Company Admitted Short-Paid Service Tax Liability During Audit: CESTAT Rejects CA’s Certificate, Cites it as ‘No Value Against Audit Report’ [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax liability under the Reverse Charge Mechanism which was admitted during an audit cannot be challenged based on a Chartered Accountant’s certificate. The tribunal held such a certificate as having “no value against the audit report.”

Cords Cable Industries Ltd., the appellant is engaged in the manufacture of electric wires and cables and also avails/provides services such as manpower recruitment/supply agency services. An audit found that the appellant had short-paid or failed to pay a service tax of Rs. 2,35,577 under the Reverse Charge Mechanism from April 2015 to June 2017.

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A show-cause notice was issued and the appellant did not respond. The adjudicating authority held that the appellant was liable to pay 100% service tax on manpower services under the Reverse Charge Mechanism as per Notification No. 30/2012-ST.

On appeal, the Commissioner (Appeals) upheld the service tax demand, interest, and penalty. Aggrieved, the appellant appealed before the CESTAT arguing that the service tax liability did not arise because the provision made in the accounts had been reversed through journal entries. The counsel submitted a Chartered Accountant’s certificate as evidence citing no service was availed.

The respondent argued that the appellant failed to respond to the show-cause notice and the audit findings and their later reliance on the Chartered Accountant’s certificate was unsubstantiated.

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The single bench led by Binu Tamta (Judicial Member) observed that the appellant had admitted to the short payment during the audit and agreed to deposit the amount. The tribunal observed that the Chartered Accountant’s certificate lacked credibility against the audit report and the appellant’s earlier admission.

The tribunal held that the appellant suppressed material facts and did not provide evidence to disprove the findings. The tribunal rejected the appellant’s claim of no suppression of facts. The tribunal ruled that the appellant should pay the short-paid service tax under the reverse charge mechanism for manpower services.

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