Correct classification of services must to demand service tax: CESTAT Ahmedabad

Tejal Construction Vs C.C.E. & S.T.-Surat-I (CESTAT Ahmedabad)

The case of Tejal Construction versus C.C.E. & S.T.-Surat-I, heard by CESTAT Ahmedabad, underscores the importance of accurately classifying services for determining service tax liabilities. The case pertains to Tejal Construction’s engagement in various services, including manpower recruitment, works contracts, and industrial construction, during the period from 2008-09 to 2012-13.

Facts of the Case: Tejal Construction was audited by the Department, revealing irregularities in service tax payments and filings. Subsequently, a search was conducted, and documents were seized, leading to the issuance of a Show Cause Notice (SCN) in 2013. The notice computed Tejal Construction’s service tax liability based on income declared in its balance sheet. The Appellant challenged the SCN, arguing against the invocation of the extended period of limitation, asserting their compliance with tax regulations and cooperation with the Department.

Key Arguments:

• The Appellant contended that the extended period of limitation was unjustified, as there was no intent to evade taxes, no suppression of facts, and full cooperation with authorities.
• They emphasized the absence of evidence supporting the Department’s claims of suppression or deliberate misstatement.
• The Appellant also raised concerns regarding the vague nature of the SCN and contradictory classifications of services, urging proper categorization for accurate taxation.
• Furthermore, they highlighted discrepancies in the demand calculation and challenged the Department’s insistence on full-rate taxation despite regulatory provisions stipulating reduced rates for specific services.

CESTAT’s Observations:

• Upon reviewing the submissions, CESTAT Ahmedabad identified significant deficiencies in the adjudication order.
• They noted the absence of service-wise bifurcation in the demand calculation, highlighting the necessity of accurate classification for service tax determination.
• CESTAT also underscored the denial of the Appellant’s request for cross-examination, a crucial aspect of fair adjudication.
• The issue of demand being time-barred was raised, indicating a lack of proper consideration by the adjudicating authority.
• Consequently, CESTAT deemed it necessary to remit the matter back to the Adjudicating Authority for reconsideration, emphasizing the need for a comprehensive review and impartial judgment.

Conclusion: The Tejal Construction case exemplifies the intricate nature of service tax disputes and the critical role of accurate classification in determining tax liabilities. The decision to remit the matter back for reevaluation underscores the commitment to fair and just adjudication, ensuring that all aspects of the case are thoroughly examined.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

The brief facts of the case are that the appellant is inter alia engaged in providing services under the category of (1) Manpower Recruitment or Supply Agency Service; (2) Supply of Tangible Goods Service; (3) Works Contract Services; (4) Commercial or Industrial Construction Services and (5) Business Auxiliary Service. During the period of 2008-09 to 2012-13, the Appellant had entered into various contracts with parties like M/s Dharti Dredging and Infrastructure Ltd. (M/s DDIL), M/s Larsen & Toubro Ltd. (M/s L&T), M/s Essar Bulk Terminal Ltd. (M/s EBTL), M/s Essar Projects (India) Ltd. (M/S EPIL), M/s Reliance Industries Ltd. (M/s RIL) etc. for providing the aforesaid services. An audit was conducted by the officers of the Department wherein it was noticed that the Appellant was not regular in payment of service tax and filing of service tax returns. Accordingly, the case of the Appellant was transferred to the Preventive Department, Surat-I Commissionerate. The preventive officers have conducted a search on 10.04.2013 at the premises of the Appellant and records and documents required for further investigation were seized. On detailed scrutiny of the seized documents, the Department noticed that the Appellant had not discharged its entire service tax dues during the period of 2008-09 to 2012-13.

1.2 The Department conducted an extended investigation and called for records from major customers of the Appellant and had also asked them to provide the details of payment made to the Appellant. The investigation was culminated into issuance of the Show Cause Notice bearing No. 12/01/13-14 dated 11.10.2013 wherein vide Annexures C&D, the Department computed service tax liability of the Appellant in relation to the contract income and hire income, respectively as shown by the Appellant in its balance sheet. The aforesaid Annexures highlight what services were provided by the Appellant to whom and under which category were they classified add the At the same time, the Department also computed certain service tax liability vide Annexure-E which was based on Annexure-C, Annexure-D and other income heads shown by the Appellant in its balance sheet. Accordingly, by way of the present Show Cause Notice, the Department proposed to demand Service Tax amounting to Rs.1,62,12,037/- in respect of various income shown by the Appellant in its audited annual accounts along with the amounts of penalty, interest and late fees. Afterwards a corrigendum dated 21.04.2014 was issued to the aforesaid show cause notice 11.10.2013. The Appellant filed a detailed reply against the Show Cause Notice vide letter dated 30.05.2014. The adjudicating authority i.e. the Ld. Commissioner, Surat- I has passed the Order-in- Original No. SUR-EXCUS-001-COM-018-14-15 dated 25.06.2014 confirming the service tax demand of Rs. 1,66,91,838/- along with interest, penalty and late fees. The Appellant being aggrieved by the Impugned Order, has preferred the present appeal.

2. Shri Jigar Shah, Learned Counsel appearing on behalf of the appellant at the outset submits that the show cause notice issued on 11.10.2013 for the period of 2008-09 to 2012-13 was issued by invoking the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994. It is submitted that the invocation of extended period of limitation is not sustainable since, the Show Cause Notice failed to establish that the Appellant had an intention to evade tax. However, it is submitted that in the present case there was no suppression of any fact or wilful misstatement on the part of the Appellant. He submits that it has been maintaining regular books of accounts and had duly recorded all the incomes in its books of accounts. The Appellant had also filed returns from time to time and that regular audits have been conducted by the Department. It is also highlighted that the Appellant had always co­operated with the Department in their proceedings and had always provided the details asked for by the Department. Further, the Department sought for various documents from the Appellant and the same were provided to the Department as and when asked for.

2.1 He further submitted that without any deliberate intention to withhold/suppress information from the Department, invocation of extended period of limitation cannot be justified. In the present case, the Appellant had not committed any positive act to suppress information from the Department with the intention to evade payment of service tax. The Appellant submits that even if it is presumed that some of the details were not reported in ST-3 returns as alleged in the show cause notice and order-in-original, just omission of such reporting would not amount to suppression, fraud, willful misstatement etc. For invocation of extended period, mere omission or non-disclosure would not be sufficient. There should be any positive action which suggest that there is any fraud, collusion, suppression, willful misstatement etc., with an intent to evade the payment of taxes. The show cause notice and order in original failed to prove any such action on the part of the appellant which suggest fraud, collusion, suppression, willful misstatement etc. with an intent to evade the payment of taxes. He further placed reliance on the following judgments:

• Continental Foundation Joint Venture Vs. Commissioner of Central Excise, Chandigarh-1
• M/s Ceeyes Metal Reclamation P. Ltd. Vs. Commissioner of GS & Central Excise, Coimbatore, Final Order 40411/2019-CESTAT-Chennai.
• M/s Turret Industrial Security Pvt. Ltd. Vs. Commissioner of Central Excise & Service tax, Jamshedpur, Final Order No. 76385/2019 dtd. 22.10.2019-CESTAT- Kolkata.
• M/s Anand Nishikawa Co Ltd Vs Commissioner of Central Excise, Meerut, 2005- TIOL-118-SC-CX
• Padmini Products Limited v CCE, 1989 (43) ELT 195 (SC)
• CCE v. Chemphar Drugs & Liniments, 1989 (40) ELT 276 (SC)
• Gopal Zarda Udyog v. CCE, 2005 (188) ELT 251 (SC)
• Lubri-Chem Industries Ltd. v. CCE, 1994 (73) ELT 257 (SC)

In view of the above decisions, it is submitted that in absence of any positive act on behalf of the Appellant to suppress facts, no case of intention to evade tax can be made out against the Appellant. None of the elements warranting invocation of extended period of limitation exist in the present case as all the facts were within the knowledge of Department. Hence, the demand of service tax is completely time-barred and the demand confirmed in the Impugned Order basis the SCN is liable to be set aside.

2.2 He submits that In any event, the Show Cause Notice has not brought any evidence on record to show that the Appellant had suppressed any fact from the Department. Further, the Appellant was under the bona fide belief that it was not liable to pay service tax. In light of the above submissions, the period of limitation has been wrongly invoked by the Department. On this ground alone, the Show Cause notice is liable to be quashed and the Impugned Order is liable to be set aside. The Appellant states and submits that the Show Cause Notice is vague and beyond comprehension and it has resorted to raise a demand without proper classification and/or contradictory classification of services and hence, no demand can be sustained based on the same.

2.3 He further submits that the Show Cause Notice has proposed to raise demand under the various categories of Site Formation and Clearance, Excavation and Earth moving and demolition services, Supply of Tangible goods, Commercial and Industrial Construction Services, Dredging Service, Business Auxiliary Services etc. in respect of various activities carried out by the Appellant during the period under consideration. However, the Show Cause Notice and adjudicating authority have failed to establish and provide Appellant the details and or explanation regarding what amount has been included in Annexure-E in addition to one shown in Annexure-C & D and how it has been classified under a particular category even though this issue was brought to the notice of adjudicating authority. Here Appellant would also like to submit that unless and until it is not clearly specified and provided that how and why a particular activity carried out by the assessee falls under a specified taxable category as defined under Sec. 65 (105), said assessee cannot be fastened upon by any liability to pay service tax under Sec. 66 & 68 of the Finance Act, 1994 read with relevant other provisions of Finance Act, 1994. Thus, it is submitted that the subject demand has been demanded in the Show Cause Notice without clearly specifying and/or categorising, entire demand and in some places it has classified a single activity differently, it is contradictory to each other and hence, entire demand is not sustainable on this ground and the same is therefore, liable to be dropped.

2.4 He submits that a sub-contractor is not liable to pay service tax; it is the main contractor that is liable to pay service tax, if any applicable or payable. In this regard, it is submitted that in the present case, the majority of demand has been confirmed for the work done under the capacity of a sub- contractor since, the same would tantamount to double taxation. In this regard, the Appellant had also submitted a certificate from M/S Dharti Dredging and Infrastructure Ltd. before the Learned Commissioner and had requested the Learned Commissioner to verify from the said party and the main contractors regarding the payment of service tax; however, the Learned Commissioner had confirmed the demand of service tax against Appellant ignoring the request of the Appellant. It is submitted that it is settled position of law that the liability to pay service tax is on the main contractor and not on the sub-contractor. Therefore, it is submitted that the Appellant is not liable to pay service tax in all the cases where it has worked in the capacity of a sub- contractor. Thus, on this ground too, the demand confirmed against the Appellant is liable to be dropped.

2.5 He further submits that after the introduction of the negative list regime, the provisions of service tax had changed. In terms of the said change, the Appellant being an individual proprietary firm and its clients like L&T, Essar etc being corporate bodies, the Appellant was only required to discharge a specified percentage of service tax. Accordingly, in respect of the services related to supply of manpower, the Appellant was only required to pay 25% of the service tax and in respect of the services provided in execution of the works contract service, the Appellant was only required to pay 50% of the service tax. However, the Department in utter violation of the said provisions demanded service tax at full rate of 100% from the Appellant for the period of 01.07.2012 to 31.03.2013. Without prejudice to above submissions, the Ld. Commissioner has grossly erred in confirming the demand of Service Tax in respect of each of the categories in the Impugned OIO without proper examination of the nature of work undertaken by the Appellants. The submissions in respect of findings recorded by the Ld. Commissioner for confirming demand under each of the categories are provided in the table enclosed herewith and marked as ANNEXURE-I.

2.6 He submitted that the Department in the Show Cause Notice had worked out the demand of service tax on the basis of the details received from the clients of the Appellants. In this regard, the Appellant had requested the Learned Commissioner to provide it with an opportunity to cross-examine the concerned officers of its clients in order to prove their case However, the Appellant was denied such opportunity which was very crucial because the demand was quantified on the basis of such details. He had also submitted a certificate from DDIL requesting the Learned Commissioner to exclude to amounts received by it as sub-contractor and had also produced invoices with respect to partial reverse charge mechanism as applicable w.e.f. 01.07.2012. However, the Learned Commissioner did not consider the request and the invoices submitted by the Appellant. The denial of cross-examination to the Appellant is against the principles of natural justice and equity. Hence, no demand can be sustained on this ground.

3. Shri Rajesh Nathan Learned Assistant (AR) appearing on behalf of the revenue reiterates the finding of the impugned order.

4. We have carefully considered the submission made by both the sides and perused the record. We find that appellant in the grounds of appeal has made detailed submission as stated from Para 2 to 2.6 from which it is observed that appellant have raised serious objections pointing out certain defects in the Adjudication order.

4.1 We find that appellant have submitted that for computation of demand service category wise demand was not given in the adjudication order. We are of the view that at least prior to 01.07.2012, the correct classification of services are must to demand the service tax. Therefore, the adjudication order is lacking with regard to the service wise bifurcation of the demand which needs to be done.

4.2 We also found that the appellant have made a submission that appellant’s request for cross-examination has not been acceded by the Adjudicating Authority. For a fair play in adjudication, in our view the opportunity of cross-examination ought to have been extended to the appellant so the truth can be brought on record and justice can be delivered. The appellant also submitted that as regard the ‘manpower recruitment agency service’ the appellant was only required to pay 25% of service tax and in respect of the service provided in execution of works contract they were require to pay 50% of the Service Tax. However, department in violation of the statutory provisions demanded service tax at full rate of 100% from the appellant, for the period of 01.07.2012 to 31.03.2013. This issue also need deliberation.

4.3 We find that on behalf of the appellant, it was extensively argued the ground of demand being time barred by relying on various judgments. Since, the issue that whether demand can be time barred or not is a matter of fact based on record. We find that the aspect of limitation also was not properly addressed by the adjudicating authority. Therefore, in view of the above deficiency in the adjudication order, the entire matter needs to be reconsidered considering the detailed submission of the appellant.

5. Accordingly, in our view the matter needs to be remitted back to the Adjudicating Authority. All the issues are kept open, the impugned order is set aside. Appeal is allowed by way of remand to the Adjudicating Authority. Needless to say that the Adjudicating Authority has to pass the de-novo order by applying independent mind without getting influenced with our above observation.

(Pronounced in the open court on 21.02.2024)