Agrawal Builders and Colonizers Vs Commissioner of Central Goods (CESTAT Delhi)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Delhi has set aside a service tax demand of over Rs. 32 lakh against Agrawal Builders and Colonizers, ruling that a demand cannot be sustained if it is based solely on income declared during an income tax survey. The tribunal found that the Department failed to provide any corroborating evidence to prove that the declared income was generated from taxable services.
The case, which involved two related firms, arose from an audit in 2011-12 where an amount of Rs. 1.25 crore was noted in the profit and loss account of one of the firms. This led to an investigation where statements were recorded from the firm’s partner and senior manager. Based on their admission that the amount was from “construction services,” a show-cause notice was issued demanding service tax. The adjudicating authority confirmed the demand with partial relief, and the Commissioner (Appeals) upheld this decision, prompting the firms to appeal to CESTAT.
The appellants argued that the demand was invalid as it was solely based on a statement made during an income tax survey without any independent evidence linking the income to taxable services. The tribunal agreed with the appellants, citing several judicial precedents that have established this principle. A key precedent was the tribunal’s own decision in Commissioner of Central Goods, Service Tax and Central Excise, Jaipur vs. M/s Lotus Cons Build Technocrate Private Limited, which covered the same issue. The tribunal also drew support from the Supreme Court case K.T.M.S. Mohd. & Others Vs Union of India, which held that tax authorities from one department must conduct an independent inquiry and cannot simply incorporate demands from another. The Supreme Court emphasized that excise laws and income tax laws operate in different fields and that a demand under one cannot be automatically transposed to the other without independent verification.
