Case Law Details
Commissioner of CGST & CE Vs Modern Road Makers Pvt. Ltd. (CESTAT Mumbai)
Introduction: The Commissioner of CGST & CE vs Modern Road Makers Pvt. Ltd. case was an appeal brought before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Mumbai. The case revolved around a substantial demand of service tax and a dispute about a mismatch between the turnover recorded and the value of the services reflected in ST-3 returns for the year 2013-14.
Detailed Analysis:
Background: Revenue filed an appeal against an order-in-original dated 11.08.2021, which dropped a substantial demand of service tax. The initial demand was based on the difference between the ST-3 and ITR turnover, amounting to approximately Rs. 292.87 crores.
Show Cause Notice: A show cause notice was issued to Modern Road Makers, calculating 12.36% of the turnover, demanding service tax. This notice was considered presumptive and not sustainable, lacking examination of the activity of the respondent or the reason for the difference in turnover.
Arguments from Revenue: Revenue argued that the original authority didn’t verify any record of the original parent contractor, and without verification, deemed the respondent eligible for exemption.
Arguments from Respondent: The respondent countered that the show cause notice was issued without any examination of the records and was based on presumption, rendering it not sustainable in law. They supported this argument by citing previous case laws.
Tribunal’s Decision: The Tribunal closely examined the show cause notice and determined it to be totally presumptive, as it lacked a basis for framing charges on admissible evidence. Previous rulings were cited to underline the principle that the burden of proof lies with Revenue.
Outcome: The Tribunal upheld the original authority’s decision to drop the demand of service tax amounting to Rs.292,86,63,640/- and set aside the remaining parts, including the confirmation of a smaller demand and related penalties.
Conclusion: The Commissioner of CGST & CE vs Modern Road Makers Pvt. Ltd. case serves as a significant ruling on the importance of due diligence and proper investigation by Revenue before issuing a show cause notice. It emphasized that presumptive charges are not sustainable and that proper examination of records and evidence is necessary to frame legal charges. The judgment reinforces the principle that the burden of proof lies with the Revenue and underscores the legal requirements that must be fulfilled for a fair and just decision.
Argued by Adv. Bharat Raichandani i/b UBR Legal
FULL TEXT OF THE CESTAT MUMBAI ORDER
1. Present appeal is filed by Revenue against order-in-original dated 11.08.2021 passed by Principal Commissioner of Service Tax, Mumbai, through which he has dropped substantial demand of service tax. Aggrieved by the said order, Revenue is in appeal before this Tribunal. Cross appeal is filed by the respondent. Through the cross appeal, the respondent has submitted their arguments against the grounds of appeal and also sought relief in respect of confirmation of service tax demand amounting to Rs.87,676/- and interest and fine and penalty associated with the said confirmation of demand.
2. Brief facts of the case are that the respondent is registered with Service Tax. Revenue received data about the turnover of the respondent for the year 2013-14 on the basis of income-tax return and associated Form-26AS statement and there was a mismatch between the turnover recorded by the respondent for the said year and the value of the services reflected in ST-3 returns. In fact the value of the services reflected in ST-3 returns for the year 2013-14 was nil. It appeared to Revenue that the entire turnover of around Rs.2,369 crores reflected in said 26AS was on account of provision of service and, therefore, by straight away calculating 12.36% of the said turnover, Revenue demanded service tax of Rs.292,87,51,316/- from the respondent by issue of show cause notice dated 16.04.2019. The respondent submitted their reply to the show cause notice. The reply was considered by the original authority and after going through the submissions, the original authority was satisfied that out of the turnover of Rs.2,369 crores, a turnover of about Rs.2,295 crores was on account of undertaking works contract for construction, operation, repair and maintenance of national highways and expressways for use by general public and the same were exempted from levy of service tax under Entry No.13(a) of Notification No.25/2012-ST dated 20.06.2012 and, therefore, dropped the demand of service tax to the tune of Rs.292,86,63,640/-. The original authority confirmed the demand of service tax amounting to Rs.87,676/- on commission received by the respondent and also on some income which was written off. The original authority also ordered for recovery of interest on confirmed service tax amount of Rs.87,676/- and imposed equal penalty under Section 78 of Finance Act, 1994 on the respondent. The original authority also imposed a penalty of Rs.10,000/- on the respondent under Section 77(1)(d) of Finance Act, 1994 for failure to pay service tax electronically. The original authority also imposed a penalty of Rs.10,000/- on the respondent for failure to furnish correct returns. Aggrieved by the said order through which the original authority dropped the demand of service tax amounting to Rs.292.86 crores, Revenue is before this Tribunal. Respondent has filed cross appeal against the confirmation of demand of service tax of Rs.87,676/- and related penalties.
3. Heard the learned AR for the appellant. He has submitted that the original authority has not verified any record of the original parent contractor of NHAI for whom the respondent has undertaken work as sub-contractor and held that the turnover was on account of construction, repair and maintenance of highways and expressways. He has further submitted that the original authority has not recorded any findings to the effect that any verification was carried out by the original authority himself to verify whether the principal contractor has actually been awarded the contract for operation and maintenance of national highways and that without any verification held that the respondent was eligible for exemption under Notification No. 25/2012-ST. He has, therefore, requested that the matter be remanded to the original authority for de novo adjudication after verification of copies of contract of the principal contractor for whom the respondent has worked.
4. Heard the learned counsel for the respondent. He has submitted that the respondent had submitted all the related papers before the original authority and on going through all the related papers and books of account, the learned original authority has come to a conclusion that the turnover of the respondent was on account of works contract for construction, operation, repair and maintenance of highways and expressways. He has submitted that there is no strength in the argument raised by Revenue that without going through the records the original authority has come to a conclusion that the said turnover was in respect of construction, maintenance and repair of highways and expressways. He has submitted that in fact the show cause notice was issued without any examination of the records and was on the basis of presumption that the entire turnover was for providing taxable service and that such show cause notice itself is not sustainable in law. Learned counsel for the respondent has submitted that the demand in the said show cause notice was without examination of books of account of the respondent and, therefore, the said show cause notice is bad in law. He has further submitted that there should have been investigation into entry of the transactions and Revenue should have established that the said transactions were in respect of provision of taxable service and, therefore, the demand raised in the show cause notice is not sustainable because this Tribunal has repeatedly taken a view that on the basis of difference in the turnover reflected in ST-3 returns and Form 26AS statement without examination of the reason for such difference and without establishing that the said difference was on account of the provision of taxable service, demand of service tax on such differential amount cannot be raised. He has relied upon the following case laws in support of his claim:-
i) Lord Krishna Real Infra Pvt. Ltd. [2019 (2) TMI 1563 – CESTAT ALLAHABAD]
ii) Sharma Fabricators & Erectors Pvt. Ltd. [2017 (7) TMI 168 – CESTAT ALLAHABAD]
iii) Kush Constructions [2019 (5) TMI 1248 – CESTAT ALLAHABAD].
5. We have carefully gone through the record of the case and submissions made. Right at the outset we have examined the show cause notice. The show cause notice dated 16.04.2019 states that the same is enclosed with two annexures. Annexure[1]I is work sheet. The work sheet states the turnover of the respondent for the year 2013-14 as reflected in income tax return and turnover reflected in ST-3 return as nil and the difference between the two turnovers and service tax @ 12.36% on the said difference. Annexure-II is a letter dated 25.10.2018 issued by Superintendent (Data Cell) presuming that the respondent has shorted reported turnover in their ST-3 return to the extent of difference stated in Annexure-I. The entire show cause notice nowhere examines as to on what account the turnover has taken place. The said show cause notice was issued without examining the activity of the respondent and without examining the reason for difference in turnover reported in income tax return and ST-3 return. It was presumed in the show cause notice that the entire turnover reported in income tax return was on account of provision of taxable service and by calculating 12.36% of that turnover, service tax demand was raised. The fundamentals of prosecution such as framing charges on the basis of admissible evidence is absent in issue of show cause notice. The basic of any proceeding is to frame charges on the basis of assessee’s record and establish that the assesse has short paid calculated and pre-determined amount of service tax and then issue them a show cause notice calling for their explanation as to why the stated amount of service tax should not be recovered from them. The burden of proof is on Revenue to establish that the alleged service tax was short paid by the assesse. Unless such burden of proof is discharged by Revenue, such show cause notice cannot sustain. The preset show cause notice is totally presumptive. Further, the difference in turnover in ST-3 return and income tax return could be on account of non-taxable businesses. So, unless Revenue examines the reasons for the difference, it cannot demand service tax blindly on the basis of difference in the turnover reflected in the two statutory returns. This Tribunal has time and again held as follows:-
a) In the case of Lord Krishna Real Infra Pvt. Ltd. [2019 (2) TMI 1563 – CESTAT ALLAHABAD], it was held as follows:-
“Further, we find that on the basis of form 26AS return filed under Income Tax Act without examining any other records of the appellant, charges of short payment of service tax to the tune of 8 crores were made against the appellant. It was possible for Revenue to know the transactions between other parties & appellant from form 26AS. Revenue could have investigated into the nature of such transactions & should have established that the said transactions were in respect of provision of said service. Then alone the charges of short payment of Service Tax would have sustained. We find that Final Order of this Tribunal in the case of Sharma Fabricators Pvt. Ltd. (supra) is squarely applicable in the present case. We, therefore, hold that Revenue did not discharge its burden to prove short payment of service tax. We also hold that the said show cause notice dated 05.10.2016 is not sustainable.”
b) In the case of, Sharma Fabricators & Erectors Pvt. Ltd. [2017 (7) TMI 168 – CESTAT ALLAHABAD], it was held as follows:-
“Surprisingly the draft audit report was the relied upon document. It may be worth mentioning here that the purpose of audit report is to point out any discrepancy to the notice for examination by the executive and it is the duty of executive to examine the records and examine the objection raised with reference to the records and facts of the case and take a view whether there is a sustainable case for issue of Show Cause Notice. Such vital aspects of framing of charges have been missing in the present case. The charges in the Show Cause Notice have to be on the basis of books of account and records maintained by the assessee and other admissible evidence. The books of account maintained by M/s Sharma were not looked into for issue of above stated two Show Cause Notices. Therefore, the transactions recorded in the books of account cannot be held to be contrary to the facts. Therefore, we hold that the said Show Cause Notices are not sustainable. Since the said Show Couse Notices are not sustainable, appeal bearing No.ST/890/2010 filed by M/s Sharma is allowed and appeal bearing No. ST/949/2010 filed by Revenue is dismissed. Miscellaneous Applications are also stand disposed of. Cross Objection also disposed of.”
C) In the case of Kush Constructions [2019 (5) TMI 1248 – CESTAT ALLAHABAD], it was held as follows:-
“After hearing both the sides duly represented by Shri A.K. Singh authorized representative of the appellant on behalf of the appellant and Shri Shiv Pratap Singh learned A.R. on behalf of the Revenue, we note that through impugned order service tax of Rs.93,000/- was confirmed alongwith equal penalty. On perusal of record, we note that the appellants were registered with the Service Tax Department and also they were filing ST-3 returns. Revenue has compared the figures reflected in the ST-3 returns and those reflected in Form 26AS filed in respect of the appellant as required under the provisions of Income Tax Act, 1961. We note that without further examining the reasons for difference in two, Revenue has raised the demand on the basis of difference between the two. We note that Revenue cannot raise the demand on the basis of such difference without examining the reasons for said difference and without establishing that the entire amount received by the appellant as reflected in said returns in the Form 26AS being consideration for services provided and without examining whether the difference was because of any exemption or abatement, since it is not legal to presume that the entire differential amount was on account of consideration for providing services. We, therefore, do not find the said show cause notice to be sustainable. In view of the same, we set aside the impugned order and allow the appeal.”
6. We, therefore, hold that the present show cause notice is totally presumptive. Therefore, we do not find any infirmity in the order-in-original to the extent that the demand of service tax of Rs.292,86,63,640/- is dropped by the original authority. Insofar as the confirmation of demand of service tax of Rs.87,676/- and its equal penalty are concerned and interests on the same are concerned, we set them aside for the reason that the show cause notice is not sustainable. We, however, do not interfere in the dropping of the demand of service tax of Rs.292,86,63,640/- by the Commissioner while setting aside the remaining part of the impugned order.
7. In above terms, by modifying the impugned order, we dismiss the appeal filed by Revenue and allow the cross appeal filed by the respondent.
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