Service tax demand based on Form 26AS quashed; exempt job work under Notif 25/2012-ST, penalty under s.78 deleted

CESTAT allowed the appeal, setting aside the residual service tax demand and penalty. The Dept had raised demand solely on the basis of third-party data in Form 26AS, treating gross receipts as taxable value. The Adjudicating Authority had already dropped most of the demand, accepting that receipts were for exempt job work of textile/fabric printing under Sr. No. 30(ii)(a) of N/N. 25/2012-ST, but confirmed tax on receipts from one client due to absence of a certificate. CESTAT held that, once the activity is accepted as exempt job work, no differential treatment is permissible, and penalty under s.78 also cannot survive.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether receipts for job work of printing of textiles/fabrics, as reflected in Form-26AS, including receipts from a particular client, are exempt from service tax under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST dated 20.06.2012.

1.2 Whether the demand of service tax on receipts from a particular client could be sustained when supporting documentary evidence (certificate confirming nature of services) was produced at the appellate stage and the same nature of receipts from another client had already been accepted as exempt.

1.3 Whether penalty under Section 78 of the Finance Act, 1994 could survive when the underlying demand of service tax is held to be unsustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Exemption for job work of printing textiles under Notification No. 25/2012-ST and sustainability of demand on receipts from one client

Legal framework (as discussed):

2.1 The Adjudicating Authority recorded that "services of job work related to printing of textile are exempted from payment of service tax" as per Notification No. 25/2012-Service Tax dated 20.06.2012, specifically under Sr. No. 30(ii)(a), and applied this exemption to receipts from one client after verification of documents and certificate.

Interpretation and reasoning:

2.2 The proceedings were initiated solely on the basis of third-party data from the Income Tax Department, taking the gross receipts in Form-26AS as taxable value and proposing service tax on the entire amount.

2.3 On examination of documents, the Adjudicating Authority accepted that receipts from one client (amounting to Rs. 41,47,791/-) were on account of "job work related to printing of textile" and, based on delivery challans/invoices and a certificate from that client, held such services to be covered under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST and therefore exempt.

2.4 For the remaining receipts of Rs. 4,54,916/- from another client, the Adjudicating Authority denied exemption only on the ground of absence of contemporaneous documentary evidence regarding the nature of services; a few invoices were found insufficient as the "nature of transaction is not mentioned therein". On that basis, the amount was treated as taxable and service tax of Rs. 68,237/- was confirmed.

2.5 The Tribunal noted that a certificate dated 20.03.2024 issued by the second client for Rs. 4,54,916/- was subsequently produced, confirming that the receipts were on account of job work related to printing of textiles/fabrics. The Tribunal further recorded that this certificate had also been submitted before the first appellate authority but was not taken into cognizance.

2.6 The Tribunal observed that the entire receipts reflected in Form-26AS pertain to printing of textiles/fabrics on job work basis, and that "the majority of the demand was dropped on the basis of documents and certificate" from the first client. It reasoned that, once it is held that job work receipts on account of printing of textiles/fabrics received by the assessee are exempt under Sr. No. 30(ii)(a) of Notification No. 25/2012-ST, there is no basis to take a different view for the similar receipts from the other client, particularly in the presence of a confirming certificate.

2.7 On this reasoning, the Tribunal held that the demand of service tax on Rs. 4,54,916/- from the second client, founded only on initial non-production of a certificate, could not be sustained after the certificate confirming the same nature of job work services was placed on record.

Conclusions:

2.8 Services of job work related to printing of textiles/fabrics rendered by the assessee fall within Sr. No. 30(ii)(a) of Notification No. 25/2012-ST and are exempt from service tax.

2.9 The receipts of Rs. 4,54,916/- from the second client, being of the same nature (job work of printing textiles/fabrics) and duly supported by a certificate, are also exempt; the demand of service tax of Rs. 68,237/- on this amount is unsustainable and is set aside.

Issue 3: Sustainability of penalty under Section 78 of the Finance Act, 1994

Interpretation and reasoning:

2.10 The Adjudicating Authority had imposed penalty equal to the tax amount under Section 78 for alleged suppression of value of taxable services, and the first appellate authority had upheld this penalty while setting aside penalties under Section 77.

2.11 The Tribunal, having held that the receipts in question are exempt and that the service tax demand itself is not sustainable, concluded that the foundation for invoking Section 78 no longer exists.

Conclusions:

2.12 With the service tax demand set aside on merits, the penalty imposed under Section 78 is also unsustainable and is accordingly set aside.

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