2013 (2) TMI 632 - HC - Service Tax

Whether the CESTAT was justified in upholding the service tax demand confirmed by the adjudicating authority with interest and penalty solely on the basis of the statement of the employee of the assessee without considering the specific plea of the assessee that service tax is not leviable based on certain documents produced before the CESTAT. Held that - It is well established in law that it is open to the assessee to demonstrate on the basis of the documentary evidence that the statement recorded is erroneous. - if on remand the CESTAT comes to the conclusion that the service tax is not leviable for the disputed period and consequently interest and penalty is not leviable, then and in that event the assessee shall not claim refund of service tax already collected and paid to the Revenue. - matter remanded back to tribunal.

Summary

Issues involved:
1. Justification of upholding service tax demand based on employee statement.
2. Admissibility of documentary evidence in challenging service tax levy.
3. Setting aside CESTAT order and restoring appeals for fresh decision on merits.
4. Clarity on refund claim if service tax found not leviable.
5. Finality of penalty deletion in one appeal and consideration of interest and penalty in remaining appeals.

Issue 1 - Justification of upholding service tax demand based on employee statement:
The primary issue in the judgment is whether the CESTAT was correct in confirming the service tax demand based solely on the statement of the assessee's employee. The appellant argued that the service tax was not leviable, supported by documents not initially presented to the adjudicating authority but later submitted to the CESTAT. Despite the employee's admission during the statement, the appellant denied liability in the show-cause notice and before the adjudicating authority. The High Court found it crucial for the CESTAT to consider the documentary evidence and allow the assessee to challenge the employee's statement. Consequently, the CESTAT's decision based solely on the employee's statement was deemed unjust, leading to the order being set aside for a fresh decision on merits.

Issue 2 - Admissibility of documentary evidence in challenging service tax levy:
The judgment highlighted the importance of documentary evidence in challenging the levy of service tax. While the employee admitted to the liability during the statement, the appellant consistently denied it and argued against the levy. The appellant submitted relevant documents to the CESTAT to support their claim that the service tax was unjustified for the period in question. The High Court emphasized that the assessee should have the opportunity to demonstrate the inaccuracy of the employee's statement with documentary proof, underscoring the significance of evidence in tax disputes.

Issue 3 - Setting aside CESTAT order and restoring appeals for fresh decision on merits:
In response to the flawed decision-making process by the CESTAT, the High Court ordered the impugned CESTAT order to be set aside and the appeals to be restored for a fresh decision on merits. By quashing the CESTAT's decision to confirm the duty, interest, and penalty without considering the documentary evidence, the High Court aimed to rectify the oversight and allow for a fair assessment based on all relevant factors.

Issue 4 - Clarity on refund claim if service tax found not leviable:
To address the potential scenario where the service tax might be deemed not leviable upon reevaluation, the High Court clarified that the appellant would not seek a refund of the tax already paid to the Revenue. This condition was set to avoid complications in case the levy of interest and penalty was also found to be unjustified based on the fresh decision on merits.

Issue 5 - Finality of penalty deletion in one appeal and consideration of interest and penalty in remaining appeals:
The judgment established that if the CESTAT concludes that the service tax is not leviable for the disputed period and subsequently rules out the applicability of interest and penalty, the appellant would not claim a refund. Additionally, the order confirmed the finality of penalty deletion in one appeal while instructing the Tribunal to reevaluate the interest and penalty in the remaining two appeals without solely relying on the payment of service tax post-initiation of proceedings.

In conclusion, the High Court's comprehensive judgment addressed multiple critical issues related to the justification of service tax demand, the importance of documentary evidence, the need for a fair decision-making process, clarity on refund claims, and the finality of penalty decisions in the context of the appeals before the CESTAT.