2022 (8) TMI 928 - AT - Service Tax

Levy of service tax - Works contract services - demand on the basis of 26 AS statements - whether the show cause notice is issued in violation of the instruction issued by the Board in Circular 1053/02/2017-CX dated 10.03.2017? - mandating of pre show cause notice consultation, for show cause notice involving duty demand of Rs. 50 Lakhs and above - benefit of N/N. 25/2012-ST dated 20.06.2012 - HELD THAT - As the department is alleging that the appellants have evaded payment of service tax, it is incumbent upon the department to prove the same with reliable evidence. It is found from the impugned proceedings that the details of payment received by the appellant were gleaned from the 26 AS statements and other document, like ledger, profit and loss account, balance sheet etc. Thereafter, the appellant was asked to submit the necessary details like work orders, invoices etc. No other investigations to prove that the appellants have rendered taxable service and received remuneration for the same, were conducted. The Department has not even bothered to collect necessary documents from the respective government authorities at whose behest, the appellant is alleged to have under taken the works orders. The nature of such works alleged to have been under taken by the appellants, the taxability thereof under Finance Act, 1994 and exemption if any available was not discussed at all in the impugned order. The Department has not discharged its onus to prove that the appellant is liable to pay service tax. It is settled principle of law that unless and until the clear analysis of the activity done by the assessee is carried out, demand of service tax cannot be confirmed. It has been held in various cases that non adherence to the instructions issued regarding pre-show cause consultation vitiate the proceedings and further reason the impugned show cause notices and order are liable to be set aside - reliance can be placed in the case of AMADEUS INDIA PVT. LTD. VERSUS PRINCIPAL COMMISSIONER, CENTRAL EXCISE, SERVICE TAX AND CENTRAL TAX COMMISSIONERATE 2019 (5) TMI 669 - DELHI HIGH COURT where it was held that In the present case, the Court is satisfied that it was necessary in terms of para 5.0 of the Master Circular for the Respondent to have engaged with the Petitioner in a pre SCN consultation, particularly, since in the considered view of the Court neither of the exceptions specified in para 5.0 were attracted in the present case. Thus, it is found that the show cause notice was issued in violation of instruction issued by CBIC as observed by the various High Courts the instructions are mandatory in the instant case also the instruction were not complied with. The Departmental instructions are binding on the departmental officers. Therefore, any action taken in violation of the instructions is to be treated as nonest. The impugned show cause notice and the order do not survive - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the department was right in demanding service tax from the appellants based on 26 AS statements.
2. Whether the impugned show cause notice was issued in violation of the instructions issued by the Board.

Issue-wise Detailed Analysis:

1. Demand of Service Tax Based on 26 AS Statements:

The appellant was alleged to have provided taxable services under the category of "Works Contract Services" and received an amount of Rs.44,40,35,710/- during the period 2013-14 to 2017-18 without paying applicable service tax. The department relied on 26 AS statements and other documents like ledger, profit and loss account, and balance sheet to confirm the service tax demand of Rs.6,39,09,190/- along with interest and penalty.

The appellant contended that the services provided to various government departments were exempt under entry no.13 (a)/12/12A/14 of exemption notification no.25/2012-S.T. dated 20.06.2012. The appellant argued that the works executed were for the general public and thus exempt from service tax. The department, however, maintained that the appellant failed to submit necessary invoices and bills to correlate the payments received with the nature of work executed, thereby denying the benefit of the exemption notification.

The tribunal found that the department did not conduct a thorough investigation to prove that the appellant rendered taxable services. The department relied solely on 26 AS statements without corroborating evidence from the respective government authorities. The tribunal emphasized that the department must prove the tax liability with reliable evidence and a clear analysis of the activities performed by the assessee. The tribunal cited several precedents, including the case of Calvin Wooding Consulting Ltd. and Lord Krishna Real Infra Pvt. Ltd., to support the view that demands based solely on 26 AS statements without examining the books of account are not sustainable.

2. Violation of Instructions Issued by the Board:

The appellant argued that the show cause notice was issued in violation of the Board's Circular 1053/02/2017-CX dated 10.03.2017, which mandates pre-show cause notice consultation for demands above Rs. 50 Lakhs. The tribunal noted that the CBIC instructions are binding on departmental officers, and non-adherence to these instructions vitiates the proceedings.

The tribunal referred to several judicial precedents, including the cases of Hitachi Power Europe GMBH and Amadeus India Pvt. Ltd., where courts held that non-compliance with pre-show cause notice consultation requirements renders the show cause notice and subsequent orders invalid. The tribunal concluded that the department's failure to adhere to the mandatory pre-show cause notice consultation process invalidated the show cause notice and the impugned order.

Conclusion:

The tribunal held that the department did not discharge its onus to prove the appellant's liability to pay service tax. The reliance on 26 AS statements without corroborating evidence and the failure to conduct pre-show cause notice consultation rendered the demand and the impugned order legally unsustainable. Consequently, the appeal was allowed with consequential relief as per law.