69,838.

The Department sought explanations and reconciliation through various letters, but no information was furnished by the appellant. It was also found that certain ST-3 returns were filed belatedly and some returns were not filed at all. Accordingly, the Department invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994 and issued a show cause notice proposing recovery of service tax, interest, penalties, and late fees.

The adjudicating authority confirmed the service tax demand of ₹15,69,838 along with interest, imposed a penalty of ₹10,000 under Section 77(2) for non-payment of service tax, imposed a penalty equal to the tax demand under Section 78, levied a further penalty of ₹20,000 for failure to file returns for certain periods, and imposed late fees of ₹63,000.

The Commissioner (Appeals) largely upheld the order. While examining the appellant’s claims, the appellate authority observed that no documents, work orders, agreements, or evidence had been produced either before the adjudicating authority or during the appellate proceedings to establish eligibility for abatement, reverse charge benefits, or exemption claims relating to labour services. Consequently, the demand, interest, and penalties were sustained. However, the Commissioner (Appeals) held that late fees of ₹40,000 imposed for non-filing of returns for October 2016 to June 2017 were not justified because a penalty had already been imposed for the same default. Therefore, only part of the late fee was set aside.

Before the Tribunal, the appellant produced copies of Form 26AS, contracts, and sample work orders. The appellant contended that the services provided were manpower supply services and works contract services and argued that these documents would establish that no service tax was payable or that benefits of abatement and reverse charge mechanism were available. The appellant admitted that these documents had not been produced before the adjudicating authority or the Commissioner (Appeals) and requested that the matter be remanded for fresh consideration.

The Tribunal noted that the appellant had neither filed a reply to the show cause notice nor attended the personal hearings granted by the adjudicating authority. The original order had therefore been passed without any written or oral submissions from the appellant. The Tribunal also observed that the Commissioner (Appeals) had rejected the appellant’s claims because no supporting documents had been furnished despite repeated opportunities.

At the same time, the Tribunal found that the newly produced documents were significant. On a prima facie examination of Form 26AS and the work orders, it appeared that tax had been deducted at source by service recipients under Sections 194C and 194H of the Income Tax Act, 1961 during the relevant period. The Tribunal observed that these documents were relevant to determining the nature of the services rendered and the appellant’s claim that the activities constituted manpower supply services and works contract services.

The Tribunal further examined the show cause notice and found that information relating to Income Tax Form 26AS had been specifically identified as a relied-upon document. The Tribunal observed that the demand itself appeared to be based on information received from the Income Tax Department through Form 26AS. However, it found no indication that Form 26AS or related records had been properly examined by either the adjudicating authority or the Commissioner (Appeals) while deciding the issues relating to service tax liability, abatement, and reverse charge benefits.

FULL TEXT OF THE CESTAT ALLAHABAD ORDER

This appeal is directed against Order-in-Appeal No.164/ST/Alld/2022 dated 01/08/2022 passed by Commissioner (Appeals) Customs, Central Excise & Service Tax, Allahabad. By the impugned order, Commissioner (Appeals) has disposed of the Appeal filed against Order-in-Original No 44/ST/AC/FZD/2021-22 dated 30.12.2021, to the extent of setting aside the late fees for non filing of the returns for the period October 16 to March 17 and April 17 to June 17.

2.1 Appellant is registered with the Department, vide Service Tax registration No.ACHPT1324MSD001 for providing Insurance Auxiliary Services and Maintenance or Repair Services, taxable under the Finance Act, 1994.

2.2 On the basis of ITR data provided by the Income Tax Department, it was noticed that the appellant has received gross amount of Rs.1,31,74,925/-during period Oct 2014 to June 2017 whereas they have shown total taxable value amounting to Rs.20,36,069/- in their ST-3 returns. The details of the figures provided by the Income Tax and as per ST-3 return are reproduced in table below:-

2.3 Appellant on the receipt of the above information was asked to furnish the requisite information and reconcile the difference in the figures as per ITR and ST-3 vide letter dated 03.05.2019, 09.09.09.2019 and 28.08.2020. Appellant did not provide the information as called for.

2.4 The service tax short paid on the value of services provided as per ITR and ST-3 is calculated as in table below:

Thus, the appellant has short paid service tax amounting to Rs.15,69,838/ by suppressing taxable value amounting to Rs.1,11,38,856/- during the period Oct 2014 to June 2017.

2.5 It was also observed that the appellant had filed their ST-3 return with considerable delay from the due date as detailed in table below:-

2.6 As the appellant has failed to provide the requisite information and had suppressed the value of taxable services provided by him, in the returns filed for period October 14 to September 2016 and had not filed the return for remaining period with intent to evade payment of due service tax, extended period of limitation as per Section 73 (1) was invokable for making the demand and appellant was also liable to penalty as per Section 78 of the Finance Act, 1994.

2.7 Show Cause Notice dated 25.09.2020 was issued to the appellant asking them to show cause as to why:-

“(i) Service Tax including Ed. Cass and S.&H. Ed. Cass amounting to Rs. 15,69,838/- (Rupees Fifteen lakes Sixty Nine thousand Eight hundred and Thirty Eight only), should not be demanded and recovered from them under the provisions of Section 73(1) of the Finance Act 1994 invoking extended period along with interest payable under Section 75 of the said Act read with Section 142 & 174 of CGST Act, 2017

(ii) Penalty should not be imposed upon them under Section 78(1) of the Finance Act, 1994 for their such attempts to suppress/mis-states the material facts and contravention of provisions off chapter V of the Finance Act, 1994 with an intent to evade the payment of duty.

(iii) Penalty should not be imposed upon them under Section 77(2) of the Finance Act, 1994 For non-payment of the Service Tax.

(iv) Late fee amounting to Rs. 63000/- (Rupees Sixty Three Thousand Only) should not be imposed under Section 70 of the Finance Act, 1994 read with Rule 7C of the Service Tax Rules. 1994.

(2) Penalty of Rs. 20000/- (Rupees Twenty Thousand only) should not be imposed under the provisions of Section 77 (2) of the Act for not fifing ST-3 returns for the period April’ 16 to June 17 in contravention Section 70 of the Finance Act, 1994.’

2.8 The said show cause notice was adjudicated as per the Order-in-Original No 44/ST/AC/FZD/2021-22 dated 30.12.2021 holding as follows:-

“ORDER

(i) I confirm the demand of Rs. 15,69,838/- (Rupees Fifteen Lakhs Sixty Nine Thousand Eight Hundred and Thirty Eight Only) including Cesses, as service tax short paid by Shri Vivek Tripathi, Proprietor of M/s Sakes Auto Traders.25 Shiv Nagar Turkahiya, Gandhi Nagar, Basti 272001 (U.P.), and order for recovery of the same under the provisions of proviso to Sub-Section (1) of Section 73 read with Section 73 (2) of Chapter V of the Finance Act, 1994.

(ii) I order for charging Interest at the appropriate rate under the provisions of Section 75 of the Finance Act, 1994 on the amount of Service fax confirmed at (1) above.

(iii) I also impose a penalty of Rs. 10,000/- (Rupees Ten Thousand Only), upon the party under the provisions of Section 77(2) of the Finance Act, 1994, for non-payment of service tax.

(iv) I also impose a penalty of Rs 15,69,838 upon the party under the provisions of Section 78 of the Finance Act, 1994. The party shall be eligible for reduced penalty specified in second and third proviso of Section 78 of the Act, subject to fulfillment of conditions specified therein.

(v) I impose penalty of Rs.20,000/- on the party for not filing return for the period from Oct 16 to Mar 17 and Apr 17 to June 17 under Section 77 (2) of the Finance Act, 1994.

(vi) I impose late fee of Rs.63,000/- on the party for late filing the return for the period from April 15 to June 17 under Section 70 read with Rule 7C of the Service Tax Rules, 1994.’

2.9 Aggrieved appellant have filed appeal before Commissioner (Appeals) which has been disposed of as per the impugned order upholding the entire order except for setting aside the late fee of Rs 40,000/- imposed

2.10 Aggrieved appellant have filed this appeal.

3.1 I have heard Shri Rajnish Kumar, Advocate for the appellant and Smt Chitra Srivastava Authorized Representative for the revenue.

3.2 Arguing for the appellant learned counsel provided the copies of the documents such as 26AS for the relevant period and copies of certain work order on sample basis to submit that the services provided by them were indeed man power supply services and work contract services. He admitted that these documents were not made available before the adjudicating authority and the first appellate authority out of ignorance. He undertakes that he would produce all these documents before the concerned authority if permitted to establish that no service tax was due from them. He pleaded that matter be remanded back to original authority to permit him to produce all the documents before the adjudicating authority.

3.3 Authorized representative reiterated the findings recorded in the impugned order.

4.1 I have considered the impugned orders along with the submissions made in appeal and during the course of argument.

4.2 Impugned order records the findings as follows:-

“4.1 The appellant has contested that the submission made by them before the adjudicating authority on 15.07.2021 through email in compliance of personal hearing was not considered while passing the impugned order; therefore, principle of natural justice has not been followed in this case. I observe that the adjudicating authority has given opportunity of personal hearing on 14.06.2021, 24.06.2021, 05.07.2021, 01.12.2021, 15.12.2021 and 22.12.2021 but appellant has not attended any personal hearing. The appellant has also not submitted any reason for not attending personal hearing on the aforementioned date. At the appellate stage the appellant has failed to produce any acknowledgment that submission made by the appellant was actually received by the adjudicating authority while passing the impugned order. Thus, I find no force in the contention of the appellant that the adjudicating authority has not followed principle of natural justice.

4.2 The appellant has contested that the adjudicating authority has not extended benefit of abatement and partial reverse charge on the works contract services provided by the appellant. I observe that works contract means a contract wherein transfer of property in goods involved in the execution of works contract is leviable to tax as sale of goods and the service portion in the execution of works contract is liable to service tax. Thus, the consideration for works contract service shall include both the value of material and the value of service provided during execution of the works contract. The manner for determining the value of service portion of a works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 as the service portion involved in the execution of Original works is 40% of the total works contract and the service portion involved in the execution of works contract other than original works is 70% of the total works contract. The works contract service is covered under the reverse charge vide notification no. 30/2012. The liability of service tax under said service shall be paid equally by the contractor/provider of service and the recipient of the service. That is fifty percent of the service tax liability shall be paid by the contractor and the balance 50% shall be paid by the recipient of the service.

4.3 I observe that in the instant case the appellant has not produced any documents/work order/agreement before the adjudicating authority to determine eligibility of abatement and partial reverse charge benefit, therefore, the adjudicating authority has rightly denied benefit of abatement and reverse charge mechanism. Even at appellate stage the appellant has not produced any reply & documents despite of letter dated 10.05.2022, 23.05.2022, 31.05.2022, 10.06.2022, 21.06.2022 and 07.07.2022 sent to them. Therefore, I am of the considered view that the benefit of partial reverse charge in terms of notification No.30/2012-ST dated 20.06.2012 and also abatement under Rule 2A(ii) of the Service Tax (Determination of Value) Rules, 2006 are not available to the appellant.

4.4 The appellant has also contested that they have provided labour services to Mandi and food grain warehouse which is exempted from the purview of service tax. I observe that the appellant has not produced any evidence/documents in support of their contention; therefore, I am not inclined to accept contention of the appellant. Thus, I am of the considered view that the appellant is liable to pay service tax amounting to Rs. 15,69,838/- along with interest.

4.5 It is observed that under the self-assessment procedure specified in the statute, appellant was required to assess & pay their Service Tax liability correctly, on their own. In the instant case the appellant has not shown correct taxable value in their ST-3 returns and short payment of Service Tax could be detected only during the course of enquiry conducted by the Department. Thus, it is a clear case of suppression of facts and contravention of the statutory provisions, with intent to evade payment of Service Tax. Thus, penalty of Rs. 15,69,838/ imposed by the adjudicating authority under Section 78 of the Act is justified.

4.4 The appellant has contravened the provisions of Section 68 of the Act read with Rule 6 of the Service Tax Rules, 1994, therefore, liable for penalty of Rs. 10,000/-under Section 77(2) of the Act. The appellant has also failed to file ST-3 return for the period Oct 2016 to March 2017 and April 2017 to June 2017, therefore, penalty of Rs. 20,000/- imposed under Section 77 (2) of the Act is justified. The appellant has delayed filing of ST-3 return for the period Oct 2014 to March 2015 by 233 days and for the period April 2015 to Sep 2015 by 50 days, therefore, the appellant is liable to pay late fee of Rs. 23,000/- only under Rule7C of the Service Tax Rules, 1994. The adjudicating authority has already imposed penalty of Rs. 20,000/- for non filing of ST-3 return for the period Oct 2016 to June 2017, therefore, late fee of Rs. 40,000/- for the same offence is not justified. I also observe that late fee for non filing of ST-3 return is not justified in view of judgement of the Hon’ble Tribunal in the case of Jossy Edwin Pinto v. Commr. Of C. Ex& Central Tax, Manglore, reported in 2019 (27) G.S.T.L. 575 (Tri.-Bang.).”

4.3 Counsel for the appellant has produced a copy of contract, work order and Form 26AS for the period in dispute. On going through the above, I find that prima facie it is established that appellant was providing taxable services on which TDS has been deducted by the service recipients under Section 194C & 194H of the Income Tax Act, 1961 during the period of dispute. These documents were not produced on the initial stage i.e. before the Original Authority or before the Appellate Authority. The observations to this effect are evident from the para 4.3 of the impugned order. I also observe that appellant had not filed any reply to the show cause notice or had attended the personal hearings granted to him by the original authority. Thus order in original was made without any submissions being made by the appellant either in writing or orally during the personal hearings. Appellant has before the first Appellant authority claimed that he had made submissions before the original authority vide e-mail dated 15.07.2021 which have not been considered by the said authority while passing the order in original. Appellate authority has rejected the claim made for the reason that no acknowledgement of the submissions was made available before him. Appellate authority without hearing the appellant has decided the case as he was not present on the dates when the personal hearing was fixed.

4.4 Be that as it is appellant has before the first appellate authority claimed that benefit of abatement in respect of work contract services and benefit of service tax as per the reverse charge mechanism in respect of the manpower supply services provided should be allowed to him. Commissioner (Appeal) has disallowed the said claim stating that no documents to this effect have been produced by the appellant.

4.5 I also observe that the Show Cause Notice specifically mentions following as Relied Upon Documents:

1. Information provided by the Hdqrs. Office regarding Income Tax 26 AS (RUD-1).

2. ST-3 Returns (RUD-1A).

3. Letter C No 48/TPI/Inq/VT/R-Basti/2019/387 dated 03.05.2019 (RUD -2).

4. Reminder Letter C No 48/TPI/Inq/VT/R-Basti/2019/424 dated 04.06.2019, 494 dated 09.09.2019 and 87 dated 28.08.2020 was also sent to the party (RUD-3).

5. The Copy of ITR for the Assessment year 2015-16, 2016­17 and 2017-18 (RUD-4).

To ascertain about the services provided by the appellant on which the demand has been made in the present case, I had called for the copy of show cause notice along with the relied upon documents. From the description of RUD-1 it appears that information received in respect of 26AS from income tax authorities through head quarter office was the basis for determining the service tax payable. Scanned RUD 1 which has been provided along with show cause notice is as follows:

The attachments to the above emails have been provided to the Appellant along with the show cause notice as part RUD’s. Also 26AS has not been provided to appellant as part of show cause notice though the document mentioned as RUD-1 gives the impression that 26AS is RUD-1. In the impugned order Commissioner (Appeal) has categorically recorded that the appellant had failed to provide the documents, If 26AS was part of RUD’s then it should have been taken note of by the adjudicating authority and first appellate authority while determining the issue of abatement and reverse charge payments.

4.6 I am of the view that the documents provided by the counsel go to the root of the matter specifically when appellant has taken a categorical stand that they were providing work contract services. In absence of any evidence that any of the documents namely 26AS and work orders having been considered by the lower authorities for confirming this demand, I do not see any merits in the impugned and am of the view that matter needs to remitted back to original authority for reconsideration on the basis of the documents including RUD’s which are stated to be the part of Show Cause Notice. Appellant should be allowed an opportunity to appear with all the documents he wish to rely upon in defense by the adjudicating authority.

5.1 In view of the above, matter is remanded back to the Original Authority for fresh decision, taking into account all the documents inclusive of Form 26AS for the respective period.

5.2 In case appellant fails to appear on the date of personal hearing or provide the documents which he wants to rely in his defence adjudicating authority will be free to draw adverse inference in the matter.

5.3 Original Authority is directed to decide the matter in remand proceedings within a period of three months from the date of receipt of this order.

(Dictated and pronounced in open court)