The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) set aside the service tax demand by the Commissioner because the Commissioner failed to establish a “reason to believe” that the declaration filed by the appellant was “substantially false,” as mandated under Section 101 of the Finance Act, 2013.
The appellant, Bimal Maganlal Patel, is a service provider involved in construction activities primarily catering to educational institutions and residential housing. During the period 2008-2009 to 2011-2012, the appellant mainly provided construction services for educational institutes and residential houses.
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Service tax liability was computed considering applicable exemptions and exclusions and Abatement of 75% under the categories of “Commercial & Industrial Construction Service” and “Construction of Residential Complex Service.”
In the Voluntary Compliance Encouragement Scheme (VCES) application, the appellant mistakenly declared the service category as “works contract service” instead of availing the proper abatement. The department issued a Show Cause Notice on May 22, 2014 alleging discrepancies in the declared service tax dues. The Commissioner calculated the tax liability under “works contract service” without allowing abatements or exemptions which resulted in a demand of Rs. 13,32,027.
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The department demanded the differential amount of Rs. 10,19,516, along with interest and penalties. The appellant’s application under VCES-2013 was rejected on the basis of alleged misclassification and underreporting of tax dues.
Aggrieved, the appellant appealed before the CESTAT arguing that the misclassification was unintentional and that abatements/exemptions applicable to the construction of educational institutions and residential housing were not considered by the department.
The appellant’s counsel argued that Section 101 of the Finance Act, 2013, requires the Commissioner to have a “reason to believe” that the declaration was “substantially false.” The counsel argued the commissioner failed to establish any valid reasons for such belief.
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The two-member bench comprising Ramesh Nair (Judicial Member) and C. L. Mahar (Technical Member) reviewed the records provided by the appellant supporting the argument that the services were primarily for educational institutions and residential houses, which qualify for abatements/exemptions.
The tribunal observed that the Commissioner failed to establish a valid reason to believe that the declaration was “substantially false” as required by Section 101 of the Finance Act, 2013, and the Commissioner did not sufficiently address or query the appellant’s reconciliation and supporting documents.
So, the tribunal set aside the commissioner’s order. The appellant’s appeal was allowed granting consequential relief.
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