Service tax demand based on consolidated tax liability without specifying specific service unsustainable

T.M.P. Manoharan & Co. Vs Commissioner of Central Excise (CESTAT Chennai)

CESTAT Chennai held that show cause notice not specifying specific service rather demanding service tax on consolidated tax liability makes the show cause notice indefensible. Accordingly, the demand raised thereon is liable to be set aside.

Facts-

The present appeal has been filed by the appellant against OIO passed by the Commissioner of Central Excise.

By the Show Cause Notice No. 22/2013 (C) dated 11.04.2013 issued to the assessee which culminated in the passing of the impugned order, it is the case of the Revenue that the assessee-appellant is a registered service provider under: (a) maintenance and repair service, (b) manpower recruitment service and (c) commercial or industrial construction service, they had also provided ‘erection, commissioning and maintenance’ services to M/s. Graphite India, Nasik and M/s. Siemens, Navi Mumbai which were found during one of the audits, from the balance-sheet copies, Income Tax statement copies and other documents obtained from the Income Tax Department, but however, the assessee-appellant refused to produce the documents required for statutory auditing. From the above, it was understood by the Revenue that the appellant had undertaken sub-contracting agreement for the provision of service under erection and commissioning services.

Notably, the Commissioner who issued SCN thus proceeded to propose a consolidated tax liability without specifying the service provided by the appellant, thereby alleging that the appellant had suppressed facts by not taking registration of all the services rendered during the period 2007-08 (October to March) to 2011-12.

Conclusion-

CESTAT in the case of Commissioner of Central Excise and Service Tax, Pondicherry v. A.M. Manickam & ors has held that the Show Cause Notice being bereft of clarity, not conveying exact nature of the alleged act or omission, any demand arising therefrom was not sustainable.

Held that a perusal of the Show Cause Notice makes it clear, and admittedly, that there is no specific service alleged against the appellant, as having been rendered by it; rather, a consolidated tax liability has been worked out, which makes it indefensible.

FULL TEXT OF THE CESTAT CHENNAI ORDER

This appeal is filed by the assessee against the Order-in-Original No. 47/2014 (C) dated 30.06.2014 passed by the Commissioner of Central Excise, Puducherry and the period of dispute is from 2007-08 (October to March) to 2011-12.

2.1 By the Show Cause Notice No. 22/2013 (C) dated 11.04.2013 issued to the assessee which culminated in the passing of the impugned order, it is the case of the Revenue that the assessee-appellant is a registered service provider under: (a) maintenance and repair service, (b) manpower recruitment service and (c) commercial or industrial construction service, they had also provided ‘erection, commissioning and maintenance’ services to M/s. Graphite India, Nasik and M/s. Siemens, Navi Mumbai which were found during one of the audits, from the balance-sheet copies, Income Tax statement copies and other documents obtained from the Income Tax Department, but however, the assessee-appellant refused to produce the documents required for statutory auditing. From the above, it was understood by the Revenue that the appellant had undertaken sub-contracting agreement for the provision of service under erection and commissioning services.

2.2 The Show Cause Notice also refers to various communications as mentioned in paragraph 5 therein, with a further allegation that the assessee-appellant did not respond to any of those letters.

2.3 The Commissioner who issued the Show Cause Notice thus proceeded to propose a consolidated tax liability without specifying the service provided by the appellant, as per the table at paragraph 6 of the Show Cause Notice, thereby alleging that the appellant had suppressed facts by not taking registration of all the services rendered during the period 2007-08 (October to March) to 2011-12.

3. The assessee-appellant appears to have filed a suitable reply vide letter dated 21.10.2013, copy of which is placed on record even before us, wherein they have questioned the very basis of the Show Cause Notice. The salient features of the said reply are summarized below: –

(a) Internal audit was carried out in the year 2010 and in that connection, letter in C. No.III/10/22/2010-IA (Gr.III) dated 04.10.2010 was submitted.

(b) They had submitted all relevant documents in response to the above, but however, the same appears to have been accepted without pointing out any objection.

(c) Communication Ref. OC No. 18/2012 dated 09.01.2012 was issued enclosing audit objections, in which there is a reference to Show Cause Notice No. 172/2009 which was pending adjudication.

(d) From the above, the period 2008 to March 2009 stood covered in the earlier Show Cause Notice and therefore, covering the same period in the present Show Cause Notice by invoking the larger period is clearly without any basis.

(e) There was another internal audit in 2012 – communication Ref. C. No. III/10/5895/2012-I.A. (Gr.V), to which they responded enclosing the details/documents called for; there was no communication/objection till date.

(f) In the impugned Show Cause Notice dated 11.04.2013, there is absolutely no reference to the second audit carried out in 2012.

(g) The Show cause Notice dated 11.04.2013 is not referring to or relying on any specific document allegedly collected from the Income Tax department and nor did the Department share with them any of the so-called documents collected from the Income Tax department.

(h) With regard to the allegations of non-furnishing of information, non-responding to the Department’s several communications, the very fact of: (i) conduct of audit of accounts, (ii) existence of earlier Show Cause Notice for 2007-08 to 2008-09, (iii) declared values as per S.T.-3 return, and (iv) balance sheets, having been produced, clearly proves that the above allegations are baseless.

(i) With regard to the allegations of non-reconciliation, the statement showing year-wise breakup for the years 2009-10, 2010-11 and 2011-12 were already filed along with a chartered accountant’s certificate, which does not find any reference in the Show Cause Notice.

(j) With regard to the allegations of non-submission of S.T.-3 returns for 2009-10 to 2011-12, copy of each of the S.T.-3 returns filed by them were duly enclosed.

(k) In the statement as certified by the chartered accountant, the difference between the balance-sheet figures and the S.T.-3 figures were explained, but none of the above were considered by the officer issuing the Show Cause Notice.

(l) In the statement certified by the chartered accountant, they had categorized the differences between the balance-sheet figures and the S.T.-3 figures, as under: –

i. Amounts received in the year 2009-10, but relates to works already executed in the year 2008-09 and for which the main contractors had discharged Service Tax;

ii. Cost of materials reimbursed by Metro Water Board, which form part of only supply portion of the Operation and Maintenance Contract and not the service portion;

iii. Income earned for carrying out horticulture work, which is non-taxable;

iv. Income earned for service rendered to Railways in connection with infrastructure development, which is excluded from taxable service.

v. Income earned from renting of residential premises;

vi. Amount received for sub-contract work done to M/s. Siemens, M/s. Graphite, etc., with evidence of payment of Service Tax by these main contractors;

vii. Others (covering details of amounts shown to have been received by them in the notice, but actually not received, not even billed for and for which the notice has no evidence whatsoever)

(m) They had also relied on the following orders: –

i. Garden Makers v. Commissioner of C.Ex., Kochi [2009 (15) S.T.R. 37 (Tri. – )]

ii. Commissioner of C.Ex., Jaipur-I v. ANS Construction Ltd. [2010 (17) S.T.R. 549 (Tri. – Del.)

(n) References were made to the following Orders-in-Original/Order-in-Appeal: –

1) Order-in-Original No. 71/2009 (ST) dated 18.12.2009 for the period: 2003-04 to 2007-08

2) Order-in-Original No. 13/2010 (ST) dated 26.02.2010 for the period: up to 2006.

3) Orders-in-Appeal No. 33/2012 (PST) to 71/2012 (PST) all dated 02.05.2012 – no further appeal is filed by the Department.

to highlight that the Department was very much aware about the alleged transactions with the contractors from 2002 onwards and that they were in touch with M/s. NLC/contractors from 2006 in an organized manner.

(o) There were audits in 2010 and 2012 and hence, the allegation of suppression of facts through the Show Cause Notice in question is without any basis and therefore, there was no justification whatsoever to invoke the extended period of limitation. Consequently, the demand is also time-barred.

4. The assessee-appellant, having participated in the personal hearing, also appears to have filed a written submission dated 11.02.2014 reiterating its defence, with a prayer for dropping of further proceedings.

5. The adjudicating authority, however, having considered their explanation, vide impugned Order-in-Original dated 30.06.2014, confirmed the demand of Service Tax by observing that the assessee-appellant did not dispute the rendering of various taxable services, had received Rs.20,57,17,763/- as taxable value for providing taxable services which attracted Service Tax of Rs.2,30,30,794/- and the balance was recoverable under the proviso to Section 73(1) of the Finance Act, 1994 along with interest under Section 75 of the Act. Further, with regard to the allegation that the burden of classification of taxable services allegedly rendered by the appellant has not been rendered by the Revenue, the lower authority has held that when relevant information required for classification of service under respective categories were not furnished, the appellant cannot throw the burden on the Department; when the Notice had completely shifted the burden of proof on the assessee, the non-specification of classification could not be considered as being fatal to the validity of the Notice.

6. It is against this order that the present appeal has been filed before this forum.

7. Quite strangely, non-consideration by the Department as to its earlier audits, Show Cause Notices, etc., are conspicuously absent not only in the Show Cause Notice, but also in the Order-in-Original. In the interests of justice, there was no harm in bringing proper facts on record. In fact, we are reminded of reprimanding by higher judicial fora when a litigant goes before a court of law not with clean hands.

8. Heard Shri V. Ravindran, Ld. Advocate for the appellant, and Shri N. Satyanarayanan, Ld. Assistant Commissioner defending the order of the Commissioner.

9.1 The Ld. Advocate would submit at the outset that the following Show Cause Notices were issued to the assessee-appellant: –

9.2 On the allegation that the appellant was non-cooperative, did not furnish information, etc., he would submit that from the above, it is very much clear that there was nothing that the appellant suppressed from the Department; rather, the Department was fully aware of the activities of the appellant; two adjudication orders were also passed, and there is also a reference to a common Order-in-Appeal [as mentioned at paragraph 3(n) of this order] which was against the Department, which came to be accepted by the Department, without filing appeal.

9.3 He would also contend that the Show Cause Notice was based on an audit and hence, there were no fresh facts or evidences to justify the issuance of the present Show Cause Notice and hence, the Show Cause Notice and adjudication order are therefore based very much on pre-existing facts.

9.4 He would further submit that the Department has proposed and confirmed the impugned demand without specifying any of the services rendered by the appellant. The Ld. Advocate would contend that the appellant has, through its reply, countered and proved all such allegations as baseless and in this context, he would refer to an order of this Bench in the case of Commissioner of Central Excise and Service Tax, Pondicherry v. A.M. Manickam & ors. [2017 (6) TMI 57 – CESTAT, Chennai] (Final Order Nos. 40816­40860 of 2017 dated 29.05.2017 in Service Tax Appeal No. 189 of 2010 & ors.) wherein, under an identical factual matrix, this Bench has held that the Show Cause Notice being bereft of clarity, not conveying exact nature of the alleged act or omission, any demand arising therefrom was not sustainable.

10. Per contra, the Ld. Assistant Commissioner relied on the findings in the impugned order.

11. We have considered the rival contentions and we have gone through the documents/orders referred to during the course of arguments and we find that the only issue to be decided by us is: whether the demand confirmed in the impugned order is sustainable in law?

12.1 A perusal of the Show Cause Notice makes it clear, and admittedly, that there is no specific service alleged against the appellant, as having been rendered by it; rather, a consolidated tax liability has been worked out, which makes it indefensible. Moreover, after going through the reply and explanation filed by the assessee to the Show Cause Notice, we find that the Revenue has not properly answered the arbitrariness in proceeding further, in an unfair manner thereby recording that which is convenient rather than placing proper facts on record as to the earlier Show Cause Notices, earlier audits in 2010 and 2012. The above has, therefore, resulted in an overlapping demand, which though pointed out in the reply to the Show Cause Notice, but however, the lower authority has not bothered to discuss about the pleadings of the appellant.

12.2 It is not only about the overlapping demands, it mainly highlights the fact that the activities of the appellant were in the knowledge of the Department and that there was nothing that the appellant suppressed, which fact has been conveniently ignored by the lower authority. Hence, on this ground alone, it becomes very difficult for us to sustain the demand invoking the extended period of limitation.

13.1 In this regard, it is relevant to note the decision of the Hon’ble Apex Court in the case of Commissioner of Central Excise, Bangalore v. M/s. Brindavan Beverages [2007 (213) E.L.T. 487 (S.C.)] wherein it has been categorically held as under: –

“10. There is no allegation of the respondents being parties to any arrangement. In any event, no material in that regard was placed on record. The show cause notice is the foundation on which the department has to build up its case. If the allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. In the instant case, what the appellant has tried to highlight is the alleged connection between the various concerns. That is not sufficient to proceed against the respondents unless it is shown that they were parties to the arrangements, if any. As no sufficient material much less any material has been placed on record to substantiate the stand of the appellant, the conclusions of the Commissioner as affirmed by the CEGAT cannot be faulted.”

The demand in the impugned order, therefore, cannot sustain in the light of the law laid down by the Hon’ble Supreme Court.

13.2 We have also carefully considered the order of this Bench in the case of A.M. Manickam (supra). Brief facts as recorded at paragraph 2 therein read as under: –

“2. Brief facts of the case are that the land belonging to large number of people was acquired for Neyveli Lignite Corporation Ltd. (NLC) a mining project. As a compensation package to those persons whose lands were acquired prior to 2004, the NLC initially gave employment to one of the family members whose lands were thus acquired. When there was no further scope to give employment, NLC decided to award minor contracts to the members of the families to promote themselves as entrepreneurs. Thus the respondents/assessees were awarded various contracts from the year 2003 onwards by NLC. During the year 2006, Service Tax Department made elaborate meetings with the officials of NLC and collected details of the contracts awarded by NLC, on the premise that the respondents who were awarded the contracts were rendering taxable services. In 2006, most of the assesses obtained service tax registration and paid service tax on some of the services as pointed out by the department. It appeared to the department that respondents were not discharging service tax on entire amount received and entire services rendered by them, the department addressed NLC for details about the payments made to respondents. The same was provided by NLC and on the basis of these details furnished by NLC, around 180 show cause notices were issued to various contractors. After personal hearing and adjudication, in two of the matters, (A. Manickam and C. Vadivelu), the adjudicating Commissioner dropped the proceedings for the reason that the show cause notice was vague and did not specify the correct classification of services rendered by the appellant and therefore not legal and proper. In other cases, while the original authority confirmed the demand along with interest and imposed penalties, however, in appeal, Commissioner (Appeals) set aside the demand on the same ground that the show cause notices did not specify the correct classification of services and the demand was vague and therefore not legal and proper. Being aggrieved, the department filed appeals before the Tribunal and vide Final Order Nos. 4700 to 4753/2014 dated 25.8.2014, as stated above, matter had been remanded to the adjudicating authority. The said order of remand was challenged before the Hon ’ble High Court whereby the Hon’ble High Court remanded the matters for reconsideration. Hence appeals are once again before this forum.”

13.3 On the above, the findings are recorded as under: –

“5.12 From these discussions above, it is amply clear that the entire process of issue of show cause notices was done in a very hasty and slipshod manner without giving any raison detre for demanding service tax on the various activities “deduced” by department to have been provided by the respondents/assessees.

5.13 The show cause notices do not also indicate the list of the activities provided by the department, or justify all these activities fall within the ambit of taxable services for the purposes of the Finance Act, 1994 or indicate specifically the separate tax liabilities demanded on each such individual taxable service.

5.14 Viewed in this light, we find that the respondents herein have been asked to show cause to defend the indefensible. When the show cause notice itself is bereft of clarity and does not convey the exact nature of the alleged act or omission or any other infraction that has resulted in differential tax liability, the assessees will then find themselves helpless and unable to see any light of the end of the dispute tunnel.

5.15 Such short comings and deficiencies in the show cause notices are uncurable defects which will inevitably cast a shadow on the proceedings that have emanated from it.

5.16 In the result, the demands of tax that may have been resultant of these proceedings will fail, ab initio.”

This Bench has also relied upon various judicial pronouncements to arrive at the above conclusion.

13.4 We find that the factual matrices of the present appeal and the case of A.M. Manickam (supra) are similar and hence, we are unable to take an inconsistent stand different from the one which was already taken by a co-ordinate Bench.

14. Having regard to the above discussions and agreeing with the conclusion drawn by the co-ordinate Bench, we are of the view that the demand in the impugned order cannot sustain, for which reason the same is set aside.

15. Resultantly, the appeal is allowed with consequential benefits, if any, as per law.

(Order pronounced in the open court on 30.10.2023)