Case Law Details
Pearls Buildwell Infrastructure Limited Vs Commissioner of Central Excise And Service Tax (CESTAT Chandigarh)
In a recent case, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Chandigarh addressed a significant issue concerning service tax demands based on calculation sheets. The case of M/s. Pearls Buildwell Infrastructure Limited vs. Commissioner of Central Excise & Service Tax, Chandigarh – I revolves around whether the tax authorities can impose service tax based solely on calculation sheets. The CESTAT’s decision provides clarity on this matter.
The CESTAT set aside the demand confirmed by the Commissioner for Service tax on the basis of calculation sheet only. The Tribunal found that the appellants did not collect any service tax from their customers, substantiated by the absence of invoices and a certificate from their customer confirming this. Consequently, the Commissioner’s reliance on calculation sheets to establish service tax collection was considered insufficient. As a result, the impugned order was deemed unsustainable, and the appeal was allowed. Simultaneously, the Department’s appeal against the dropped demand was dismissed.
Facts:
M/s Pearls Buildwell Infrastructure Limited (“the Appellant”) is engaged in Construction Services related to road laying. An intelligence report indicated that the Appellants had collected service tax from their customers but had not deposited it with the exchequer. Consequently, a show-cause notice was issued on April 23, 2010, demanding service tax of Rs. 97,71,146.68/- along with interest. The notice also proposed penalties under Sections 76, 77 & 78 of the Finance Act, 1994 (“the Finance Act”). The Appellants had already deposited Rs. 10,20,994/- as Service Tax and Rs. 55,731/- as interest, which was sought to be adjusted.
The Commissioner, through the impugned order dated March 25, 2011, confirmed a demand of Rs. 10,24,928/- and the related interest but dropped the rest of the demand. The Appellants appealed against this confirmation, and the Department appealed against the dropped demand.
The Appellant further contented that the Commissioner’s findings relied on calculation sheets discovered during a search, overlooking a certificate from the Appellant and its customers vide letters dated September 03, 2008 and October 06, 2008 confirmed that no service tax had been charged.
Issue:
Whether the provisions of Section 73A of the Finance Act is applicable to the case?
Held:
The CESTAT, Chandigarh in Service Tax Appeal No. 1196 of 2011 held as under:
- Observed the applicability of section 73A of the Finance Act in this case. It was crucial to determine whether the Appellants had collected service tax from their customers, and if so, whether this collection was in excess of the assessed service tax.
- Observed that, ongoing through the provisions of Section 73A, it is evident that sub-clause 2 of Section 73A remains applicable in the instant case. It is observed that, in order to invoke this clause, it is imperative that the noticee must have collected an amount that is not legally mandated to be collected, in any manner that represents Service Tax. In the present case, it has not been established by the Department that the Appellant have issued invoices or bills indicating the collection of service tax from their customers.
- Noted that the Certificate issued, along with the absence of challenged records, indicated that the Appellant had not collected any from their customers.
- Further observed that the allegations against the Appellant were primarily based on isolated and uncorroborated calculation sheets discovered during the search. These sheets were deemed insufficient to establish the collection of service tax.
- Held that the impugned order could not be sustained and was set aside.
- Noted the argument of the suit being time-barred, as the audit occurred in 2008, and the show-cause notice was issued in 2010. However, since the Appellants had a strong case on merit, the issue of time bar was deemed inconsequential.
- The Appellants’ appeal (ST/1196/2011) was allowed, and the Department’s appeal (ST/1238/2011) was dismissed.
Conclusion
The CESTAT Chandigarh’s decision in the case of Pearls Buildwell Infrastructure Limited provides clarity on the application of Section 73A of the Finance Act, 1994, concerning service tax collection. The ruling underscores the importance of concrete evidence, such as invoices and certificates, when alleging service tax collection from taxpayers. In this case, the reliance on calculation sheets alone was deemed insufficient to support the tax authorities’ claim, leading to the quashing of the service tax demand. This decision ensures that service tax demands are based on sound evidence and prevents unwarranted tax assessments.
Relevant Provision:
Section 73A of the Finance Act
“Service Tax Collected from any person to be deposited with Central Government
(1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.
(3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.
(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.
(5) The amount paid to the credit of the Central Government under sub-section (1) or sub- section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1).
(6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.”
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
M/s Pearls Buildwell Infrastructure Limited (appellants in ST/1196/2011) are engaged in Construction Services related to road laying. On receipt of an intelligence that the appellants have collected service tax from their customers and have not deposited the same to the exchequer; a show-cause notice, dated 23.04.2010, was issued demanding duty of Rs.97,71,146.68/- along with interest while seeking to impose penalty under Sections 76, 77 & 78 of Finance Act, 1994 and proposing to adjust Rs.10,20,994/- of duty and Rs.55,731/-of interest already deposited by the Party. Learned Commissioner vide the impugned order, dated 25.03.2011, confirmed demand of Rs.10,24,928/- and the interest paid thereof and dropped the rest of the demand. M/s Pearls Buildwell are in appeal against such confirmation and Department is in appeal (ST/1238/2011) against the demand dropped.
2. Shri Ajay Jain, Learned Counsel for M/s Pearls Buildwell (appellants in Appeal No.ST/1196/2011 and respondents in Appeal No. ST/1238/2011) submits that Headquarters’ Preventive Team visited their premises on 06.08.2008 and observed that they have undertaken Site Formation Services taxable under Finance Act, 1994; during the course of investigation, the appellants were made to deposit Rs.10,24,928/-, which the appellants deposited under “Protest” and have clarified vide letters dated 03.09.2008 and 06.10.2008 that they have not charged any service tax to their customers.
3. Learned Counsel further submits that learned Commissioner has analyzed the activity undertaken by the appellants; has gone through the records of the case and came to the conclusion that the appellant undertook the activity of construction of roads which is not liable to service tax as per the exemption available in terms of Notification No.17/2005 dated 07.06.2005. He submits that, thereafter, the Commissioner goes on to confirm the demand in terms of Section 73A of the Finance Act, 1994, though, giving a categorical finding that no bill representing the availment of service tax has been raised. He submits that entire findings of the Commissioner were based on few calculation sheets found with the appellant during the search; learned Commissioner has completely ignored the Certificate dated 12.06.2010 by their customers M/s PACL India Limited; during the investigation stage itself, they have clarified to the authorities vide letters dated 03.09.2008 and 06.10.2008 that they have not charged any amount representing as service tax.
4. Ms. Shivani learned Authorized Representative for the Department reiterates the findings of the impugned order as far as the duty confirmed is concerned and reiterates the grounds of appeal in respect of the portion of the demand dropped vide impugned order.
5. Heard both sides and perused the records of the case. We find that brief issue involved in the instant case whether the provisions of Section 73A are attracted in the facts and circumstances. We find that it is beneficial to have a look at the provisions of Section 73A which is extracted as under:
SECTION 1[73A. Service tax collected from any person to be deposited with Central Government. –
(1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.
(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.
(3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.
(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.
(5) The amount paid to the credit of the Central Government under sub-section (1) or sub-section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1).
(6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 (1 of 1944) or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount.
6. We find that, ongoing through the provisions of Section 73A that sub-clause 2 is applicable in the instant case. We find that to attract this clause, the noticee should have collected any amount, which is not required to be collected, in any manner as representing service tax. In the instant case, it is not the case of the Department that the appellants have issued invoices/ bills which indicate that service tax has been collected by the appellants from their customers. This fact is very much accepted by the learned Adjudicating Authority in the impugned order; the Certificate issued by M/s PACL indicates that the appellants have not charged any service tax to the customers. It is not clear from the case records whether the Department has challenged the certificate issued by M/s PACL. The allegation is sought to be established on the basis of loose calculation sheets. During the hearing, learned Counsel for the appellants has demonstrated that the said sheets cannot be corroborated with the invoices issued. Moreover, the sheets are isolated and cannot be extrapolated to assume that service tax has been collected by the appellants. The facts of the case and the case records indicate that the appellants have not collected any amount representing as service tax from their customers i.e. M/s PACL. In addition to the above, there is a categorical certificate given by M/s PACL indicating that the appellants have not charged any service tax and have not paid any amount representing as service tax to the appellants. Thus, we are of the considered opinion that the impugned order cannot be sustained and is liable to be set aside. We do so.
7. Learned Counsel further submits that audit has taken place in 2008 and the show-cause notice has been issued in 2010 and therefore, the issue is barred by limitation. As we find that the appellants have a strong case on merits, the issue of time bar is of no consequence.
8. In view of the above, Party’s Appeal No.ST/1196/2011 is allowed and Department’s Appeal No.ST/1238/2011 is dismissed.
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