CESTAT Upholds ₹2.39L Service Tax Demand on Legal Consultancy, GTA, Reconciliation & Works Contract; Waives Penalties as Tax Paid Pre-SCN [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad bench, has upheld service tax demands on legal consultancy, reconciliation and goods transport agency services under reverse charge mechanism under Section 68(2) of the Finance Act, 1994, arising from discrepancies between books of accounts and ST-3 returns.

The Appellant, M/s Zumax Equipments Pvt. Ltd., an entity registered with the Service Tax department for providing services including maintenance and repair, erection, commissioning, installation and works contracts. An audit of the company’s records from 2014–15 to June 2017 revealed multiple lapses.

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First, the company had paid fees of ₹1,49,000 to advocates but failed to discharge its reverse charge liability of ₹21,950 under Section 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST. Second, it paid freight charges of ₹1,40,000 to goods transport agencies without paying service tax of ₹6,300 under reverse charge.

Third, a reconciliation between the company’s books and ST-3 returns showed a mismatch of ₹6,87,702 in turnover, attracting service tax of ₹1,03,129. Finally, in 2014–15, the company provided modular kitchen work under works contract services but did not pay tax of ₹1,08,038 on the specific invoices.

The company paid all these amounts through its March 2019 GSTR-3B return, prior to issuance of show cause notice. However, it also delayed filing ER-3 returns for certain quarters, making it liable to late fee of ₹4,500.

Stuti Saggi, appearing for the appellant submitted that the services procured were not always from advocates, that the reconciliation mismatch pertained to sale of goods rather than services, and that works contract receipts had been disclosed in ST-3 returns. It was argued that once tax was paid at the audit stage, Section 73(3) of the Finance Act, 1994 barred continuation of proceedings, and penalties could not be sustained.

Chitra Srivastava, appearing for the revenue contended that the appellant produced no proof to establish that the legal consultancy was from non-advocates or that service tax had been discharged by the providers. It was argued that the reconciliation-based demand was firmly established, and the works contract demand was based on specific invoices which the appellant failed to rebut.

It was also submitted that interest was mandatorily payable and that mere disclosure of receipts in returns did not absolve liability.

The Bench consisting of Sanjiv Srivastava, Member Technical, upheld all service tax demands of ₹2,39,417 as validly raised. It held that the appellant’s submissions were unsupported by evidence and could not displace the categorical findings from audit.

Therefore, the interest was confirmed as a natural consequence of delayed tax payment, while the claim of prior interest payment was rejected for want of proof.

The late fee of ₹4,500 was also confirmed, as the appellant did not contest this.

However, the Tribunal set aside penalties imposed under Section 78 of the Finance Act, 1994. It was emphasized that Section 73(3) expressly provides that when service tax and interest are settled before issuance of notice, no penalty shall be imposed.

Accordingly, the appeal was partly allowed.

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