VAT Act and Finance Act are Disparate in Character, Demand based on difference in value between WCT Returns and ST-3 Returns is invalid: Delhi HC [Read Order]

In a recent case, the Delhi High Court upheld the observation of the adjudicating authority that Value Added Tax ( VAT) Act, 2005 and Finance Act, 1994 are disparate in character and the demand based on difference in value between WCT Returns and ST-3 returns is invalid.

The Indure (P) Limited, the petitioner, challenged the impugned order dated 30th July,2024 by which the appeal of the Department has been dismissed by the Customs, Excise and Service TaxAppellate Tribunal, Principal Bench, New Delhi ('CESTAT').

On the last date of hearing, notice was issued to the Respondent and they were directed to file the relevant documents which are relied upon in support of the CA certificate, along with the reply to the appeal.

The short question that arises in this matter is whether the Respondent was liable to pay any service tax on the differential amount which was reflected in the returns filed under the Value Added Tax Act, 2005 ( ‘the VAT Act’) and under the Service Tax Act, 1994 ( ‘the 1994 Act’).

The Adjudicating Authority, vide order dated 10th April, 2017 has held that “the Noticee is mainly engaged in the business of manufacturing, procurement and commissioning of ash handling equipment including EPC projects for thermal power plants. They have their manufacturing units at Sahibabad and Sikanderabad, U.P.”

Further observed that works contract under VAT law not only includes the contract for building construction but also contract for erection, installation, repair or commissioning of any movable or immovable property. The Section 2(44) of Rajasthan VAT (RVAT Act, 2003) is almost identical to the said section of UPVAT Act 2008.

The next argument of the Noticee is that WCT/VAT Returns are on accrual basis whereas till 30.06.2011 the service tax was payable on the basis of amount received in lieu of taxable service provided or to be provided. Hence, there can be no comparison of value of WCT/VAT Returns and ST-3 Returns for arriving at the differential amount of service tax.

For that the adjudicating authority held that prior to 01.04.2011, service tax was payable on receipt basis i.e, on receipt of payment of invoice or bill from the customer or receipt of advance, whichever is earlier vide erstwhile Rule 6(1) of Service Tax Rules, 2004.

The order passed by the Adjudicating Authority has been upheld by Custom Excise & Service Tax Appellate Tribunal ( ‘CESTAT’) vide order dated 30th July, 2024 (the impugned order’), both on the ground that there are documents which were filed and the Chartered Accountant’s certificate which was issued supporting the said documents could not be disregarded.

The only question is whether any additional liability is to be fastened on the Respondent or not. A division bench of Justice Prathiba M. Singh and Justice Shail Jain observed that both the original adjudicating authority and the CESTAT have held clearly that the difference in the amount has been satisfactorily explained.

The adjudicating authority viewed that VAT Act and the Finance Act are disparate in character as far as levy and collection of tax is concerned. Consequently, comparison of return filed under both the Acts is erroneous. Accordingly, raising of demand till 30.06.2011 on the basis of difference in value between the WCT Returns and ST-3 returns is totally off base and unsustainable.

The court viewed that the impugned order does not warrant any interference as no substantial question of law arises for consideration of this Court.

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