Case Law Details
Team One India Pvt Ltd Vs Commissioner of Customs (CESTAT Hyderabad)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad partly allowed the appeal filed by Team One India Pvt. Ltd. against an Order-in-Original confirming service tax of ₹1,05,44,311 along with interest and imposing penalties under Sections 76, 77 and 78 of the Finance Act, 1994.
The appellant, engaged in providing Architect Services, was registered with the Service Tax Department and regularly filed ST-3 returns. During an audit conducted in September 2011, the Department noticed that service tax had allegedly not been discharged on amounts representing Tax Deducted at Source (TDS) deducted by customers while making payments. A show cause notice was issued proposing recovery of service tax with interest and penalties, which was subsequently confirmed by the adjudicating authority.
Before the Tribunal, the appellant contended that the Department had incorrectly treated the gross receipts reflected in the bank account as taxable value exclusive of service tax. It argued that the invoices clearly showed that the consideration received from customers was inclusive of service tax and, therefore, cum-tax benefit ought to have been granted. The appellant also submitted that the Department ignored the TDS component while computing taxable value and failed to extend cum-tax benefit. According to the appellant, inclusion of the TDS component and recomputation on a cum-tax basis would substantially reduce the tax liability. It further stated that service tax of ₹74,23,440 had already been paid before the audit and an additional ₹20,50,142 along with interest had been paid before adjudication.
The appellant also argued that there was no suppression of facts because all transactions were recorded in the books of account and reflected in ST-3 returns. It submitted that the delay in payment resulted from financial hardship and delayed receipt of payments from customers and, therefore, penalties were liable to be waived under Section 80 of the Finance Act, 1994.
The Tribunal identified the issues relating to quantification of demand, availability of cum-tax benefit, sustainability of penalties under Sections 76 and 78, and applicability of Section 80.
The Tribunal observed that it was undisputed that the appellant had not separately recovered service tax from customers in many transactions and that the receipts constituted gross receipts. Referring to settled legal principles, it held that where consideration is received inclusive of tax, the amount must be treated as cum-tax value and service tax should be recomputed accordingly. It found that the adjudicating authority had not granted full cum-tax benefit and that the Department had produced no evidence to establish that the consideration received was exclusive of service tax. The Tribunal therefore held that the appellant was entitled to cum-tax benefit and directed that the demand be re-quantified after granting such benefit and considering the TDS component.
The Tribunal further held that invocation of the extended period of limitation was not sustainable because all transactions were recorded in the appellant’s statutory records and the Department had gathered information through audit. In the absence of evidence establishing fraud, collusion, wilful suppression or intent to evade tax, the extended period under Section 73(1) could not be invoked.
Consequently, the Tribunal set aside the penalty under Section 78. It also found that the appellant had paid substantial service tax before the audit and the remaining amount with interest before adjudication. Accepting the explanation of financial hardship and delayed realization from clients as reasonable cause under Section 80, it set aside the penalty under Section 76. Since the alleged violation under Section 77 was procedural and the appellant had maintained statutory records and substantially complied with its tax obligations, that penalty was also set aside.
Accordingly, the Tribunal modified the impugned order and remanded the matter to the original authority solely for re-quantification of the service tax liability after extending cum-tax benefit and considering the TDS component. The appeal was partly allowed with consequential relief in accordance with law.
FULL TEXT OF THE CESTAT HYDERABAD ORDER
The present appeal has been filed by M/s Team One India Pvt Ltd., against the Order-in-Original No.37/2012-(Service Tax)-Commr. dated 31.12.2012, whereby, service tax amounting to Rs. 1,05,44,311/- along with interest under Section 75 of the Finance Act, 1994 has been confirmed and penalties under section 76, 77 and 78 of the Finance Act, 1994 have been imposed.
2. The facts in brief are that the appellant is engaged in providing Architect Services and was duly registered with the Service Tax Department. The records reveal that the appellant had been regularly filing ST-3 returns and discharging service tax liability on the amounts received from it’s clients. During Audit conducted in September, 2011, it was noticed that service had allegedly not been discharged on certain amounts representing the TDS deducted by customers while making payments to the appellant.
3. Consequently, Show Cause Notice dated 24.10.2011 was issued proposing recovery of service tax amounting to Rs. 1,05,44,311/- along with interest and penalties.
4. The Adjudicating Authority confirmed the proposals contained in the Show Cause Notice and imposed penalties under Section 76, 77 and 78 of the Finance Act, 1994.
5. Aggrieved by the said order, the appellant is before this Tribunal.
6. Learned Counsel for the appellant submits that the entire demand has been worked out on an erroneous assumption that the gross receipts reflected in the Bank Account represented taxable value exclusive of service tax. It is argued that the invoices issued by the appellant clearly reveal that the consideration received from customers was inclusive of service tax and therefore Cum-tax benefit is required to be extended. It is further submitted that while computing taxable value, the Department has ignored the TDS component deducted by clients and at the same time failed to grant Cum-tax benefit. According to the appellant, after inclusion of Tax Deducted at Source (TDS) component and grant of Cum-tax benefit, the actual liability works out substantially lower and the appellant had already discharged service tax of Rs. 74,23,440/- prior to Audit and a further amount of Rs. 20,50,142/- along with interest before adjudication.
7. Learned Counsel further submitted that there was no suppression of facts as all transactions were duly reflected in books of account and ST-3 returns. Reliance has been placed upon the following decisions:
i. CCE & ST, LTU, Bangalore Vs Adecco Flexione Workforce Solutions Ltd., [2011 (9) TMI 114 (Kar HC)]
ii. Sign Sites Publicities Vs Commissioner of Service Tax, Chennai [2017 (8) TMI 795 – CESTAT, Chennai]
iii. Tarachandra Engineering Pvt Ltd., Vs CCE, Vadodara-I [2015 (1) TMI 767 – CESTAT, Ahmedabad]
iv. Chennai Petroleum Corporation Ltd., Vs Commissioner of GST and Central Excise, Chennai [2023 (9) Centax 91 (Tri-Mad)]
v. Pushpam Pharmaceuticals Company Vs Collector of Central Excise, Bombay [1995 (78) ELT 401 (SC)]
vi. Continental Foundation Joint Venture Vs CCE, Chandigarh-I [2007 (216) ELT 177 (SC)]
vii. Uniworth Textiles Ltd., Vs CCE, Raipur [2013 (288) ELT 161 (SC)]
8. It is contended that in the absence of fraud, suppression or wilful misstatement, penalty under Section 78 cannot survive. It is further submitted that the delay in payment occurred solely due to severe financial constraints and delayed realization of dues from customers, thereby, attracting the protection available under Section 80 of the Finance Act, 1994.
9. The Learned Authorised Representative reiterates the findings of the impugned order, inter alia, that service tax was not paid on the entire amount receivable and therefore, the demand has rightly been confirmed. The Revenue further argues that the non-payment of service tax for a prolonged period justifies invocation of extended period as well as imposition of penalties.
10. We have carefully considered the submissions of both the sides and perused the records.
11. The issues arising for determination are as under:
i. Whether the demand has been correctly quantified ?
ii. Whether Cum-tax benefit is available ?
iii. Whether penalties under Section 76 and 78 are sustainable ?
iv. Whether the appellant is entitled to benefit under Section 80 of the Finance Act, 1994 ?
12. The main dispute relates to the valuation adopted by the Department. It is an undisputed position that the appellant had not separately recovered service tax from customers in many transactions and the receipts reflected in the books constituted gross receipts. The Hon’ble Supreme Court as well as various decisions of the Tribunals have constantly held that where consideration received is inclusive of tax, the same must be treated as Cum-tax value and service tax is required to be recomputed accordingly.
13. The records placed before us indicate that Adjudicating Authority has not granted full Cum-tax benefit while determining the demand. We find considerable force in the appellant’s contention that after inclusion of TDS amount and re-computation of Cum-tax basis, the actual tax liability gets substantially reduced. The Department has not produced any evidence showing that the consideration received by the appellant was exclusive of service tax. Accordingly, we hold that the appellant is entitled to Cum-tax benefit while computing service tax liability.
14. The entire demand has been raised by invoking the extended period under the proviso to Section 73(1) of the Finance Act. The law is well settled by the Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company, supra, Continental Foundation Joint Venture and Uniworth Textiles Ltd., supra that mere omission, negligence or incorrect interpretation of law does not amount to suppression of facts. For invocation of extended period of limitation the Revenue must establish a deliberate act with an intent to evade tax. In the present case, all transactions were recorded in regular books of accounts. The Department itself gathered information from statutory records and Audit verifications. No positive evidence has been produced establishing fraud, collusion or wilful suppression. Consequently, the ingredients necessary for invoking extended period of limitation are absent.
15. Since the allegation of suppression itself fails, penalties under Section 78 cannot survive. The Hon’ble Supreme Court has repeatedly held that penalty under Section 78 of the Finance Act requires establishment of fraud, collusion, wilful misstatement or suppression with an intent to evade payment of tax. No such evidence is forth coming in the present matter. Accordingly, penalties imposed under Section 78 are liable to be set aside.
16. The records reveal that substantial service tax amounting to Rs. 74,23,440/- had already been paid before commencement of Audit. The remaining liability for October 2010 to March 2011 was also discharged along with applicable interest before adjudication. The explanation offered by the appellant regarding financial hardship and delayed realization from clients appears plausible and has not been rebutted by any contrary evidence.
17. The Tribunal in Sign Sites Publicities, supra and Tarachandra Engineering Pvt Ltd, supra, has held that genuine financial hardship coupled with payment of tax and interest constitutes reasonable cause for waiver of penalties. Section 80 of the Finance Act, 1994 as applicable during the relevant period, empowered the Authorities to waive penalties upon proof of reasonable cause. Considering the facts of the case, we are satisfied that the appellant has demonstrated reasonable cause within the meaning of Section 80 of the Finance Act. Accordingly, penalty under Section 76 is also liable to be set aside.
18. The violation alleged under Section 77 is purely procedural in nature. Considering that the appellant had maintained statutory records and substantially complied with tax obligations, imposition of penalty under Section 77 is also not warranted. The same is therefore set aside.
19. In view of the above discussions, we hold as under:
a. The appellant is entitled to Cum-tax benefit while determining taxable value.
b. Demand is required to be re-quantified after granting Cum-tax benefit and after proper consideration of TDS components.
c. Invocation of extended period of limitation is not sustainable in the facts of the case.
d. Penalty under Section 78 of the Finance Act is set aside.
e. Penalty under Section 76 is set aside by extending the benefit of Section 80 of the Finance Act, 1994.
f. Penalty under Section 77 is also set aside.
g. Consequential relief, if any, shall be available to the appellant in accordance with the law.
20. The impugned order is modified to the extent indicated as above. The matter is remanded back to the Original Authority only for the limited purpose of re-quantification of service tax liability after extending Cum-tax benefit and considering the TDS component in accordance with the law.
21. Accordingly, the appeal is allowed partly with consequential relief, if any, as per law.
(Pronounced in the open court on 12.06.2026 )
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