2025 (8) TMI 92 - AT - Service Tax

Service tax demand dismissed without independent probe; limitation period and penalties set aside under Section 73

The CESTAT Hyderabad allowed the appeal in part, holding that the service tax demand based solely on discrepancies between ITRs/26AS and ST3 returns was ... Levy of service tax - difference in the income reflected by the appellant in their annual returns filed under Income Tax Act for the FY 2016-17 and the amount declared in their ST3 Return filed for the same period - applicability of benefit under S.No.14(c) of notification 25/2012-ST in terms of insertion of Clause (ca) w.e.f. 01.04.2016 - Extended period of limitation. HELD THAT:- There is clear force in the submission that the entire demand is based on ITR & 26AS. This is apparent from the SCN as well as pre-notice consultation dt.24.09.2021, where it was specifically mentioned that an SCN demanding service tax on gross value on sale of service during the period April, 2016 to June, 2017 as reported in the ITRs or as reported in the 26AS is being proposed under proviso to section 73(1), section 75 and section 78 of the Finance Act. Further, as per the table the service tax payable was indicated as Rs.8,48,58,681/-. Thus, we find that the entire SCN has been issued based on difference noticed by the department between ST3 returns and ITRs/26AS. We also find that in the SCN, there is nothing on record to suggest that any independent detailed investigation was carried out to work out as to the nature of services, value of services, etc. The adjudicating authority has mentioned that the appellants did not furnish the information being one of the grounds for considering that there was deliberate suppression or withholding of information - there is no additional investigation or ground on the basis of which SCNs have been issued. We find that this issue is no longer res integra in view of the decisions of Coordinate Benches with regard to non-maintainability of demand where the demand is based solely on the ITRs/26AS, etc. Extended period of limitation - HELD THAT:- In this case, the SCN was served on 20.10.2021, whereas, the due date for filing ST3 return for the subject period is 15.08.2017 and therefore, the date of issuance is clearly beyond the normal time period allowed for serving notice, where the department is unable to substantiate any grounds for invoking extended period. Therefore, in view of the same, demand for the period 2016-17 and 2017-18 (up to June, 2017) is clearly beyond 30 months. There are force in the reliance placed by the appellant on the judgment of Continental Foundation Jt. Venture Vs CCE [2007 (8) TMI 11 - SUPREME COURT, wherein, inter alia, it was held that suppression means failure to disclose full information with the intent to evade payment of duty. The reliance placed by the appellant in support that mere non-payment of tax itself does not mean that appellants had suppressed information - in the facts of the case, deliberate suppression with intent to evade service tax payment has not been duly established by the department. Therefore, extended period could not be invoked for demand of service tax. The demand to the extent where demand as well as payment thereof, has not been contested, the impugned order is upheld. The other demands will not sustain in view of the discussions in the foregoing paras. The penalty will also not sustain in respect of non-contested demand. Appeal allowed in part. ISSUES: Whether demand of service tax based solely on differences between Income Tax Returns (ITR), 26AS statements, and ST3 returns without independent investigation is maintainable.Whether extended period for service tax demand under proviso to section 73(1) of the Finance Act, 1994 is invokable in absence of deliberate suppression or withholding of information with intent to evade tax.Whether services provided under certain agreements qualify as 'Works Contract Service' and are taxable accordingly.Whether exemption under Notification No.25/2012-ST, specifically S.No.14(ca) relating to low cost houses up to 60 sq. mtr in housing schemes approved by competent authority, applies to services rendered under the NTR Housing scheme.Whether services rendered to certain government or government-owned entities such as APSPHCL, VUDA, APEWIDC, APHMIDC, APIIC, and others are exempt from service tax.Whether penalty under section 78 of the Finance Act, 1994 is sustainable where demand itself is not maintainable or where service tax was paid before due date. RULINGS / HOLDINGS: The demand based solely on differences between ITR/26AS and ST3 returns without any independent enquiry or investigation is not maintainable; the SCN issued on such basis is not sustainable as per 'catena of judgments' cited.Extended period under proviso to section 73(1) cannot be invoked absent 'deliberate suppression with intent to evade payment of service tax'; mere delay in submission of documents does not establish such intent; therefore, demand beyond normal limitation period is not sustainable.The services provided under the agreements qualify as 'Works Contract Service' involving 'transfer of property in goods in execution of works' and are taxable accordingly with applicable abatement under Rule 2A of Service Tax (Determination of Value) Rules, 2006.Services rendered for construction of low cost houses up to carpet area of 60 sq. mtr under government-approved housing schemes, including the NTR Housing scheme dovetailing with Pradhan Mantri Awaas Yojana, fall within exemption under S.No.14(ca) of Notification No.25/2012-ST as amended w.e.f. 01.03.2016; thus, service tax demand on such services is not sustainable.Services provided to government or government-owned entities for non-commercial purposes, such as construction of police quarters to APSPHCL and construction of schools and hostels to APEWIDC, are exempt from service tax; demands confirmed and paid in respect of APIIC, VUDA, and K. Aruna are upheld but penalty is not sustainable due to timely payment.Penalty under section 78 is not sustainable where the demand itself is not maintainable or where service tax was paid before due date and returns filed; thus, penalty confirmed on such amounts is set aside. RATIONALE: The Court applied the provisions of the Finance Act, 1994, specifically sections 73(1), 75, and 78, and Service Tax (Determination of Value) Rules, 2006, alongside Notification No.25/2012-ST and its amendments.Precedent from Coordinate Benches and Supreme Court judgments were relied upon to establish that demands based solely on discrepancies in tax returns without independent verification are not maintainable.The Court emphasized the legal principle that 'suppression means failure to disclose full information with the intent to evade payment of duty,' and mere non-payment or delay does not constitute suppression warranting extended period invocation.Interpretation of Notification No.25/2012-ST as amended by Notification No.09/2016 clarified that exemption applies to 'low cost houses up to a carpet area of 60 square metres per house' in government-approved schemes, including those dovetailing with central government missions.The Court conducted a holistic evaluation of documentary evidence, including agreements, government orders, and schematic plans, to determine the applicability of exemption for the NTR Housing scheme.The decision reflects no doctrinal shift but reiterates established principles on limitation, burden of proof for suppression, and exemption applicability under service tax law.