Case Law Details
Goyal and Co Construction Pvt Ltd Vs C.S.T. Service Tax (CESTAT Ahmedabad)
Facts- The appellant is engaged in providing Construction of Residential Complex & Construction of Commercial Complex Service and Real Estate Service. On the basis of information, an enquiry was initiated. Accordingly, revenue directed the appellant to produce documents/ details and information related to the financial statements and documents regarding disclose of income before the income tax authority under the Income Tax Disclosure Scheme (IDS) 2016. The Revenue approached the Deputy Director (Cost) to work out the gross receipts in respect of the cash amount of Rs. 32.50 Crores deposited in the bank/declared under IDS. The Deputy Director (Cost) after considering the various financial aspect, furnished report dated 22.10.2019 wherein the gross receipts/ revenue was worked out and estimated as Rs. 86,87,78,400/- The said investigation was culminated into show cause notice where the amount of Rs. 32,50,10,000/-considered as profit and gross receipts worked out at Rs. 86,87,78,400/- in respect of the said profit.
Demand of service tax of Rs. 3,90,95,028/- along with interest under Section 75 and penalty under Section 77 and 78 of the Finance Act, 1994 was proposed on gross receipt considered as taxable value towards rendering taxable service. The said notice was adjudicated by the Principal Commissioner, Ahmedabad vide impugned order. He confirmed the impugned demand along with interest and penalty and in addition, Penalty of Rs. 1 Lakh was also imposed on Shri Mukesh R Agarwal, Director of Appellant Company.
Conclusion- The activity of land sale is exempted from payment of service tax. We also observed that Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, where the entire consideration is received after issuance of certificate of completion by a competent authority also exempted from the service tax. In the present matter Appellant also produced the details of payment received after obtaining Business use (BU) i.e. sales of flats, shop etc. after receipt of the completion certificate. Therefore, it cannot be said that the income declared by the Appellant under IDS Scheme is attributable to the taxable service provided by them to their clients. In this case, evidence gathered by the Department is not sufficient to establish even the preponderance of probability. Therefore, the demand on the ground that the income declared under IDS scheme is earned from the taxable service is not sustainable.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The present appeals have been filed by Appellants against the Order-in-Original No. AHM-EXCUS-001-COM-003-21-22 dated 17.05.2021.
1.1 Briefly stated the facts of the case are that the appellant are engaged in providing Construction of Residential Complex & Construction of Commercial Complex Service and Real Estate Service. On the basis of information that assessee has sold many properties in cash after the demonetization of old currency note and deposited the said cash in the bank account an enquiry was initiated. Revenue directed the appellant to produce documents/ details and information related to the financial statements and documents regarding disclose of income before the income tax authority under the Income Tax Disclosure Scheme (IDS) 2016. The Revenue approached the Deputy Director (Cost) to work out the gross receipts /revenue in respect of the cash amount of Rs. 32.50 Crores deposited in the bank/declared under IDS. The Deputy Director (Cost) after considering the various financial aspect, furnished report dated 22.10.2019 wherein the gross receipts/ revenue was worked out and estimated as Rs. 86,87,78,400/- The said investigation was culminated into show cause notice where the amount of Rs. 32,50,10,000/-considered as profit and gross receipts worked out at Rs. 86,87,78,400/- in respect of the said profit. Demand of service tax of Rs. 3,90,95,028/- along with interest under Section 75 and penalty under Section 77 and 78 of the Finance Act, 1994 was proposed on gross receipt considered as taxable value towards rendering taxable service.The said notice was adjudicated by the Principal Commissioner, Ahmedabad vide impugned order. He confirmed the impugned demand along with interest and penalty and in addition, Penalty of Rs. 1 Lakh was also imposed on Shri Mukesh R Agarwal, Director of Appellant Company. Aggrieved by the impugned order the present Appeals have been filed.
02. Shri Hardik Modh, Learned Counsel appearing on behalf of the appellant submits that Shri Girish Patel retracted his statement vide affidavit dated 06.10.2020 wherein he clarified that he was forced to mention that the said cash amount was generated out of construction activity. Even Shri Mukesh Agarwal, Director vide letter dated 24.10.2019 drew attention of the authority that he agreed with the statement of Shri Girish Patel except where he mentioned that the income disclose in IDS pertained to construction income. Since Shri Girish Patel and Shri Mukesh Agarwal specifically denied that the income was not generated out of taxable activity, burden lies upon the revenue to show with corroborative evidences that said amount was generated out of taxable activity. The Commissioner erred in not considering that the show cause notice has not mentioned aspect as (i) who is the service provider (ii) who is the service receiver (iii) Nature of transactions (iv) who paid the consideration (v) point of taxation (vi) value of alleged service. He contended that income declared under “IDS” does not mean that the said amount was generated from taxable service. Section 192 of the Finance Act, 2016 provides that the declaration made before the authority cannot be considered as evidence even under the Income tax Act. The Central Board of Direct Tax vide Circular No. 27/2016 clarified that declaration made under the income tax would not be disclosed to any authority including Enforcement Agency. In the following decision Hon‟ble Tribunal taken consistent view that income declared before the Income Tax Authority would not be considered as an evidence unless the department proves that said amount has been received from taxable service.
- Kipps Education Centre Vs. Commissioner of Central Excise, 2009 (13) STR 422 (Tri. Del)
- Commissioner of Central Excise Vs. Ramesh Studio & Color Lab- 2020 (20) STR 817 (T)
- Commissioner of Central Excise Vs. Mayfair Resorts 2011(21)STR 589 (T)
- Chetak Marmo Pvt. Ltd. Vs. Commissioner of Central Excise & S.T. – 2015(325)ELT (150)
- Godwari Shperocast Ltd Vs CCE- 2018 (5) TMI 1349
2.1 He submits that the entire demand has been confirmed on the basis of declaration filed by the Appellant with the Income Tax Department in terms of Section 183 of the Finance Act, 2016 which provides an opportunity to any assessee to disclose the undisclosed income which was chargeable to tax and the same was not declared in the Income Tax Returns filed with the Income Tax Department. The meaning of “income” has been defined under Section 2 (24) of the Income Tax Act, 1961. The definition of income is very wide, and it covers all types of income. Therefore, the income declared by the Appellant under the IDS scheme does not mean that the Appellant earned the amount from taxable service which is chargeable to service tax in terms of Finance Act, 1994. The revenue failed to appreciate the definition of “Service” provides under Section 65B(45) of the Act.
2.2 He also submits that merely amount shown in the financial statements without adducing any evidence, cannot be considered as taxable service. He placed reliance on the following decisions:-
- M/s MPA Marketing Pvt. Ltd. Vs. Commissioner of Central Excise – 2020(1) TMI 370,
- Go Bindas Entertainment Pvt. Ltd. Vs. CST -2019 (27) G.S.T.L. 397 (Tri.),
- Vijay Packaging Systems Ltd. Vs CCE – 2018 (262) ELT 832,
- Beekaylon Synthetics Vs CCE – 2003 (158) ELT 307.
2.3 He further argued that respondent erred in relying the letter dated 22.10.2019 issued by the Deputy Director (Cost) for computing gross receipts considering gross profit ratio of past 5 financial years. Burden lies upon Revenue to show that particular amount was generated out of taxable service. The respondent ought not to have computed gross receipts based on “Gross Profit Ratio”.
2.4 He also argued that department has calculated the demand on the basis of alleged amount declared under IDS. The amount declared under IDS is neither the amount of taxable services nor the amount of income/ profit earned by the Appellant and, therefore, the computation of demand arrived by the revenue department is totally baseless and devoid of merits.
2.5 Without prejudice to above submission, he also submits that the Appellant received amount of Rs. 7,43,85,724/- during the disputed period i.e. from 1st October 2016 to 31st December, 2016 and out of the said amount Rs. 6,40,91,143/- was received for the booking done prior to BU whereas Rs. 1,02,94,581/- amount was received post the receipts of BU permission for the respective scheme. The said receipt tantamount to exempt supply under the Service tax law. Thus, the taxable gross receipts for the disputed period was only Rs. 6,40,91,143/- and, therefore, by no stretch of imagination, there can be cash receipts to the tune of Rs. 32 Crores for the said period and service tax cannot be demanded on such amount. The imaginative figure of Rs.32 crores is without any corroborative supporting and the assumption revenue department is very high pitch and therefore, the said figure is required to be discarded. During the disputed period, the appellant has received the amount for the services provided pre and post BU permission and the taxable service provided after BU permission are exempted from the applicability of Service tax. In such scenario, the demand for the amount received after BU permission is required to be dropped at the threshold. He submitted the statement along with ledger showing the amount collected pre and post BU Permission.
2.6 He further submits that in the present matter impugned show cause notice was issued without authority of law since it had been issued without conducting pre-consultation as mandated by the Circular No. 1053/02/2017-CX dated 10.03.2017. He placed reliance on the following case laws:-
- M/s Hitachi Power Europe GMBH Vs. CBI &C. 2019(27) GSTL 12 (Mad.)
- Amadeus India Pvt. Ltd. Vs Pr. Commissioner of C. Ex, S.T. – 2019 (25) G.S.T.l. 486 (Del)
- Dharmashi Agencies Vs Union of India -SCA 8255/2019
- Tube Investment of India Vs Union of India 2018 (16) GSTL 376 (Mad.)
2.7 Without prejudice he also submits that they should be extended the benefit of cum-tax -value, for which he relies upon the decision of
- Sri Chakra Tyres Vs CCE (Madras) 1999 (108) ELT 361,
- Rohit Detective & Security Agency Vs CCE – 2009 (14) STR 689 (T)
- Gem Star Enterprises Pvt Ltd. Vs CCE – 2007 (7) STR 342.
03. On other hand Shri T.G. Rathod, the learned Departmental Representative, defended the impugned order by reiterating the finding of Commissioner. He submits that the circular relied upon by the Appellant itself clearly indicate that Preventive and Offence related to SCN have been kept out of purview of pre-show cause notice consultation. The Circular No. 25/2016 dated 30.06.2016 and 27/2016 dated 14.07.2016 issued by the CBDT clarified that declared income will not be shared with any other law enforcement agency. The said circulars issued with regards to IDS and all that circular says it that the Income tax department will not share the details to declaration with any other law enforcement agency. This merely restricted the Income tax department to share the details but in no way restricts other law making agencies to conduct inquires in respect of the information gathered by them on their own records. It is fact on records that assessee had not accounted amount of Rs. 32.50 Crore in their books of account and subsequently declared as unaccounted income under IDS. The said income declared in IDS is nothing but the profit /gain of the business during the providing the taxable service.
04. We have considered the submissions made by both the sides and perused the records.
4.1 We find that from the arguments advanced by both the sides, the issue to be decided in this case is whether the appellant are liable to pay Service tax under Construction service on the cash amount deposited in Bank and income disclosed under Income Disclosure Scheme (IDS), 2016.
4.2 The case of the Revenue is that appellant have deposited the cash in bank and disclosed the income under IDS scheme. The said disclosed income earned on the providing the taxable construction service, however no iota of evidence produced on record by the revenue to prove that such disclosed income under the IDS scheme is on account of taxable service, except the statement of Shri Girish Patel, Head of Accountant of the Appellant Company, the said statement was also retracted by Shri Girish Patel by way of Affidavit. We find that the Director of the Appellant company also informed the revenue by way of letter before the issuance of show cause notice that they did not agree with the statement of Shri Girish Patel whereby he stated that the amount disclosed in scheme was received from construction service. Therefore, the said statement has no evidentiary value and moreover, it is on record that Appellant not only engaged in providing the construction service but also in business of land sale, sale of flat, sale of office and shop, sale of development rights etc. and they also earn income from other income. The revenue has not come forward with the evidence that the Appellant have generated the disputed income on account of providing taxable service. Therefore in absence of concrete evidence on record, the service tax cannot be demanded on the basis of assumption and presumption. The department has not been able to support their allegation with evidence that the said disclosed income under IDS scheme were collected for providing services of construction Service. There is merit in the contention of the appellant that it is settled principal of law that the burden of proving a fact is on the person who alleges the same but the department did not produce any evidence on record to prove that the disclosed Income under Income Tax Disclosure Scheme, 2016 pertained to construction activity and that the charges of income was generated out of taxable activity without any evidence was not sustainable in the absence of cogent, convincing and tangible evidences. Income tax and service tax are two different/ separate and independent special Act and their provisions operating in two different fields. Therefore by relying the income disclosed in income tax provision, without undertaking any independent investigation under the Service Tax Act, demand of service tax cannot be made.
4.3 We observed that the Hon‟ble Madras High Court in the matter of Commr. Of Income tax, Trichy vs. Amman Steel & Allied Industries 2015(330) ELT 130 (Mad.) held that
12. This Court is of the considered view that the finding of the CIT (Appeals) as well as the Tribunal that merely on the basis of the show cause notice issued by the Central Excise Department, determination of tax under the Income-tax Act cannot be made, as it is not incumbent on the income-tax authorities to take into consideration only the materials made available by the Central Excise Department, but the authorities are bound to make an independent enquiry, before passing any order, which enquiry has not happened in the present case. There is no provision to simply incorporate the demand made in the show cause notice issued under the Central Excise Laws for the purpose of computation of tax under the Income Tax Laws. The provisions under the two laws, viz., the Central Excise Act and the Income-tax Act, operate in two different fields. Without there being an independent enquiry by the concerned taxing authorities the demand made under the provisions of Central Excise Act cannot be incorporated as such, more so when the notice of demand has been modified by the adjudicating authority. The above view of this Court is further fortified by the decision of the Supreme Court in K.T.M.S. Mohammed &Ors. v. Union of India (AIR 1992 SC 1831), wherein the Supreme Court while considering the scope of the provisions of Foreign Exchange Regulation Act and the Income Tax Act, held as under :-
“24. Needless to emphasise that the Foreign Exchange Regulation Act and the Income-tax Act are two separate and independent special Acts operating in two different fields.
25. This Court in Rao Bahadur RavuluSubba Rao v. CIT [1956] 30 ITR 163; AIR 1956 SC 604; [1956] SCR 577 (headnote of 30 ITR 163 ) has pointed out :
“The Indian Income-tax Act is a self-contained code exhaustive of the matters dealt with therein, and its provisions show an intention to depart from the common rule, qui facit per aliumfacit per se.”
26. Further, in PannalalBinjraj v. Union of India [1957] 31 ITR 565; AIR 1957 SC 397; [1957] SCR 233, it has been observed thus (at pages 583, 584 of 31 ITR) :
“It has to be remembered that the purpose of the Act is to levy income-tax, assess and collect the same. The preamble of the Act does not say so in terms, it being an Act to consolidate and amend the law relating to income-tax and super tax but that is the purpose of the Act, as disclosed in the preamble to the first Indian Income-tax Act of 1886 (Act II of 1886). It follows, therefore, that all the provisions contained in the Act have been designed with the object of achieving that purpose.”
Coming to the Foreign Exchange Regulation Act, it is a special law which prescribes a special procedure for investigation of breaches of foreign exchange regulations. Vide Shanti Prasad Jain v. Director of Enforcement [1963] 33 Comp Cas 231; [1963] 2 SCR 297. The proceedings under the Foreign Exchange Regulation Act are quasi-criminal in character. It is pellucid that the ambit, scope and intendment of these two Acts are entirely different and dissimilar.”
The above decision of the Supreme Court is squarely applicable to the facts of the present case and, therefore, we have no hesitation to hold that the method adopted by the CIT (Appeals) with regard to taxation under the Income-tax Act, as affirmed by the Tribunal, is the correct method of determining the income based on the unaccounted turnover.
4.4 We also find that the said issue has been considered by the Tribunal in various decisions. In the case of M/s. Commissioner of Central Excise, Ludhiana Vs Mayfair Resorts 2011 (21) S.T.R. 589 (Tri. – Del.) (supra), the Tribunal had held as under:-
”4. Heard both sides and have gone through the evidence on record. From reply given to the Income Tax authority on 21-3-05 by the respondent, the matter is clear to be related to the financial year ending 31-3-05. The balance sheet no where discloses that the amount of Rs. 35 lakhs disclosed to Income Tax authority is attributable to consideration in relation to Mandap Keeper. When no evidence is produced by Revenue to place their stand, we consider it proper to dispose the appeal as well as stay application dismissing Revenue appeal.”
The above decision also upheld by the Hon‟ble Punjab & Haryana High Court reported as Commissioner of Central Excise Vs Mayfair Resorts – 2011 (22) STR 263.
4.5 The CESTAT in the case of Kipps Education Centre, Bathinda V. C.C.E., Chandigarh – 2009 (13) S.T.R. 422 (Tri.-Del.) referred by the appellant, has held that the income voluntarily disclosed before the income tax authorities could not be added to the taxable value unless there is evidence to prove the same.
4.6 The Tribunal in the case of C.C.E., Ludhiana V. M/s. Ramesh Studio & Colour Lab -2020(20)STR 817(T) dismissed the appeal of the department on the issue of demand of Service Tax on the income surrendered to the income tax department and held as under:-
5. Heard On perusal of the record, a query was made to the learned DR whether this allegation that the amount disclosed before the Income-tax authorities is corroborated by any evidence or not. The learned DR fairly agreed that the department has not done any exercise to support this allegation and there is no corroborative evidence or document on record to show-cause notice that the amount disclosed by the respondent before the Income-tax authority is an amount of taxable service. He fairly agreed that the appeal and stay application both can be disposed of at the same time.
6. In the case of Kipps Education Centre, Bathinda v. CCE, Chandigarh reported in 2009 (13) S.T.R. 422 (Tri. – Del.), it was held by this Tribunal that income voluntarily disclosed before the income tax authorities could not be added to the taxable value unless there is evidence to prove the same. In this case also, there is no evidence to show that the income disclosed is the part of taxable service. Hence I do not find any infirmity in the impugned order. Accordingly, stay application as well as the appeal are rejected.
Similar view has been taken by the Tribunal in the case of C.C.E., Chandigarh v. Bindra Tent Service – 2010 (17) S.T.R. 470 (Tri.-Del.)and held that
“5. After hearing both the sides and on perusal of the records, it is seen that the respondents surrendered the amount to the Income Tax Department during the survey on 6-1-2006. It was explained that whenever surrender of amount was made under the Income-tax Act, it is added to the income in the assessment year 2005-06 (relevant to the previous year) for the purpose of charging income-tax. The amount surrendered represents the established accumulated effect of undisclosed incomes for the earlier financial years since 1999-2000. The Original Authority observed that the respondents failed to produce any evidence regarding income of the said amount shown to the Income Tax Department that income was from other sources. In this context, the findings of the Commissioner (Appeals) are reproduced below :-
“8. The main issue in these appeals is whether the income surrendered by the appellants to the income-tax department can be taken as the value of taxable service for charging service tax. It is observed that the Hon’ble CESTAT in the final Order No. 1147-2008-SM (BR) dated 28-3-2008 passed in the case of Kipps Education Centre, Bhatinda v. CCE, Chandigarh has held that income voluntarily disclosed before the income-tax authorities which was suppressed by the party could not be added to the taxable value unless there is evidence to prove the same.
9. Service Tax was introduced on Pandal and Shamiana Service w.e.f. 109-2004. In such a situation, it is for department to establish that the amount surrendered by the appellants to the income-tax authorities related to the taxable service provided during 10-9-2004 to 31-3-2005. This is more significant when both the appellants have submitted before the department that during the same period that had received amounts of Rs. 82,000/- and Rs. 96,525/- on account of supply of furniture on rent and on these amounts they had deposited Service Tax along with interest. The allegation of the revenue that since the appellants had no other source of income except the service provided by them is an assumption and not a legally sustainable evidence. It has to be supported by evidence, which is not forthcoming in this case. The burden lies on the department, which is alleging evasion of Service Tax and the same has not been discharged.”
6. I find that the entire amount of tax is based on the amount surrendered by the respondent to the Income Tax Department. No inquiry in the nature of recording of statement and otherwise was done. It is seen that the respondents had given an explanation that the amount was accumulated income of the earlier years since 1999. No inquiry was conducted in this regard. It is well settled that the demand of tax cannot be sustained on the basis of mere presumption.”
4.7 In the case of Ravi Foods Pvt. Ltd. v. C.C.E., Hyderabad – 2011 (266) E.L.T. 399 (Tri.-Bang.), it was held that admission by assessee to Income Tax department as regards undisclosed/suppressed sales turnover cannot be held to be on account of clandestine removal of their final products, in the absence of any other corroborative evidence.
4.8 In the case of Deltax Enterprises Vs. Commissioner of Central Excise -Delhi 2018 (10) G.S.T.L. 392 (Tri. – Del.) the tribunal held that:-
”4. Admittedly, the appellant did not maintain detailed accounts for all the transactions undertaken by them. They have availed the provision of Section 44AD of Income-tax Act for filing returns. This formed basis for service tax demand as the income shown is much higher than the declared consideration for taxable service. We note that the appellants categorically asserted that they did not provide any other service other than those, the details of which have been submitted to the lower authorities. The Revenue also could not point out excess receipt on these contracts or the taxable service which gave them the consideration escaping the tax.In the absence of specific allegation with reference to the nature of service or the service recipient it is not tenable to hold an income of the appellant even if it is admitted to be an actual income, as consideration for a taxable service. The minimum requirement to tax an assessee for service tax is to identify the nature of their taxable service along with the recipient of such service. In the present case all identified contracts for the identified service recipients have been examined and concluded by the lower authority. No service tax liability can be fastened on unidentified service for unidentified service recipient. There is no provision for such summary assumption even under Section 72 of the Finance Act, 1994. Admittedly, the said section provides for arriving at the taxable value to be based on the Assessing Officer’s best judgment in case where the appellant fails to furnish return under Section 70 or fails to assess the tax in accordance with Finance Act, 1994. In the present case the appellants did file returns under Section 70 and also made available all the contracts on which service tax liability will arise for them. As such, we find application of Section 72 cannot be extended based solely on the income tax return without identifying the speci-fic taxable service or service recipient.”
4.9 From the discussions made above and following the decisions cited supra, we hold that the service tax demand cannot sustain merely on the basis of income declared under IDS and requires to be set aside, which we hereby do so.
4.10 Without prejudice, we also find that the meaning of „income” has been defined under Section 2(24) of the Income tax Act, 1961 is very wide and it cover all types of Income. Income can also be earned from taxable, nontaxable, exempted activity. The provisions of Income-tax Act and IDS scheme are having specific scope, purpose and intent, as decided by the legislature. Further, under the Income tax, income declared by the assessee cannot be assumed that the said income earned from taxable service only, whereas under the income tax “income” have wide meaning. In the present matter department’s allegation that the income disclosed under the IDS scheme is attributable to construction services provided to their clients/ customers is based on the assumption that Appellant have no other activity except construction service. But it is seen that apart from the construction activity, Appellant also earned income from the business of land sale, sale of flat, sale of office and shop. The activity of land sale is exempted from payment of service tax. We also observed that Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, where the entire consideration is received after issuance of certificate of completion by a competent authority also exempted from the service tax. In the present matter Appellant also produced the details of payment received after obtaining Business use (BU) i.e. sales of flats, shop etc. after receipt of the completion certificate. Therefore it cannot be said that the income declared by the Appellant under IDS Scheme is attributable to the taxable service provided by them to their clients. In this case, evidence gathered by the Department is not sufficient to establish even the preponderance of probability. Therefore, the demand on the ground that the income declared under IDS scheme is earned from the taxable service is not sustainable.
4.11 Since the demand of service tax itself is not sustainable in the present case on merit, we are not going into the other issues of valuation of taxable value, limitation and issue of preconsultation for issue of Show Cause Notice etc., raised by Appellant in appeal memo and during the course of arguments.
14. In result, the impugned order is set aside and the appeals filed by the Appellants are allowed with consequential relief, if any, as per law.
(Pronounced in the open court on 11.04.2022 )
Author Bio
INSTANT (reaction, to share own thoughts)
The report elsewhere bears the headlines: “Service Tax cannot be Levied merely based on Income declared under IDS: CESTAT”
In comparison, on the first blush, the headlines in the two reports are prima facie at variance. Further, the facts and circumstances as narrated, rather confusingly, so also the pleas advanced, in defence. contesting the impugned order and the grounds of the CESTAT Order, are too complicated to be readily understood in better perspective. Granting that and premised so, suggest a deep study of the TEXT, if were inclined to spare and share own viewpoints, on the grounds of the reported Tribunal Order !? 😁
courtesy