2014 (10) TMI 455 - AT - Service Tax

Manpower Recruitment or Supply Agency Services - demand based on audit of records - demand of service tax on TDS amount as well as difference in ST-3 return and value reflected in books of accounts - Held that - While the department had opportunity to verify whatever information / statements furnished by the appellant, a copy of the verification report should have been provided to the appellant to make their submission/rebuttal. Inasmuch as a copy of the verification report has not been given to the appellant for their comments/rebuttal, there is a violation of principles of natural justice. The adjudication manual of the CBE&C also lays down guidelines to the effect that if a new fact is emerging from the verification/investigation caused by the department, the assessee should be given an opportunity to make a submission/rebuttal on those facts, failing which there would be a procedural irregularity leading to denial of natural justice. Matter remanded back - Decided in favour of assessee.

Issues:
Service tax demand confirmation, penalties imposition, natural justice violation.

Service Tax Demand Confirmation:
The case involved an appeal against an Order-in-Original confirming a service tax demand of Rs. 2,49,80,120/- along with interest and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant, a pharmaceutical company, provided "Manpower Recruitment or Supply Agency's Services" to another company. Discrepancies were found between the taxable services declared in the ST-3 returns and the values in the books of accounts, leading to the demand. The appellant argued that certain debit entries were wrongly made and subsequently reversed, which were not considered by the authorities. They also claimed to have discharged the service tax liability on TDS amounts but were not given an opportunity to rebut the verification report by the Assistant Commissioner of Audit. The Tribunal noted that the verification report was not provided to the appellant for comments/rebuttal, violating principles of natural justice. The matter was remanded back to the adjudicating authority for the appellant to respond to the report and present evidence supporting their claim of correctly discharging the service tax liability.

Penalties Imposition:
Apart from confirming the service tax demand, the Order-in-Original imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The appellant challenged these penalties, arguing procedural irregularities and denial of natural justice due to not receiving the verification report for comments/rebuttal. The Tribunal, considering the violation of principles of natural justice, allowed the appeal by way of remand, directing the adjudicating authority to provide the appellant with the verification report and documents for rebuttal. The appellant was also granted the opportunity to present evidence in support of their claim of correctly discharging the service tax liability. The adjudicating authority was instructed to pass a fresh order after considering the submissions made by the appellant.

Natural Justice Violation:
The central issue in the judgment was the violation of natural justice principles due to the failure to provide the appellant with the verification report for comments/rebuttal. The Tribunal emphasized that the appellant should have been given an opportunity to respond to the verification report as per the guidelines in the adjudication manual of the CBE&C. Denial of this opportunity constituted a procedural irregularity leading to a breach of natural justice. Therefore, the Tribunal ordered a remand, requiring the adjudicating authority to furnish the verification report and related documents to the appellant for rebuttal. The appellant was also granted the liberty to present evidence supporting their position on correctly discharging the service tax liability. The fresh order to be passed by the adjudicating authority would consider all submissions made by the appellant, ensuring a fair and just process in accordance with principles of natural justice.

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