SCN demanding Service Tax is not valid unless Revenue proves the Short Payment of Service Tax: CESTAT [Read Order]

The Mumbai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that a Show Cause Notice (SCN) demanding service tax is not valid unless revenue proves the short payment of service tax.

The revenue challenged the order-in-original passed by the Principal Commissioner of Service Tax, Mumbai, through which he has dropped substantial demand for service tax. 

Modern Road Makers Pvt. Ltd., the respondent is registered with Service Tax.  Revenue received data about the turnover of the respondent for the year 2013-14 based on income-tax return and associated Form-26AS statement and there was a mismatch between the turnover recorded by the respondent for the said year and the value of the services reflected in ST-3 returns. 

The value of the services reflected in ST-3 returns for the year 2013-14 was nil.  It appeared to Revenue that the entire turnover of around Rs.2,369 crores reflected in said 26AS was on account of provision of service and, therefore, by straight away calculating 12.36% of the said turnover, Revenue demanded service tax of Rs.292,87,51,316/- from the respondent by issue of show cause notice dated 16.04.2019. 

The respondent submitted their reply to the show cause notice.  The reply was considered by the original authority and after going through the submissions, the original authority was satisfied that out of the turnover of Rs.2,369 crores, a turnover of about Rs.2,295 crores was on account of undertaking works contract for construction, operation, repair and maintenance of national highways and expressways for use by the general public and the same were exempted from levy of service tax under Entry No.13(a) of Notification No.25/2012-ST dated 20.06.2012 and, therefore, dropped the demand of service tax to the tune of Rs.292,86,63,640/-.

The original authority confirmed the demand of service tax amounting to Rs.87,676/- on the commission received by the respondent and ordered for recovery of interest on the confirmed service tax amount of Rs.87,676/-. Also imposed equal penalty under Section 78 of Finance Act, 1994 on the respondent.  The original authority also imposed a penalty of Rs.10,000/- on the respondent under Section 77(1)(d) of the Finance Act, 1994 for failure to pay service tax electronically.  The original authority also imposed a penalty of Rs.10,000/- on the respondent for failure to furnish correct returns. 

The appellant submitted that the original authority has not verified any record of the original parent contractor of NHAI for whom the respondent has undertaken work as a sub-contractor and held that the turnover was on account of construction, repair and maintenance of highways and expressways. 

A two-member bench comprising Dr Suvendu Kumar Pati, Member (Judicial) and Mr Anil G Shakkarwar, Member (Technical) observed that the present show cause notice is presumptive.  The bench upheld the order-in-original to the extent that the demand for service tax of Rs.292,86,63,640/- was dropped by the original authority. 

Further set aside the confirmation of demand of service tax of Rs.87,676/- and its equal penalty for the reason that the show cause notice is not sustainable. 

To Read the full text of the Order CLICK HERE

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