Service tax deductions for vendor/subcontractor payments across 2014-18; denial and 60% abatement basis set aside, remanded.

Denial of adjustment/deduction towards service tax paid to vendors/sub-contractors for 2014-15, 2016-17 and 2017-18 (up to June 2017) was held unsustainable because the Commissioner (Appeals) applied the deduction principle for one year but rejected the remaining years without a detailed speaking order, merely citing non-production of Cenvat records and the one-year availment restriction; the matter was remanded for fresh determination permitting production of supporting documents. Demand confirmed by applying Rule 2A(ii)(a) of the 2006 Valuation Rules to restrict abatement to 60% was set aside since that legal basis was not invoked in the SCN. Invocation of the extended period was upheld as the assessee's improper method could not amount to disclosure, and penalty under s.78 was directed to be re-determined.

---

---

Issues Involved:
1. Difference between turnover shown in the Profit & Loss (P&L) account and ST3 Returns.
2. Availing incorrect rate of abatement (67% instead of 60%).
3. Short payment of Service Tax for the year 2017-18.
4. Invocation of extended period for demand.

Issue-wise Detailed Analysis:

1. Difference between turnover shown in the P&L account and ST3 Returns:
The Department observed discrepancies between the turnovers reflected in the Appellant's P&L account and the ST3 Returns. The Appellant attributed this to the split of their Erection, Commissioning & Installation Services (ECIS) contracts into material and service values, paying Service Tax only on the service portion. Despite this explanation, the Department found a short declaration of Rs.52,88,505/- leading to a short payment of Service Tax amounting to Rs.7,69,476/- for 2014-15 to 2016-17. The Commissioner (Appeals) upheld this demand but allowed input service credit of Rs.3,10,073/- for 2015-16 against the demand of Rs.3,67,771/-. The remaining years' claims were denied due to lack of evidence. The Tribunal remanded this issue for re-examination, requiring detailed reasoning for any denial of credit.

2. Availing incorrect rate of abatement (67% instead of 60%):
The Appellant availed an abatement of 67% instead of the eligible 60% as per Notification No.26/2012-ST. The Adjudicating Authority and Commissioner (Appeals) held that the correct abatement should be 60% under Rule 2A(ii)(a) of the Service Tax (Determination of Value) Rules, 2006. The Tribunal found this demand of Rs.47,683/- unsustainable as the rule relied upon was not invoked in the SCN, thus setting aside this part of the order.

3. Short payment of Service Tax for the year 2017-18:
The Department identified a short payment of Service Tax amounting to Rs.77,002/- for 2017-18. The Appellant did not dispute this, and the Commissioner (Appeals) upheld the demand. The Tribunal found no reason to interfere with this finding.

4. Invocation of extended period for demand:
The Department invoked the extended period for demand, arguing that the discrepancies were only discovered upon detailed verification. The Appellant contended that the extended period should not apply as the Department was aware of the facts. However, the Commissioner (Appeals) upheld the invocation of the extended period, noting that the Appellant's method of calculation was improper and not disclosed to the Department. The Tribunal agreed, finding no reason to interfere with this decision.

Summary:
The Tribunal upheld the majority of the Commissioner (Appeals)'s order, except for the demand of Rs.47,683/- related to the incorrect abatement rate, which was set aside. The issue of eligibility for input service credit for the years 2014-15, 2016-17, and 2017-18 was remanded for re-examination with detailed reasoning required for any denial. The penalty under Section 78 will be re-determined based on the final confirmed demand. The appeal was partly allowed with these modifications.

---