CESTAT Upholds Service Tax Demand Citing Backdated Agreement as Suppression; Limits Second SCN to Normal Period [Read Order]

Mechanical Packing Industries Pvt Ltd,appellant-assessee, was engaged in manufacturing textile articles and fabricating asbestos. During audit, it was found that the assessee had not paid service tax as a recipient under Notification No. 30/2012-ST. Two show cause notices were issued for the periods July 2012 to November 2014 and December 2014 to March 2015.

The demand was confirmed through the Order-in-Original and upheld in the Order-in-Appeal dated 16.08.2018. The Commissioner (Appeals) held that the assessee had altered the date on stamp paper to evade tax. Aggrieved by the order, the assessee filed the present appeal.

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The assessee counsel argued that the charges were paid on a lump sum, piece-rate basis as per the contract, and the nature of service remained job work. It was submitted that backdating the agreement did not change the character of the service, as payments were linked to production shown in invoices, not manpower supply.

The Departmental Representative submitted that the assessee had submitted a backdated agreement to falsely claim the service as job work. He pointed out discrepancies in the invoices and frequent changes in agreement dates as evidence of intent to evade tax.

He also argued that the extended period was rightly invoked and cited case laws in support. It was further noted that the other service recipient had already discharged service tax under reverse charge.

The two member bench comprising Somesh Arora (Judicial Member) and R.Bhagya Devi (Technical Member) noted that the main issue was whether the assessee was liable to pay service tax under reverse charge for manpower supply services during July 2012 to March 2014 and December 2014 to March 2015.

It found that the assessee had backdated the agreement by altering the stamp paper date, which clearly indicated an attempt to evade tax. The Commissioner was right in rejecting this agreement.

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The appellate tribunal observed that the assessee failed to prove that the contractor had supplied manpower. The invoices only showed charges for production and did not support the claim of manpower supply. It agreed with the Commissioner that the documents indicated job work and not labour supply, and the case laws cited by the assessee were not relevant.

It held that altering the agreement date showed clear intent to evade tax, justifying the charge of suppression. On revenue neutrality, the tribunal referred to earlier rulings and held that it could not be used as a defence when fraud or suppression was involved.

The CESTAT upheld the demand for July 2012 to March 2014 with interest and penalties. For the second show cause notice dated 19.04.2016, it held that suppression could not be invoked again for the same issue and limited the demand to the normal period, setting aside the penalty under Section 78 of the Act.

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