2025 (10) TMI 884 - AT - Service Tax

Appeal partly allowed: short-paid service tax and penalty reduced under s.78; horticulture receipts claim rejected for lack of LOAs

CESTAT, All. allowed the appeal in part, reducing the total demand for short-paid service tax from Rs.97,28,749 to Rs.72,80,604 and correspondingly ... Irregularities in payment of service tax - short payment of service tax - Service Tax is not being paid on total amount including taxable value - Horticulture receipts - manpower supply/maintenance or repair courier agency security agencies/ cleaning services - recovery of short paid duty with interest and penalty. Horticulture receipts - HELD THAT:- Though the appellant disputed that he received Rs.7,34,13,504/- on account of horticulture work and relief has been given to Rs.5,18,48,260/-. However, as seen from the verification report, the appellant failed to provide the required letter of LOAs, in this regard in absence of the same we do not find any merits in the claim made. Other services - HELD THAT:- It is observed that appellant was not able to substantiate his claims either before the Original Authority or before this Tribunal. In verification report it is observed that even after being asked to provide LOA Nos.571, 572, 616, 745, 831, 1001, 1101, 1102 & 1117, the same were not provided for verification. Thus on verification of all documents and claims made by the appellant along with the records submitted finally, the demand has been worked out to Rs.72,80,604/-. Taking note of the verification report prepared as per the directions of the Bench at the time of hearing, it is concluded that the impugned order needs to be modified to the extent of the total demand from Rs.97,28,749 to Rs.72,80,604/. Penalty imposed under Section 78 is also reduced to Rs.72,80,604/-. All other parts of the impugned order are upheld. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts received from the service recipient that include a component of service tax (i.e., payments equal to LOA amount + profit + service tax) form part of the taxable value and give rise to a short-payment demand under the proviso to Section 73(1) and/or Section 73A read with Sections 75/73B of the Finance Act, 1994. 2. Whether receipts characterized as horticulture work are chargeable to service tax for the relevant years, and whether relief should be granted for horticulture receipts. 3. Whether the appellant's year-wise breakup (excel sheet) and supporting documents (award letters, bills, payment advices, LOAs) adequately link specific receipts to specific contracts/services so as to rebut the departmental claim and reduce the demand. 4. Whether penalty under Section 78 (willful suppression), and/or Sections 77/76 (contraventions of provisions/rules) are sustainable given the findings on suppression, documentary non-production and the revised demand following verification. 5. Whether the denovo adjudication and subsequent verification directed by the Tribunal were properly conducted and whether the demand requires modification on the basis of the verification report. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of amounts received inclusive of service tax (tax-on-tax) Legal framework: Tax liability arises under the Finance Act, 1994; proviso to Section 73(1)/Section 73A authorize recovery of service tax short paid; Sections 75/73B prescribe interest on such demand. Taxable value includes amounts received for provision of taxable services as per Section 65 and related provisions. Precedent treatment: No specific precedent is cited or relied upon in the impugned order; the Tribunal proceeded on documentary and ledger comparisons and statutory provisions. Interpretation and reasoning: The department's investigations, NTPC's confirmations and ledger comparisons showed that payments made against LOAs (except horticulture) included service tax (LOA amount + profit + service tax). NTPC confirmed payments were inclusive of service tax and that UPL loaded profit then service tax on LOA amounts. The Original Authority compared NTPC payment figures with amounts declared in ST-3 returns and found consistent shortfall (quantified year-wise). The Tribunal-directed joint verification failed to produce documentary vouchers linking receipts to specific LOAs in many instances. In absence of linking documents, segregation of receipts into service categories and verification of deductions could not be accepted; hence the department's conclusion that taxable value was understated was sustained subject to recalculation. Ratio vs. Obiter: Ratio - where a service recipient's records confirm payments inclusive of service tax and the provider fails to produce documentary evidence (bills/payment advices) to link receipts to non-taxable heads, the receipts inclusive of service tax may be included in taxable value and attract demand under Section 73(1)/73A with interest under Sections 75/73B. Obiter - detailed accounting methodology for loading profit then tax is explanatory rather than determinative of law. Conclusion: The Court upholds a demand for short-paid service tax on receipts (excluding admitted horticulture receipts) because NTPC's confirmations and discrepancies with ST-3 returns substantiate inclusion of the service tax component in taxable receipts; demand sustained but recalculated as per verification (reduced from Rs.97,28,749 to Rs.72,80,604). Issue 2 - Horticulture receipts and exempt/non-chargeable classification Legal framework: Taxability depends on service classification under Section 65 and notified exemptions and departmental interpretation for horticulture works. Precedent treatment: No judicial precedent discussed; the Original Authority addressed horticulture separately and granted relief to the extent supported by evidence. Interpretation and reasoning: Investigations and verification differentiated horticulture work receipts from other service receipts. The Original Authority gave relief in respect of horticulture works to the extent substantiated. The appellant disputed larger horticulture figures but failed to produce LOAs requested by verification; hence only relief already granted was retained. The Tribunal noted appellant's inability to substantiate an increased horticulture claim and found no merit to extend further relief. Ratio vs. Obiter: Ratio - where an appellant claims non-taxability (horticulture) the burden to produce LOAs and linking documents rests on the appellant; failure to produce such documents forfeits the claimed relief. Obiter - none material. Conclusion: Horticulture receipts are given limited relief as per the Original Authority's treatment; additional horticulture claims unsupported by LOAs were rejected. Issue 3 - Adequacy of appellant's documentary evidence to rebut departmental computation Legal framework: Natural justice and adjudicatory practice require production of primary documents (bills, payment advices, LOAs) to substantiate claimed receipts, deductions and categorization of services. Precedent treatment: Court/Tribunal practice requires linking documents to allow reclassification or deduction; here no external precedents cited. Interpretation and reasoning: The appellant provided an excel sheet with year-wise entries and some award letters but failed to supply bills/payment advices or many specific LOAs even after repeated directions and the joint verification exercise. Examination revealed inconsistencies: award letter amounts often did not match the excel entries; single LOAs were split across years; identical contracts were treated under different service categories in different instances - undermining reliability. Department observed absence of documentary linkage made segregation and validation of deductions (TDS, retention, reimbursements) impossible. Consequently the department's figures were given primacy subject to adjustments made during the verification exercise which produced a revised demand. Ratio vs. Obiter: Ratio - a taxpayer must substantiate claimed receipts and categorization with primary documents; inconsistent, unsourced excel summaries are insufficient to displace departmental findings. Obiter - examples of mismatches illustrate but do not create new legal tests. Conclusion: The appellant's documentary record was inadequate; therefore contested receipts could not be accepted in full and the departmental demand (modified by verification) was upheld. Issue 4 - Penalty provisions (Sections 78, 77 and others) in light of findings on suppression and documentary non-production Legal framework: Section 78 authorizes penalty for willful suppression with intent to evade tax; Section 77/76/other provisions permit penalties for contraventions of assessment/registration/return obligations; adjudication of penalty requires assessment of mens rea (willfulness) and evidence of contravention. Precedent treatment: No authority is cited; the impugned order assesses willful suppression by reference to discrepancies, NTPC confirmations and non-production of supporting documents. Interpretation and reasoning: The Original Authority imposed penalty under Section 78 equal to the confirmed demand and additional penalties under Section 77 for contraventions. The Tribunal, after directed verification, accepted that the overall demand should be reduced from Rs.97,28,749 to Rs.72,80,604 and correspondingly reduced the penalty under Section 78 to Rs.72,80,604. Other penalties were upheld. The Court reasoned that documentary non-production and inconsistent accounts supported an inference of suppression sufficient to sustain penalty, but quantum of penalty must correlate with the confirmed demand as modified by verification. Ratio vs. Obiter: Ratio - penalty under Section 78 can be sustained where the taxpayer has suppressed taxable receipts and fails to produce corroborative documents; penalty quantum should correspond to the established demand. Obiter - procedural expectations (opportunities to produce documents) clarified. Conclusion: Penalty under Section 78 and other penalties are sustainable; Section 78 penalty reduced in proportion to the revised demand resulting from the verification exercise; all other penalties upheld. Issue 5 - Effectiveness of denovo adjudication and Tribunal-directed joint verification on final demand Legal framework: Remand for denovo adjudication requires fresh consideration of evidence; Tribunal may direct joint verification to resolve factual disputes. Precedent treatment: The Tribunal's directions were implemented; no external precedents cited. Interpretation and reasoning: The Tribunal remanded for denovo adjudication; during hearing it directed joint verification. The appellant furnished some documents to the authorised representative and a verification report was produced. The Tribunal and original authority considered the verification report, observed incomplete compliance and unresolved discrepancies, and recalculated the demand accordingly. The process resulted in partial modification of the impugned order (reduction of demand and corresponding reduction in Section 78 penalty) while upholding other parts of the order. Ratio vs. Obiter: Ratio - Tribunal-directed joint verification is a valid fact-finding tool; where it yields adjusted figures those figures may form the basis of modifying demands and penalties. Obiter - the record of multiple opportunities and non-compliance supports adverse inference. Conclusion: Denovo adjudication and Tribunal-directed verification were properly utilized; the impugned order is modified to the extent the verified computation reduces the demand to Rs.72,80,604 and the Section 78 penalty is correspondingly reduced; remaining findings and penalties are affirmed.