CESTAT Upholds Service Tax Demand u/s 73(2) on Security Agency, Grants Cum-Tax Benefit on Recalculation [Read Order]

The Principal Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at New Delhi has upheld the confirmation of service tax demand, interest and penalties arising out of alleged suppression of taxable value of taxable services. The Tribunal rejected the contention that the demand was based on mere presumptions.

M/s PNG Detective & Security Pvt. Ltd., appealed against the Order-in-Original passed by the Commissioner of Central Excise & Service Tax, Alwar, confirming a service tax demand of ₹1.97 crore under Section 73(2) of the Finance Act, 1994, along with interest and penalties. The appellant was registered under the category of “security agency services” and was believed to have suppressed the value of taxable services while also providing manpower supply services without appropriate registration.

The dispute arose after departmental investigations revealed discrepancies between the receipts reflected in bank accounts, income tax returns and service tax records. It was alleged that the appellant had not paid service tax on the full value of services and also failed to disclose manpower supply services. The adjudicating authority, upon re-adjudication, confirmed the demand again.

The appellant argued that bank deposits included redeposits of unspent cash, loans, bounced cheques and fund transfers were not receipts or services. It was further argued that a substantial portion of the receipts represented salaries, statutory contributions such as EPF and ESI, and other non-taxable components, which could not be included in the taxable value. The appellant also challenged the invocation of the extended period of limitation.

The Department relied on statements recorded during investigation, particularly the admission made by the Managing Director accepting the correctness of the computation in Annexure-A. The Department also relied on documents retrieved from resumed CPU in the presence of independent witnesses.

Relying on the Supreme Court’s ruling in ADG, DGRI v. Suresh Kumar & Co. Impex, the Tribunal held that the electronic records were admissible and could be relied upon for computation of demand.

Rejecting the appellant’s argument that bank credits could not be treated as taxable receipts, the Tribunal observed that no reconciliation or documentary evidence had been produced to substantiate such claims. The Tribunal reiterated the settled principle that facts admitted need not be proved, noting that the admissions made by the Managing Director were never retracted.

On classification, the Tribunal observed that there were clear statutory violations as the appellant had failed to obtain appropriate registration and pay service tax.

However, on valuation, the Tribunal accepted the appellant’s plea for cum-tax benefit, holding that where service tax was not charged separately, the gross amount received was required to be treated as inclusive of tax. The issue was remanded to the original authority only for the limited purpose of re-working the demand after extending the cum-tax benefit.

On limitation, the Tribunal upheld the invocation of the extended period, noting non-registration under manpower supply services and failure to comply with statutory filing requirements. Penalties under Sections 73 and 77 were also sustained, subject to re-calculation in line with the revised demand.

The appeal was thus partly allowed only to the extent of granting cum-tax benefit, while the service tax demand, extended period and penalties were upheld.

The order was pronounced by Bench comprising Binu Tamta (Judicial Member), and Hemambika R. Priya (Technical Member).

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