2023 (3) TMI 298 - AT - Service Tax

Tribunal Overturns Order Due to Lack of Evidence and Violations of Natural Justice. Appeal Allowed.

M/s. R.S. Constructions Versus The Commissioner of Service Tax

The Tribunal set aside the impugned order due to demands lacking basis or evidence and serious violations of natural justice principles. The appeal was ... Non-payment of Service Tax - Site Formation Service - Cargo Handling Service - Commercial or Industrial Construction Service provided to various clients - period from July 2008 to December 2008. Non-reliance of documents in support to propose tax liability - principles of audi alteram partem violated (natural justice) - HELD THAT:- There is no dispute that a Show Cause Notice is the foundation on which the Revenue would build its case and hence, it is quintessential that a Show Cause Notice should reflect all such supporting evidences in support of each proposal for demand of respective duty / tax - there is no dispute even by the representative of the Revenue that nowhere in the Show Cause Notice is it mentioned as to the relied upon documents nor is there any averment about supplying such relied upon documents to the noticee. Further, it is also clear from a perusal of the Show Cause Notice that it has been alleged that the appellant provided the services mentioned thereunder, that they did not pay the Service Tax on those services and that the verification carried out by the audit party warranted the invocation of extended period for demanding the tax due. Thus, it is very clear from the Show Cause Notice that there is not even a single assertion proposing to levy and collect Service Tax on the basis of any specific document / evidence. From the discussions in the impugned Order-in-Original, it is found that it was the appellant who furnished most of the documents voluntarily, though no mention about any of the documents finds place in the Show Cause Notice. It is these very documents that were sent for verification to the jurisdictional Service Tax authority and hence, it would be incumbent upon the lower authority to have provided such report obtained from the jurisdictional Service Tax authority before fastening the appellant with tax liability - the liability was fastened on the appellant without following the principles of audi alteram partem and clearly, the consequential demands raised cannot sustain. Site Formation Services for which the appellant has relied on exemption Notification No. 17/2005-S.T. dated 07.06.2005 - HELD THAT:- The exemption has been granted for site formation and clearance, excavation and earth moving and demolition and such other similar activities referred to in sub-clause (zzza) of clause (105) of Section 65 of the Finance Act, provided to any person by any other person in the course of construction of roads, airports, railways, etc., which Notification was interpreted by the co-ordinate Chandigarh Bench of the CESTAT in the case of M/s. Ludhiana Builders [2019 (10) TMI 1327 - CESTAT CHANDIGARH] wherein the Learned Bench has held that Notification No. 17/2005-S.T., dated 7-6-2005 does not say that if it is not a public road then it is liable to be taxed. Therefore, we hold that the appellant is engaged in the construction of road and the same is exempt as per the Notification No. 17/2005-S.T., dated 7-6-2005, therefore, no service tax is payable by the appellant - Thus, the appellant is well within its right to claim bona fides as to the non-payment of Service Tax. Demand pertaining to Cargo Handling Services - HELD THAT:- If the Adjudicating Authority had any doubts that the appellant did undertake any other activity other than transportation inviting tax liability, then the same should have been put across to the appellant for rebuttal / explanation thereby providing an opportunity to the appellant to meet the allegations levelled against it. Contrary to this, the Adjudicating Authority refers the matter to the jurisdictional tax authority, obtains a report and proceeds to confirm the demand based solely on such report obtained behind the back of the appellant. Moreover, the name of the party as mentioned at Annexure-II to the Show Cause Notice refers to ICL and HCC whereas in the Order-in-Original, the lower authority has referred to ICL and ACC, which was perhaps based on the unrebutted report obtained by the lower authority - it is found that there are serious inconsistencies, that the conclusion arrived at by the Adjudicating Authority appears to be in a haste and without proper application of mind and also that the principles of natural justice have not been followed. Construction services rendered to M/s. Petron Civil Engineering (P) Ltd., against which it was claimed by the appellant that the principal contractor had paid the Service Tax, which fact has been brushed aside by the lower authority by relying upon the Master Circular No. Circular No. 96/7/2007-S.T. dated 23.08.2007 - HELD THAT:- There are substance in the contentions of the Learned Advocate for the appellant that the said Circular can operate only prospectively, as clarified by the Hon’ble Supreme Court in the case of M/s. Suchitra Components Ltd. [2007 (1) TMI 4 - SUPREME COURT] wherein the Hon’ble Court held that when the circular is against, the assessee, they have right to claim enforcement of the same prospectively. Denial of CENVAT Credit on capital goods which has been denied on the ground that the noticee did not turn up with documents for verification by the jurisdictional Service Tax authority - HELD THAT:- It is the settled position of law that no CENVAT Credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services; but from a perusal of the Show Cause Notice or the impugned Order-in-Original, nowhere it is seen that the lower authority has placed reliance on any evidence to support that the appellant was indeed engaged in the manufacture of exempted goods or was providing exempted services. Even on merits, the demands proposed in the Show Cause Notice, which thereafter have been confirmed in the impugned Order-in-Original, are without any basis or without any documentary evidence and that there is serious violation to the principles of natural justice and hence, no part of the demand can be sustained. Appeal allowed. Issues Involved:1. Legality of the Show Cause Notice (SCN) and adherence to principles of natural justice.2. Demand for belated payment of Service Tax.3. Demand for Site Formation Services.4. Demand for Cargo Handling Services.5. Demand for Construction Services rendered to M/s. Petron Civil Engineering (P) Ltd.6. Denial of CENVAT Credit on capital goods.Issue-wise Detailed Analysis:1. Legality of the Show Cause Notice (SCN) and adherence to principles of natural justice:The appellant contended that the SCN was illegal as it did not rely on any evidence to propose demands, contrary to the C.B.E.C. Master Circular No. 1053/2/2017-CX. dated 10.03.2017. The SCN also did not mention the relied-upon documents, depriving the appellant of proper defense. The adjudicating authority confirmed the demands based on a verification report not provided to the appellant, violating principles of natural justice. The Tribunal noted that a SCN must reflect all supporting evidence and found that the SCN lacked specific assertions or documents. The adjudicating authority relied on documents and a verification report not shared with the appellant, leading to a violation of the principles of audi alteram partem. Consequently, the demands raised could not be sustained.2. Demand for belated payment of Service Tax:The appellant had paid Rs.27,26,650/- by challans and Rs.4,99,540/- through the CENVAT Credit account before the issuance of the SCN. The adjudicating authority only appropriated the amount paid by challans, ignoring the payment made through the CENVAT Credit account. The Tribunal found this to be an oversight and noted that the belated payment along with interest should have been considered, negating the demand for the belated payment and the associated penalty.3. Demand for Site Formation Services:The appellant argued that the services provided under an agreement with M/s. Nuclear Power Corporation of India Ltd. for the construction of roads were exempt under Notification No. 17/2005-S.T. dated 07.06.2005. The Tribunal referred to the decision in M/s. Ludhiana Builders v. Commissioner of C.Ex. and S.T., Ludhiana, which held that construction of roads is exempt as per the notification. The Tribunal concluded that the appellant was justified in claiming exemption and that the demand for Site Formation Services could not be sustained.4. Demand for Cargo Handling Services:The appellant contended that the services provided to M/s. India Cements Ltd. and M/s. Hindustan Construction Co. Ltd. were transportation services, not attracting Service Tax. The adjudicating authority confirmed the demand based on a report obtained without the appellant's rebuttal. The Tribunal found inconsistencies in the adjudicating authority's findings and noted that the principles of natural justice were not followed. Consequently, the demand for Cargo Handling Services could not be sustained.5. Demand for Construction Services rendered to M/s. Petron Civil Engineering (P) Ltd.:The appellant claimed that the principal contractor had paid the Service Tax, which was dismissed by the adjudicating authority based on Circular No. 96/7/2007-S.T. dated 23.08.2007. The Tribunal referred to the Supreme Court's decision in M/s. Suchitra Components Ltd. v. Commissioner of C.Ex., Guntur, which held that a beneficial circular should be applied retrospectively. The Tribunal concluded that the circular could only operate prospectively, and the demand for Construction Services could not be sustained.6. Denial of CENVAT Credit on capital goods:The appellant argued that the capital goods were used for providing taxable services, and thus, they were entitled to CENVAT Credit. The adjudicating authority denied the credit on the ground that the appellant did not provide documents for verification. The Tribunal noted that there was no evidence to support that the appellant was engaged in manufacturing exempted goods or providing exempted services. Consequently, the denial of CENVAT Credit was without basis.Conclusion:The Tribunal found that the demands proposed in the SCN and confirmed in the Order-in-Original were without basis or documentary evidence, and there was a serious violation of principles of natural justice. Consequently, the impugned order was set aside, and the appeal was allowed on both legal grounds and merits, with consequential benefits as per law.