2025 (3) TMI 571 - AT - Service Tax

Exemption from payment of service tax - Government Construction Contracts entered into after 01.03.2015 - demand for service tax based on the income reflected in Form 26AS and Income Tax Returns - computation of service tax liability was correctly assessed for the period in question or not - extended period of limitation. Exemption from payment of service tax - Government Construction Contracts entered into after 01.03.2015 - Whether in view of Notification No. 06/2015 dated 01.03.2015 the exemption was withdrawn with prospective effect hence benefit of Entry 12 in terms of Notification No.25/2012-ST dated 20.06.2012 cannot be extended to the appellant? - HELD THAT - The Ld. adjudicating authority observed that the appellant has availed the benefit of exemption available to construction services rendered to Government under Notification No. 06/2015 dated 01.03.2015 however the said exemption was withdrawn with prospective effect and hence the benefit of Entry 12 in terms of Notification No.25/2012-ST dated 20.06.2012 cannot be extended to the appellant. However it is found that the appellant has received the consideration for the contracts entered prior to 15.03.2015 also during the period under dispute but the adjudicating authority has not allowed the exemption available to them and considered the entire amount as taxable value received during the period under dispute which is legally not sustainable. Whether the demand for service tax based on the income reflected in Form 26AS and Income Tax Returns is legally sustainable without corroborative evidence linking the income to taxable services? - HELD THAT - The Ld. adjudicating authority has construed all the receipts during the period as amount received in connection with taxable supplies during the said period. However it is observed that the Learned Adjudicating Authority failed to appreciate that such amounts reflect merely the payment received during the period. It cannot be construed as outward supplies since such amount could have been received in lieu of contracts which were entered into prior to 01.03.2015 against which payments were released as and when portion of the works under contract was being completed. The Department cannot straightaway take in account the amount shown in the ITR for the purpose of demanding Service Tax without verifying the nature of such amount received as to arrive at a conclusion whether service tax is payable on the said amount or not. In support of this view reliance placed upon the decision of this Tribunal in the case of M/s Piyush Sharma vs. Commissioner of CGST CX Patna I 2023 (10) TMI 736 - CESTAT KOLKATA wherein it has been held Admittedly no investigation has been conducted in this case at the end of the Appellant by the Adjudicating Authority. Being the appellant a registered service provider and filing their service tax returns in that circumstance the demand cannot be raised on the basis of Form 26AS obtained from the Income Tax Department. Whether the computation of service tax liability was correctly assessed for the period in question? - HELD THAT - For the purpose of computation of their service tax liability for the financial year 2017-18 (till June 2017) the Learned Adjudicating Authority has taken the entire amount received by the Appellant during the period April 2017 to March 2018 as per 26AS as the taxable value whereas service tax was leviable only for the 1st quarter of the FY 2017-18 i.e. from April 2017 to June 2017. Thus the submission of the appellant is agreed upon that the computation of taxable value for the Financial Year 2017-18 is erroneous. Whether the invocation of the extended period of limitation for demanding service tax is justified? - HELD THAT - The Show Cause Notice was issued on the basis of materials available on record ie from the returns furnished by the appellant and not on account of any discovery of new facts by the department. Hence the entire demand confirmed by invoking extended period of limitation is not sustainable. Conclusion - i) The appellant has received the consideration for the contracts entered prior to 15.03.2015 the benefit of exemption cannot be denied. ii) The demands cannot be confirmed solely on data from Income Tax Returns/26AS without establishing that the amounts relate to taxable services. iii) There are errors in the computation of service tax liability as the adjudicating authority considered the entire amount received during April 2017 to March 2018 as taxable whereas service tax was applicable only for April to June 2017. iv) The entire demand confirmed by invoking extended period of limitation is not sustainable. Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the appellant, M/s. Majumdar Furniture, is entitled to exemption from service tax for government construction contracts executed between 2016-17 to 2017-18, given the changes in exemption notifications.

2. Whether the demand for service tax based on the income reflected in Form 26AS and Income Tax Returns is legally sustainable without corroborative evidence linking the income to taxable services.

3. Whether the computation of service tax liability was correctly assessed for the period in question.

4. Whether the invocation of the extended period of limitation for demanding service tax is justified.

ISSUE-WISE DETAILED ANALYSIS

1. Exemption from Service Tax

The appellant argued that their services to the Military Engineering Services (MES) were exempt under Entry No. 12(a) of Notification No. 25/2012-ST. However, this exemption was withdrawn by Notification No. 6/2015-ST, effective from 01.03.2015. The exemption was partially restored with conditions by Notification No. 9/2016-ST, inserting Entry No. 12A, which required contracts to be entered into before 01.03.2015.

The Tribunal noted that the appellant entered into contracts after 01.03.2015, and thus, the exemption under Entry 12 was not applicable. However, they found that the adjudicating authority failed to allow exemptions for contracts entered before this date, which is not legally sustainable.

2. Basis of Service Tax Demand

The demand was based on discrepancies between values in Form 26AS and the appellant's service tax returns. The Tribunal emphasized that demands cannot be confirmed solely on data from Income Tax Returns/26AS without establishing that the amounts relate to taxable services. They cited precedents, including M/s Tushar Transport and M/s Piyush Sharma, affirming that corroborative evidence is necessary to substantiate such demands.

3. Computation of Service Tax Liability

The Tribunal found errors in the computation of service tax liability, as the adjudicating authority considered the entire amount received during April 2017 to March 2018 as taxable, whereas service tax was applicable only for April to June 2017. Furthermore, the service tax rate was incorrectly applied to the entire contract value instead of 40% for original works, leading to an inflated demand.

4. Extended Period of Limitation

The Tribunal held that the extended period of limitation under Section 11A of the Act requires a finding of willful misstatement or suppression by the assessee. In this case, the Show Cause Notice was based on information from the appellant's returns, not new discoveries by the department. Citing judgments from the Calcutta High Court, the Tribunal concluded that invoking the extended period was unjustified, rendering the demand unsustainable.

SIGNIFICANT HOLDINGS

The Tribunal set aside the service tax demands, interest, and penalties on the grounds of limitation, emphasizing the need for corroborative evidence when relying on Income Tax data for service tax demands. They reiterated that exemptions should be correctly applied based on contract dates and that errors in computation and rate application must be rectified.

The Tribunal's decision underscores the principle that tax demands must be based on clear, corroborated evidence and within the statutory limitation period, ensuring fairness in tax administration.