CESTAT Overturns Rs.17.5 Cr Service Tax Demand Against Ultra tech Cement, Faults Department's Calculation Method [Read Order]

In a significant relief to Ultra Tech Cement the Eastern Zonal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has set aside a service tax demand of Rs.17,49,80,654 that was raised on the company for the period between 2009-10 and 2012-13. The tribunal found that the demand, which had been confirmed by the Commissioner of Service Tax-II, Kolkata, was based solely on a flawed comparison of entries in the company’s freight ledger with the service tax returns filed under the reverse charge mechanism for Goods Transport Agency (GTA) services.

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The appellant, UltraTech Cement Ltd., operates a marketing office for its east zone in Kolkata and was registered under the service tax law as a service recipient liable to pay tax under the reverse charge mechanism. The demand was raised following a departmental audit that pointed to differences between the freight expenses booked in the company’s books and the actual tax paid as per ST-3 returns. The department treated the discrepancy as under-reporting and accordingly issued a show cause notice, followed by the impugned order confirming the demand with interest and penalty under Section 78 of the Finance Act, 1994.

In response, the appellant submitted that service tax under reverse charge is payable on a payment basis, while their books of accounts reflect expenses on an accrual basis, in accordance with applicable accounting standards. The appellant further substantiated their position by producing multiple certificates from independent Chartered Accountants explaining the reasons for the difference between the book entries and the tax paid.

The certificates detailed that a significant portion of the recorded expenses pertained to exempt consignments, transportation by rail (which is outside the scope of GTA services), and incidental expenses such as loading and unloading on which tax had already been paid under forward charge by service providers. The appellant also clarified that part of the freight expenses included non-taxable entries such as purchases of goods and year-end provisions, not actual payments, and hence not liable to service tax.

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Despite these clarifications, the adjudicating authority had rejected the CA certificates on the ground that they were not issued by the statutory auditors. The tribunal disagreed with this reasoning, holding that certificates issued by independent professionals after verification of records cannot be dismissed without any contrary expert opinion.

The bench comprising Ashok Jindal, Member (Judicial) and K. Anpazhakan, Member (Technical), concluded that the demand was not sustainable as it was raised without analyzing the nature of transactions and without rebutting the CA certificates. The tribunal also held that the associated interest and penalty could not be sustained since the primary demand itself was not legally tenable.

Accordingly, the appeal was allowed, and the entire demand along with interest and penalty was set aside.

To Read the full text of the Order CLICK HERE

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