Non furnishing of verification report of Department to assessee for making his submissions/rebuttal leads to denial of natural justice

Lancet Pharma Pvt. Ltd. (Appellant) rendered ‘Manpower Recruitment or Supply Agency’s Services’ (services) to Cipla Ltd. During the course of the audit of the records of the Appellant, it was observed that there was a difference between the value of taxable services declared by the Appellant in their ST-3 returns and the value reflected in the books of accounts maintained by the Appellant. It was also noticed that the Appellant had not discharged Service tax liability on the TDS amount deducted by the recipient of the services. Therefore, Service tax was demanded on the difference between the value shown in the books of accounts and the values declared in the ST-3 returns as per which there was a difference in value of Rs. 23,83,83,231/- and Service tax liability thereon worked out to Rs. 2,49,80,120/- which was confirmed along with interest and penalties in the order passed by the Commissioner of Service Tax, Mumbai.

The Appellant, being aggrieved, preferred an appeal before the Hon’ble CESTAT, Mumbai contending the following:

• While computing the Service tax demand, the Department has taken into account only the debit entries made by the Appellant in their journal. However, subsequent reversal made by the Appellant has not been taken note of;
• They had also discharged Service tax liability on the TDS amount deducted by the recipient of the services, for which a reconciliation statement duly certified by a Chartered Accountant was furnished to the Adjudicating Authority;
• The Adjudicating Authority on his own got the verification done through the Assistant Commissioner of Audit and based on the verification report come to the conclusion that the Appellant has not discharged correct Service tax liability;
• The verification report of the Assistant Commissioner of Audit was never given to the Appellant for comments/rebuttal. In the absence of non-furnishing of the verification reports prejudice has been caused to the Appellant.

It was held by the Hon’ble CESTAT, Mumbai that while the Department had opportunity to verify whatever information/ statements furnished by the Appellant, a copy of the verification report should have been provided to the Appellant to make their submissions/rebuttal. Inasmuch as a copy of the verification report has not been given to the Appellant for their comments/rebuttal, there is a violation of principles of natural justice.

It was further held that the adjudication manual of the Central Board of Excise and Customs also lays down guidelines to the effect that if a new fact is emerging from the verification/ investigation caused by the Department, the assessee should be given an opportunity to make a submissions/rebuttal on those facts, failing which there would be a procedural irregularity leading to denial of natural justice.

Accordingly, the adjudicating authority was ordered to give a copy of the verification report (along with copies of the documents verified) to the Appellants for their comments/rebuttal and thereafter pass afresh speaking order taking into the account the submissions made by the Appellant.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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