2023 (8) TMI 48 - AT - Service Tax

Demand of Service Tax alongwith interest and penalty - commission income - difference in ST-3 return and 26AS statement - HELD THAT - The show cause notice dated 16.04.2019 states that the same is enclosed with two annexures. Annexure- I is work sheet. The work sheet states the turnover of the respondent for the year 2013-14 as reflected in income tax return and turnover reflected in ST-3 return as nil and the difference between the two turnovers and service tax @ 12.36% on the said difference. Annexure-II is a letter dated 25.10.2018 issued by Superintendent (Data Cell) presuming that the respondent has shorted reported turnover in their ST-3 return to the extent of difference stated in Annexure-I. The entire show cause notice nowhere examines as to on what account the turnover has taken place. The said show cause notice was issued without examining the activity of the respondent and without examining the reason for difference in turnover reported in income tax return and ST-3 return. It was presumed in the show cause notice that the entire turnover reported in income tax return was on account of provision of taxable service and by calculating 12.36% of that turnover, service tax demand was raised. The fundamentals of prosecution such as framing charges on the basis of admissible evidence is absent in issue of show cause notice. The present show cause notice is totally presumptive. Further, the difference in turnover in ST-3 return and income tax return could be on account of non-taxable businesses. So, unless Revenue examines the reasons for the difference, it cannot demand service tax blindly on the basis of difference in the turnover reflected in the two statutory returns. In the case of M/S LORD KRISHNA REAL INFRA PRIVATE LTD. VERSUS COMMISSIONER OF CUSTOMS, C.E. S.T., NOIDA 2019 (2) TMI 1563 - CESTAT ALLAHABAD , it was held that on the basis of form 26AS return filed under Income Tax Act without examining any other records of the appellant, charges of short payment of service tax to the tune of 8 crores were made against the appellant. It was possible for Revenue to know the transactions between other parties appellant from form 26AS. Revenue could have investigated into the nature of such transactions should have established that the said transactions were in respect of provision of said service. Then alone the charges of short payment of Service Tax would have sustained. The present show cause notice is totally presumptive. Therefore, there are no infirmity in the order-in-original to the extent that the demand of service tax of Rs.292,86,63,640/- is dropped by the original authority. Insofar as the confirmation of demand of service tax of Rs.87,676/- and its equal penalty are concerned and interests on the same are concerned, the same are set aside for the reason that the show cause notice is not sustainable - dropping of the demand of service tax of Rs.292,86,63,640/- by the Commissioner upheld, while setting aside the remaining part of the impugned order. Appeal of Revenue dismissed.

Summary

Issues involved:
The issues involved in the present case are the substantial demand of service tax dropped by the Principal Commissioner of Service Tax, Mumbai, the appeal by Revenue against the said order, and the cross appeal filed by the respondent seeking relief in respect of the confirmation of service tax demand amounting to Rs.87,676/-.

Summary:

Issue 1 - Demand of Service Tax:
The Revenue demanded service tax of Rs.292,87,51,316/- from the respondent based on a mismatch between the turnover recorded by the respondent and the value of services reflected in ST-3 returns for the year 2013-14. The original authority dropped the demand to the tune of Rs.292,86,63,640/- after finding that a significant portion of the turnover was exempted from levy of service tax under a specific notification.

Issue 2 - Cross Appeal by Respondent:
The respondent filed a cross appeal against the confirmation of the demand of service tax of Rs.87,676/- on commission received and some written-off income, along with associated penalties. The respondent argued that the show cause notice was issued without proper examination of records and without establishing that the transactions were in respect of taxable services.

Detailed Analysis:

The Revenue contended that the original authority did not verify the records of the parent contractor for whom the respondent worked as a sub-contractor. They requested a remand for de novo adjudication after verification of the contract copies. However, the respondent's counsel argued that all relevant papers were submitted, and the original authority correctly concluded that the turnover was related to works contract for highways and expressways.

Upon reviewing the case records, it was found that the show cause notice was presumptive, lacking examination of the activity and reasons for turnover differences. The notice presumed the entire turnover to be taxable without proper verification. The Tribunal cited previous cases where demands based solely on turnover differences were deemed unsustainable without detailed examination.

Consequently, the Tribunal held that the show cause notice was presumptive and unsustainable. While upholding the dropping of the major demand by the original authority, the confirmation of the smaller demand and associated penalties were set aside due to the flawed nature of the show cause notice.

In conclusion, the appeal filed by Revenue was dismissed, and the cross appeal by the respondent was allowed based on the above analysis.

(Order pronounced in the open court on 28.07.2023)