Ignorantia Juris Non Excusat: CESTAT says Plea Of Confusion No Defence, Upholds Service Tax on Work Contract [Read Order]
The Tribunal held that plea of confusion was not a valid defence to nullify the demand raised under the Finance Act, 1994.
The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi, affirmed the demand of service tax on works contract services and sustaining the invocation of the extended period of limitation. The Tribunal examined whether the plea of confusion regarding works contract taxability could nullify the demand raised under the Finance Act, 1994. Holding that ignorance of law is not a valid defence, the Tribunal upheld the service tax liability as recalculated by the adjudicating authority.
The appellant, M/s Shri Mohmd. Shafik Contractor, is registered under Section 69 of the Finance Act, 1994 and provides works contract services. Under Notification No. 30/2012-Service Tax dated 20 June 2012, 50% of the tax on such services is payable by the service provider when services are supplied to a body corporate.
During scrutiny, the Department observed that the appellant filed Nil returns from April 2015 to September 2015 and failed to file ST-3 returns for October 2015 to June 2017. It was alleged that service tax amounting to ₹4,16,572 was not paid on works contract services provided to Rajasthan Vidyut Prasaran Nigam Limited.
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A Show Cause Notice proposed recovery of tax, interest, and penalties under Section 77 and Section 78 of the Finance Act, 1994. The adjudicating authority, after examining the work orders and applicable abatements under Notification No. 24/2012-Service Tax and Notification No. 30/2012-Service Tax, recalculated the liability at ₹1,81,995 and dropped the balance demand. The Commissioner (Appeals) upheld this finding. Aggrieved, the appellant filed the present appeal before the Tribunal.
Represented by Chartered Accountant Om P. Agarwal, the appellant argued that due to confusion in the relevant period, it could not determine its precise tax liability, and therefore the allegation of willful suppression was unsustainable.
Furthermore, the appellant believed bona fide services provided to a government entity engaged in electricity transmission were exempt under Notification No. 11/2010 dated 27 January 2010. On these grounds, the appellant sought that the Show Cause Notice be held time-barred and the demand be set aside.
Represented by Rohit Issar, the Department argued that the appellant’s failure to file returns during the self-assessment period indicated a deliberate act leading to non-payment of tax. The non-payment surfaced only during the audit, which supported the department’s stand on invoking the extended period of limitation.
The Bench of Dr. Rachna Gupta, Judicial Member noted that the adjudicating authority had examined the work orders and applied the valuation mechanism under Notification No. 24/2012-Service Tax, which provides for taxability at 40% of the value for original works. The bench found no infirmity in the recalculation of liability at ₹1,81,995 and upheld the application of exemptions and abatements granted in the order.
On the question of limitation, CESTAT held that any confusion regarding the taxability of works contract services stood resolved in the Supreme Court’s judgment Commissioner of C.Ex. & Cus., Kerala Vs. Larsen & Toubro Ltd (2015). Since the period in dispute was subsequent to this clarification, the appellant could not claim a bona fide misunderstanding.
Therefore, Tribunal reiterated that ignorance of law is not a valid defence and therefore the extended period under Section 73 of the Finance Act, 1994 had been correctly invoked. Thus, upheld the Order-in-Original and the Order-in-Appeal and dismissed the appeal.
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