CESTAT sets aside Demand of Service Tax and Penalties as ST-3 returns Not Required in terms of S. 70 of Finance Act [Read Order]

In a recent case, the Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT)  has set aside the demand of service tax and penalties imposed as ST-3 returns is not required in terms of Section  70 of the Finance Act, 1994.

M/s Balaji Travels, the appellant is registered with the service tax department for providing taxable services under the category of rent-a-cab operator services.  In follow up of verification of third party data for the year 2015-2016, the appellant was called upon to submit documents like profit and loss account, balance sheet, ST-3 returns and the agreements with the service recipient etc. which were provided. 

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 While cross verifying the gross receipt of ITR/26AS visà-vis ST-3 the values reflected in ST-3 returns,  the department got to know that the appellant had received Rs. 26,99,488/- as income during the relevant period of financial year 2015-2016.  From the further scrutiny of documents it was noticed that the order value/the invoice value is inclusive of service tax i.e. the appellant has received service tax from GAIL.  Based on these observations the contentions of the appellant in their reply dated 22.6.2020 that 100% service tax payment is made by service receiver, was opined contrary to the above observations.

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 The department alleged that service tax amounting to Rs. 3,95,426/- is short paid by the appellant.  They had not filed the service tax returns during the relevant period.  Hence there was no reason with the department to have knowledge about the said liability of the appellant.    There would have been evasion of the service tax had the information from Income Tax department would not been verified.  With these observations, that the show cause Notice No. 15/12/2020-21 dated 24.9.2020 was served upon the appellant proposing the recovery of service tax amounting to Rs. 3,91,426/- along with the proportionate interest. 

Penalty of Rs. 40,000/- for not filing the returns for financial year 2015-2016 was also proposed along with the penalties under Section 77of the Finance Act.  The said proposal was initially confirmed vide Orderin-Original No. 12/2021-2022 dated 28.1.2022.  The appeal against the said order has been rejected vide the  impugned order-inappeal.  Being aggrieved, the appellant is before this Tribunal.

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The appellant submitted that in response to the impugned show cause notice, the appellant had filed their reply dated 30.11.2021 submitting that the gross amount of Rs. 26,98,455/-  was received from M/s GAIL India Ltd. on which service tax of Rs. 3,91,276/- has been demanded from the appellant.    However, the said service tax was payable by the service recipient under Reverse Charge Mechanism in terms of Entry No. 7(a) of Notification No. 30/2012 dated 20.06.2012.

 It is submitted that the said submission has not been considered by the adjudicating authorities below.  Learned counsel further submitted that the appellant is registered for rendering taxable service with effect from the year 2009.   The certificate to the said effect is placed on record.  It is mentioned that till July 2012, the appellants were regularly filing their ST-3 returns  because till that date the service tax liability with respect to ‘rent-a-cab operator service’ was to be discharged under forward mechanism by the service provider. 

However, the situation got reversed in terms of Notification No. 30/2012.  Post that the appellant was no more liable  to pay service tax.  Resultantly, appellant was not even required to file the service tax returns. The allegations of suppression are therefore not sustainable nor is sustainable the penalty of Rs. 40,000/- as has been imposed for non-filing of ST-3 returns. 

It is further submitted that the adjudicating authorities below have wrongly held that the service tax was included in the invoice value.  Attention is drawn to the invoice No. 3300051384 dated 9.7.2013 where service tax has not been charged.  Learned counsel has also brought attention to the tender document between the appellant and the service recipient, the M/s GAIL India Ltd.  Clause (2) whereof specifically says that service tax is excluded from the contract value.  Clause (3) has also been referred. 

The certificate issued by M/s GAIL India Ltd is also impressed upon wherein it has been mentioned that the 100% service tax stands already paid the service recipient/M/s GAIL India Ltd. it is submitted that the confirmation of demand is nothing but the double payment of the same service tax for the same period.

Department’s own circular (CBEC) bearing No. 341/18/2004 has clarified that the Reverse Charge Mechanism should not lead to double taxation i.e. once the tax liability is discharged regardless of the person, who discharged the assessee cannot be made to pay the tax again.

A single bench of Dr. Rachna Gupta, Member (Judicial) relied in the case of Zyeta Interiors Pvt. Ltd. wherein it was held that once the government received the entire amount of tax assessee cannot be called upon to make the payment, irrespective the payment was to be made fully under forward mechanism or RCM or was to be made partially under both the mechanisms.   

Coming to the plea that the invoice value/order value was inclusive of service tax foremost the perusal of the invoice falsified the said contention of the department.   Even if the contract/tender document is looked into clause 2 specifically excludes the service tax from the invoice value.  Few clauses talks about inclusion of service tax in the gross value, however, with the condition that in case the appellant/service provider is liable to pay service tax. 

The Tribunal held that the appellant was not liable to pay service tax in terms of Notification No. 30/2012.  It is, therefore, held that the appellant was not required to file ST-3 returns in terms of Section 70 of Finance Act and  the demand has wrongly been confirmed and the penalties have wrongly imposed.

The tribunal observed that department has not proved any act of suppression on part of appellant as is otherwise alleged for invoking the extended period of limitation while issuing the show cause notice.  The bench held that Commissioner (Appeals) has erred in confirming the demand of service tax and imposition of penalty.

To Read the full text of the Order CLICK HERE

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M/s Balaji Travels vs Commissioner of CGST & Central Excise , 2025 TAXSCAN (CESTAT) 585 , Service Tax Appeal No. 55409 of 2023 - SM , 13 May 2025 , S.C. Kamra , Vishwa Jeet Saharan