2025 (1) TMI 1378 - AT - Service Tax

Adjudicating Authority must properly examine invoices and follow natural justice principles for VCES declarations

NJ Patel Associates Versus Commissioner of C.E. & S.T. -Vadodara-I

CESTAT Ahmedabad allowed the appeal by remand in a case involving Voluntary Compliance Encouragement Scheme (VCES) declaration. The Adjudicating Authority ... Declaration under the Voluntary Compliance Encouragement Scheme (VCES) - declaration was 'substantially false' or not - Department is of the view that the appellant has not made a true and truthful declaration under VCES scheme and basic premises on which the declaration of the appellant was rejected - Classification under Works Contract Service or Commercial Construction Service - HELD THAT:- The Adjudicating Authority has not considered the work invoices issued by the appellant. While deciding the matter, the Adjudicating Authority has not decided whether the activity undertaken by the appellant falls under the category of “Works Contract Service” or under “Construction Service”. It is also opined that the Adjudicating Authority while holding the subject activity falls under commercial construction service, he has also not provided the facility of the abatement of the value as provided under N/N. 13/2012-ST dated 28.06.2012 while confirming the demand of service tax. The fact is noted that while the appellant has been claiming that activity undertaken by them falls under category of “Works Contract Service” while the department has considered the same is “Commercial Construction Service”. The Circular No.170/05/2013-ST dated 08.08.2013 clearly provides that the Commissioner would “in overall facts of the case take into account the reasons he has to believe, take a judicious view as to whether a declaration is “substantially false”, it is not feasible to define the term “substantially false” in precise terms, the proceedings under Section 111 would be initiated in accordance with the principles of the Natural Justice.” In view of the Board’s circular, the Adjudicating Authority has to categorically determine as to how a declaration made under VCES scheme is “substantially false”. In this case the Adjudicating Authority has not determined whether the activity undertaken by the appellant qualified to fall under “Works Contract Service” as claimed by the appellant on the basis of work orders and invoices. Conclusion - The determination of whether a declaration under VCES is 'substantially false' must be made in accordance with the principles of natural justice and relevant legal precedents. The classification of the appellant's services as 'Works Contract Service' or 'Commercial Construction Service' is crucial for determining the correct tax liability and entitlement to abatements. Appeal allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe core issues considered in this judgment revolve around the appellant's declaration under the Voluntary Compliance Encouragement Scheme (VCES) and whether the declaration was 'substantially false.' The specific legal questions include:Whether the appellant's service tax declaration under VCES was accurate and truthful.Whether the appellant was entitled to the abatements claimed under the VCES for the period of October 2012 to December 2012.Whether the service provided by the appellant should be classified as 'Works Contract Service' or 'Commercial Construction Service.'Whether the Adjudicating Authority correctly applied the relevant legal framework and precedents in confirming the service tax demand.ISSUE-WISE DETAILED ANALYSIS1. Accuracy of the VCES DeclarationThe relevant legal framework includes the provisions of the Voluntary Compliance Encouragement Scheme (VCES) under the Finance Act, 1994. The Court examined whether the appellant's declaration of service tax dues was truthful or if it constituted a 'substantially false' declaration. The Tribunal noted that the Adjudicating Authority had concluded that the appellant deliberately made a false declaration to avail of the amnesty under VCES.The Court found that the Adjudicating Authority did not adequately consider the appellant's work invoices and the nature of services provided. The appellant claimed that their services fell under 'Works Contract Service,' while the department classified them as 'Commercial Construction Service.' The Tribunal emphasized the need for a categorical determination of the service category and the appellant's eligibility for abatements.2. Entitlement to AbatementsThe appellant claimed a 75% abatement under Notification No. 26/2012-ST for 'construction service' and an additional 50% abatement under the reverse charge mechanism, asserting their services were 'Works Contract Service.' The Court noted that the Adjudicating Authority failed to provide the facility of abatement as per Notification No. 13/2012-ST when confirming the service tax demand.The Tribunal highlighted that the appellant's classification of services and the claimed abatements needed thorough examination, considering the Board's Circular No. 170/05/2013-ST, which requires a judicious view of whether a declaration is 'substantially false.'3. Classification of ServicesThe classification of the appellant's services as either 'Works Contract Service' or 'Commercial Construction Service' was central to the dispute. The Tribunal found that the Adjudicating Authority did not adequately determine the nature of the services based on the appellant's work orders and invoices. The Court emphasized the need for a proper assessment of the service category to determine the correct tax liability and entitlement to abatements.4. Application of Law and PrecedentsThe Tribunal referred to several precedents, including decisions from higher courts, to guide the adjudication process. These included cases such as M/s. NS Construction Company Versus Commissioner of Central Excise & Service Tax and others, which provided insights into the interpretation of service classifications and the application of abatements.The Court instructed the Adjudicating Authority to reconsider the matter, taking into account all relevant facts, invoices, work orders, and legal precedents, to make a fresh determination on the appellant's service classification and tax liability.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include the following:The Adjudicating Authority must provide a fresh opportunity for the appellant to present their case, including all relevant invoices and work orders.The determination of whether a declaration under VCES is 'substantially false' must be made in accordance with the principles of natural justice and relevant legal precedents.The classification of the appellant's services as 'Works Contract Service' or 'Commercial Construction Service' is crucial for determining the correct tax liability and entitlement to abatements.The appeal is allowed by way of remand, requiring the Adjudicating Authority to adjudicate the matter afresh, considering the Board's instructions and higher court pronouncements.The Tribunal's decision underscores the importance of a detailed and fair assessment of service classifications and tax liabilities, ensuring compliance with legal standards and principles of natural justice.