Case Law Details
K. D. Merchants Pvt. Ltd. Vs Commissioner of Central Goods & Service Tax (CESTAT Allahabad)
The appeal was filed against an order passed by the Commissioner (Appeals), CGST, Noida, concerning a demand of service tax based on third-party data obtained from the Income Tax Department.
The Appellant, a registered service tax assessee, was subjected to an enquiry after the department observed that the value of services provided during 2015–16 amounted to Rs. 85,45,477/- as per Income Tax data. Relying on this information, the department calculated a service tax liability of Rs. 12,39,094/- at a uniform rate of 14.5% and issued a show cause notice under Section 73(1) of the Finance Act, 1994, along with interest and penalties.
During adjudication, it was found that the Appellant had already declared the same value of services in ST-3 returns filed for the relevant period. The only discrepancy was in the computation of tax liability. The Appellant had calculated tax liability at Rs. 11,95,096/-, whereas the department demanded a higher amount. Despite this, the adjudicating authority confirmed the higher demand along with interest and imposed penalties under Sections 73(1) and 77(1)(d).
On appeal, the Commissioner (Appeals) acknowledged that service tax rates had changed during the relevant period and that applying a uniform rate of 14.5% was incorrect. Accordingly, the demand was reduced to Rs. 11,95,096/-. After adjusting Rs. 3,25,468/- already paid, the remaining demand of Rs. 8,69,628/- was confirmed along with interest and equal penalty. A penalty of Rs. 5,000/- under Section 77(1)(d) was also upheld.
Before the Tribunal, the Appellant argued that since the tax liability had already been declared in ST-3 returns, issuance of a show cause notice under Section 73(1) was barred by Section 73(1B) of the Finance Act, 1994. It was further contended that the penalty under Section 77(1)(d) was not applicable to late filing of returns.
The Tribunal observed that the demand was raised solely based on Income Tax data without proper enquiry, even though the Appellant had already filed ST-3 returns declaring both the value of services and the tax liability. The declared values matched the third-party data. It was noted that Section 73(1B) overrides Section 73(1) and provides that where tax liability is self-assessed in returns but not paid, recovery should be made without issuing a show cause notice. Therefore, issuance of notice under Section 73(1) was held to be invalid, rendering the entire proceedings unsustainable.
The Tribunal also held that penalty under Section 77(1)(d) is not applicable for late filing of returns, as a specific provision for late fee exists under Section 70(1).
Accordingly, the impugned order was set aside, and the appeal was allowed with consequential relief.
FULL TEXT OF THE CESTAT ALLAHABAD ORDER
The Appellant has filed the present appeal assailing the Order-in-Appeal No.NOI-EXCUS-APPL-001-NOIDA-32-2025-26 dated 30.04.2025 passed by the Commissioner (Appeals), CGST, Noida.
2. Facts relevant to the present case are that the Appellant was registered with Central Excise as Service Tax assessee vide Registration No. AAFCK5361ESD001 for providing taxable services. The jurisdictional Range office on the basis of third-party data made available by Income Tax Department, noticed that the aggregate value of services provided by the Appellant was to the tune of Rs.85,45,477/- during 2015-16 and initiated enquiry against the Appellant and asked him to provide copy of ST-3 and other relevant documents for verification of value of taxable services provided by the Appellant during the concerned period. However, the value of services informed by the third party, i.e., Income Tax, was taken as value of taxable services provided by the Appellant and Service Tax @14.5% was worked out to be Rs.12,39,094/-. The same was treated as Service Tax not paid by the Appellant. In view of the above, Show Cause Notice’ dated 26.03.2021 was issued to the Appellant for demand of Service Tax amounting to Rs.12,39,094/- under Section 73(1) of the Finance Act, 1994 alongwith interest and imposition of penalty. Penalty under Section 77(1)(d) of the Finance Act, 1994 was also proposed.
3. The case was adjudicated and during adjudication, the Appellant emphasized that the value of services provided by him was very much declared in the ST-3 returns filed alongwith Service Tax liability. On verification, it was found that value of taxable services declared in the return was equal to value of services informed by the third party. Only difference was in computation of tax liability. The tax liability as determined in the SCN was Rs.12,39,094/- whereas as per ST-3 returns filed for the concerned year, the tax liability was calculated to be Rs.11,95,096/-. However, the Adjudicating Authority confirmed the demand of Rs.12,39,094/- as proposed in the SCN along with interest and imposed equal penalty under Section 73(1) of the Finance Act, 1994 and also imposed penalty under Section 77(1)(d).
4. The Appellant preferred an appeal against the said order before the Commissioner (Appeals), CGST, Noida, who reduced the demand to Rs.11,95,096/- as claimed by the Appellant on the grounds that rate of Service Tax during the concerned period was consistently changing from time to time from 12.36%, 14%,14.5% to 15%, but in the SCN, the demand was worked out at a fixed rate of 14.5%, which was not correct. The Appellate Authority noticed from the ST-3 filed by the Appellant for the concerned period, that an amount of Rs.3,25,468/- out of declared tax liability of Rs.11,95,096/- was already deposited. Thus, demand of Rs.8,69,628/- was confirmed along with equal penalty and interest. Penalty of Rs.5,000/- imposed under Section 77(1)(d) was upheld.
5. Shri Abhinav KaIra, learned Advocate appeared on behalf of the Appellant to plead the case. Learned Advocate contended that once tax liability has already been declared in ST-3 returns, notice under Section 73 for demand of short paid service tax cannot be issued as per the provisions of Section 73 (1)(B) of the Finance Act, 1994. He therefore pleaded that the whole proceedings initiated under Section 73(1) is without authority of law and is liable to be quashed since the Appellant had voluntarily accepted and declared tax liability fairly in its ST-3 returns. He vehemently argued to set aside the impugned appeal order which was passed under Section 73(1) of the Finance act, 1994 ignoring the provisions of Section 73(1)(B) of the Finance Act, 1994. He also submits that penalty under Section 77(1)(d) cannot be imposed for late filing of returns inasmuch under the said provision, penalty is imposable only when tax is not deposited electronically. In the present case, issue does not relate to deposition of tax electronically. Learned Advocate has therefore submitted that penalty imposed under Section 77(1)(d) may kindly be dropped.
6. The learned Departmental Representative contended and reiterated findings of the Commissioner (Appeals) and emphasized that the same is according to law.
7. Heard both the sides and perused the appeal records.
8. I find that the present demand was made on the basis of information from Income Tax Department which provided aggregate value of services rendered by the Appellant during the period 2015-16 without carrying out proper enquiry. I further find that the Appellant had already filed its Service Tax returns for the concerned period of 2015-16 much before the initiation of proceedings for the demand under Section 73(1) of the Finance Act, 1994. It is further noticed and as admitted by the Adjudicating Authority that the Appellant had already filed its ST-3 returns as per requirement of Section 70 of the Finance Act, 1994 for the concerned period wherein value of services provided by him and tax liability thereon were already declared. Declared value of services was matching with the value of services informed by the Income Tax Department. Correct tax liability on the said value was also declared in ST-3 returns for the said period. Under Section 73(1), the proper officer was authorized to issue notice for demand which was short paid or not paid. But under Section 73(16), it was provided that in case tax liability was already declared in return, there was no need of issuance of notice under Section 73(1). For better appreciation of the provisions of Section 73(16), the same is reproduced as under : –
“(1B) notwithstanding anything contained in sub- Section 1, in a case where the amount of service tax payable has been self assessed in the return furnished under sub-Section 1 of Section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon as per provisions of Section 87, without service of notice under sub- Section (1)ff.
The above clause begins with the word ‘notwithstanding’ anything contained in sub-Section (1) ……………………. it means the provisions of clause (1B) will have overriding effect on provisions of sub-Section (1) of Section 73 of the Finance act, 1994. The issuance of notice under sub-Section (1) of Section 73 is, therefore unwarranted and invalid in view of the above provisions particularly in a case when notice is itself invalid, the adjudication thereof is also not sustainable.
9. I further find that the penalty under Section 77(1)(d) is not imposable for late filing of ST-3 returns when there was specific provision under Section 70(1) of the Finance Act, 1994 for payment of late fee.
10. In view of the above discussion, I hereby set aside the impugned order and allow the appeal of the Appellant with consequential relief, as per law.
(Order pronounced in open court on 18.03.2026)
Notes:-
1 SCN
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