Demand for 2014-15 merely on the ground of diff value per 26AS staement Vis-a vis ST 3 returns

[Subhash Kulkarni]

Sir,

-ST demands merely based on diff between the value appearing as per IT returns (26AS Form) under the pretext that the assessee did not respond to the Dept with desired docs such as B/s., P & L A/c , Trial balance for April 17 to June 17 etc

- Audit under EA 2000 conducted by Dept for the entire period upto June 2017 (pre-GST) based on the docs so desired above and hv in fact been provided to audit team

- Based on scrutiny and verification of all the records, the deficiencies towards short payment of ST observed by Audit group for the period upto June 2017

-In line with SVLDR scheme, the assessee opted for payment of dues without goint into further litigations and made the payments which has been accepted and neecessary certificate to the extent in prescribe f Form too has been issued

- With the above factual positions, whether Dept is at liberty to challange the Reco with IT returns for the -period upto June 2017 ?

- Whether the extended period is invokable ?

- For the period Aperil to June 2017, despite the fact that all the records were filed, whether the SCN demanding the ST on best judgement is valid ?

Your comments and help along with case law shall be haighly obliged

[KASTURI SETHI]

Query-wise views are as follows:-

1. Answer is NO. Demand can be raised only on the basis of solid documentary evidence regarding evasion of Service Tax against the party . Mere difference between the value declared in ST-3 and Income declared in Income Tax return is not sufficient to issue demand SCN. In November, 21, CBIC has issued instructions to this effect. It was also in the news.

(2) SCN issued on the basis of audit conducted by the department is not sustainable at all because extended period is not invokable on the basis of audit.. There are case laws to thiis effect in favour of assessee.

(3) As per Section 129(c) of Finance (No.2) Act, 2019, if declaration is subsequently found to be false, within one year of issue of the discharge certificate, it shall be presumed as if declaration was never made and proceedings under the applicable indirect tax enactment shall be instituted. Thus the case can be re-opened and SCN can be issued in a routine manner. Also read Section 129(2)(b) of Finance (No.2) Act, 2019.

(4) If there is falsification of facts, the extended period can be invoked. The Supreme Court's Order covers the past period for issuance of SCN invoking extended period.

(5) Go through Section 72 of the Finance Act which is very much clear and extracted below:-

"SECTION [72. Best judgment assessment. - If any person, liable to pay service tax, -

(a) fails to furnish the return under section 70;

(b) having made a return, fails to assess the tax in accordance with the provisions of this Chapter or rules made thereunder,

the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.]"

[KASTURI SETHI]

Also go through the following case law which is based on the judgement of Supreme Court.

2021 (11) TMI 174 - CESTAT NEW DELHI M/S. DELTA POWER SOLUTIONS INDIA PVT. LTD. VERSUS COMMISSIONER, CUSTOMS, CENTRAL EXCISE & SERVICE TAX, COMMISSIONERATE, HAPUR

[KASTURI SETHI]

"Demand - Limitation - Extended period - Suppression of facts - Show cause notice being issued on the basis of the Audit of records maintained by the appellants, suppression of facts cannot be alleged - Extended period not invocable - Section 11A of Central Excise Act, 1944. [para 8]" 2020 (7) TMI 555 - CESTAT BANGALORE in the case Tally Solutions (P) Ltd.

[Shilpi Jain]

If it was a mere case of difference between ST returns and IT returns, why have you opted for svldr? This demand could not have materialised unless exact nature of income identified and found to be taxable under ST

[Amit Agrawal]

Dear Sh. Subhash Kulkarni,

Without actually going through contents of SCN, relevant facts as well as various documents stated by you in your query, I find it diififult to give comprehensive answers.

But, let me try and give you some pointers:

As start of your query, it is stated that 'ST demands merely based on diff between the value appearing as per IT returns (26AS Form) under the pretext that the assessee did not respond to the Dept with desired docs such as B/s., P & L A/c , Trial balance for April 17 to June 17 etc'.

It will be stand of Dept. that they are forced to resort to best judgement assessment u/s 72 (based on diff between the value appearing as per IT returns (26AS Form)) because prior to issuances of SCN, department had asked noticee to submit certain information / document which were not submitted.

As the time of issuance of SCN, concerned officer may not even be aware of various other facets explained by you in your query. Now, as SCN is already issued, only real option is to submit a comprehensive reply to the SCN - both on merits as well as limitation.

If noticee actually never received 'prior' enquiry from Dept. (i.e. before issuance of SCN) though SCN alleges otherwise, noticee should ask from original adjudicating authority for evidence of date-delivery of such communication and then, submit his additional defense/s challenging entire basis of using best judgement assessment u/s 72.

One more thing, when you got this SCN demanding tax for FY 2014-2015? Please also check if demand is raised even beyond five years from relevant date. And if so, please add suitable defense therefor.

All above should be treated as strictly personal views of mine only and not a professional advice / suggestion.

[KASTURI SETHI]

A case law in favour of the querist.

2017 (12) TMI 966 - CESTAT NEW DELHI DELTAX ENTERPRISES Versus COMMISSIONER OF CENTRAL EXCISE, DELHI-I

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

In the present case, the assessee is covered under Section 72(b) of the Finance Act. Section 72 neither talks of SCN nor time limitations. It talks of only affording a personal hearing before passing Best Judgement Assessment Order. Even then the department has issued SCN in this case.

Your views please, Sir.

[Amit Agrawal]

Sh. Kasturi Sethi Ji,

W.r.t. your post No. 7 above, my views are as under:

A. While as per SCN, the noticee is allegedly covered under Section 72(b) of the Finance Act, it is for noticee to defend itself against such allegation.

A1. Mere difference between ITR / TDS records with service tax returns - by itself (i.e. without giving prior opportunity to assesses to explain the difference) - is not sufficient for proceedings u/s 72, as ruled in the one of case law shared by you here in earlier post.

B. I agree with you that Section 72 does not talk about SCN but only for giving the person an opportunity of being heard. But for giving effective opportunity of hearing and to give noticee full natural justice therein, it is incumbent for Dept. to explain things like:

1. Why best judgement u/s 72 is proposed to used;

2. What is required to be produced such accounts, documents or other evidence - by the noticee / assessee - as officer may deem necessary;

3. Details of all the relevant material which is available with officer or which officer has gathered etc.

Now, whether officer useds the word 'SCN' or issue a simple letter (without using the word - SCN) to explain / convey all above things to the noticee - while providing opportunity of hearing - is merely matter of semantics in my respectful submission.

B1. But by using the word 'SCN' for such proceedings u/s 72, officer actually ensures that legal controversy (if any) - about need to issue SCN for proceedings u/s 72 - itself gets avoided.

C. However, it can also be seen that Section 72 does not empower officer to levy penalties (say under Section 78) or to demand interest u/s 75 (Please ignore the question / controversy whether interest needs to be specifically demanded or it is presumed / automatic, just to limit the scope of current discussion).

C1. To overcome this limitation (as well as to cover what is stated by me below in Para D & D1), Dept. needs to issue SCN u/s 73 by stating that the 'service tax which has not been levied or paid or which has been short-levied or short-paid' is calculated using best judgement assessment u/s 72 (while also giving reasons / justification for using such method of Section 72 in very same SCN).

D. While it is also true that Section 72 does not talk about time limitations, it is well settled position of law that wherever law is silent, such proceedings should be initiated within 'reasonable time'.

D1. As when very same law gives normal time of 18 / 30 months and extended time of 5 years from relevant date in two different scenarios explained in Section 73, it is my respectful submission, very same time-limit (i.e. two different time-limits for two different scenarios) applies even for initiating the proceedings u/s 72.

D2. Proceedings u/s 72 are 'exceptional' in nature and same cannot be read / interpreted, in my humble view, as to make it a tool for Dept. to overcome time-limitations prescribed u/s 73 (where majority types of recovery proceedings gets initiated by Dept).

D3. My views gets further support due to 'limitations' pointed in Para C where Dept. has to resort to issue the SCN u/s 73.

D4. Purely as an alternative argument against no-time-limit for proceedings u/s 72, I wish to quote Rule 5 (3) of the service tax rules, 1994 wherein 'assessee is supposed to preserve all specified records at least for a period of five years immediately after the financial year to which such records pertain'.

D4.1. Now, no-time-limit for initiating proceedings u/s 72 basically means that assessee will be left with no real means to defend itself if proceedings u/s 72 is initiated after said period of five years is over and when assessee destroyed all its records (as being allowed u/r 5 (3). Being blatantly unfair to any assessee, I do not see court accepting such no-time-limit argument for initiating proceedings u/s 72.

All above should be treated as strictly personal views of mine only and not a professional advice / suggestion. And I respect contrary views.

[Amit Agrawal]

Please read Para C1 in above post as follows:

C1. To overcome this limitation (as well as to cover what is stated by me below in Para D & D1), Dept. needs to issue SCN u/s 73 by stating that the 'service tax which has not been levied or paid or which has been short-levied or short-paid' is proposed to be calculated using best judgement assessment u/s 72 (while also giving reasons / justification for using such method of Section 72 in very same SCN).

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

I have perused your views word for word. You have laid more emphasis on 'what should be' inserted in Section 72 in the interest of natural justice because in your views Section 72 is a hurdle in providing natural justice to the assessee. Now it is a matter of bye-gone era. Finance Act, 94 (Service Tax law) stands repealed now. Under GST, time limit has been included. GST also talks of a notice and not SCN under Best Judgement Assessment.

Thanks a lot for your posting your views. I agree with your views.

One more suggestion : You always post disclaimer at the end of your reply. I think there is no need for posting disclaimer by us because TMI has already protected the experts by way of disclaimer.

AI Summary

Best judgment assessment cannot rest solely on return-to-return discrepancies; documentary proof of suppression is required. Demand based solely on discrepancies between income tax records and service tax returns is inadequate unless supported by independent documentary evidence of suppression or mis-declaration; best-judgement assessments require production of accounts and opportunity to be heard, and extended limitation may be invoked only where falsification or concealment is demonstrable, while prior scheme-based discharge may be reopened if false declarations are subsequently established.