TaxTMI 
TaxTMI 
2025 (10) TMI 967
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....The facts of the case are that the appellant is a provider of accommodation services in a guest house, which is owned by its proprietors, Mrs. Margaret Lyngdoh. The guest house consists of 15 rooms under the categories of standard rooms and deluxe rooms. Since there is no in-house restaurant, the staff arrange to procure food and drinks from nearby restaurants for consumption by the guests inside the guest house. The expenses in relation to such provision of food and drinks are borne by the guests directly, though sometimes the said charges are first incurred by the appellant/guest house and subsequently reimbursed by the guests. 2.1. The guest house in question, which was registered for providing accommodation services, used to discharge its service tax liabilities in accordance with law. The appellant regularly filed its ST-3 returns. 2.2. Mrs. Margaret Lyngodh, proprietors of the aforesaid guesthouse, had also been engaged in the supply of drugs, medicines and other pharmaceutical products to various hospitals and medical Departments of the Government through her concern, M/s Elke Drugs Distributor. The said M/s Elke Drugs Distributor had been registered with the State VAT....
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....rvice tax, interest and penalties by holding, inter alia, as under: i) That though M/s Saw Aiom Guest House and M/s Elke Drugs Distributor operated under the PAN of Mrs. Margeret Lyngdoh, the noticee had shown sale of services as 'nil' in the revised ITR-4 filed on 02.03.2017, which indicated that the noticee had not declared all material facts. Further, it was implied that the revised income tax return had not been accepted by the Income Tax Department; ii) That no reliance could be placed on the noticee's balance sheet inasmuch as the same should have been audited under Section 44AB of the Income Tax Act, 1961, which had not been done; iii) That the amount shown as sale of goods as per VAT returns exceeded the amount reflected in the original ITR-4 which was Rs. 15,48,20,076/-, whereas, the amount shown in relation to sale of food and drinks could not be accepted in the absence of supporting documents. Purportedly, there were huge mismatches in the amounts declared under the same heads of ITR-4 for the financial year 2015-16 and the unaudited balance sheet. In view thereof, the entire income reflected in the CBDT data was to be treated as income....
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....n the VAT returns were true and correct. Confirmation of Service Tax on the self-same VAT reported supplies is not sustainable, as held by the Hon'ble Supreme Court in the case of Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes, reported in 2008 (9) STR 337 (SC). The adjudicating authority failed to notice the bar under Section 66D(e) of the Finance Act read with Section 65B (44)(a)(i) thereof. III) Alleged discrepancies stood reconciled and the demands for Rs.2,22,36,568/- and Rs.18,15,309/- cannot sustain on merit 3.3. The alleged discrepancies pointed out by the service tax authorities stood duly reconciled, as would be evident from the Chartered Accountant's certificate dated 05.09.2025. From a combined reading of documents like quarterly VAT returns, the communication dated 16.01.2018 issued to M/s Elke Drugs Distributor after completion of VAT scrutiny, assessment order dated 10.10.2018 relating to the assessment year 2016-17 etc., it becomes clear that for the financial year 2015-16 M/s Margaret Lyngdoh had earned Rs. 15,32,10,776/- from net sale of drugs and pharmaceutical products and Rs.14,64,432/- from running of M/s Saw Aiom Guest House and that Rs. ....
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.... the income of Mrs. Margaret Lyngdoh for the assessment year 2016-17 had been assessed vide an assessment order dated 10.10.2018 passed under Section 143(3) of the Income Tax Act, 1961. The adjudicating authority had also erred by failing to interpret Section 44AB of the Income Tax Act, 1961 in light of Section 10(26) thereof. IV) Even otherwise, purported demands are wholly barred by limitation. 3.8. It was submitted on behalf of the appellant that in the instant case the proviso to Section 73(1) of the Finance Act could not have been invoked. There was no evidence on record to prove any fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision with the intent to evade payment of service tax on part of the appellant. The appellant's bonafide conduct was evident from the fact that it had been regularly filing ST-3 returns and paying service tax. Additionally, M/s Elke Drugs Distributor was duly licensed for the supply of drugs and medicines and all such supplies had been correctly declared in the VAT returns. Moreover, the entire demand rested on figures shown in the appellant's income tax return/Form 26AS, for which the longer period....
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....ummary - i.e., alleged short reporting of receipts vis-à-vis Debtors ledger. In the present case, we find that the Debtors contain non-taxable items such as Credit notes, exempt activities (e.g., agri handling), barge operations covered by exemption, State VAT, and pure-agent recoveries etc. In this regard, we have perused the Chartered Accountant's Certificate submitted by the appellant wherein the figures have been reconciled and excess payment has been found in two years and a minor shortfall in payment in one year, which the appellant have already paid along with interest. We observe that the Chartered Accountant is a professional who has issued the Certificate after verifying the records of the appellant and reconciled the figures. As there is no contrary evidence against the above said observations in the Chartered Accountant's certificate, we do not find any reason to reject the same. 10.1. Further, it is pertinent to mention that Courts and Tribunals have consistently quashed demands confirmed solely on the basis of Profit and Loss Account, Ledger and ST-3 comparisons without correlation to taxable services. 10.2. In the case of Forum Projects P....
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.... computed on the sales turnover." 10.1. Thus, by relying on the decision cited supra, we hold that the demand of service tax of Rs.88,051/-, confirmed merely on the basis of the differential value between the Profit & Loss Account and ST-3 returns is not sustainable and accordingly. we set aside the same." 10.3. A similar view has also been expressed in the case of Firm Foundations & Housing Pvt. Ltd. [2018 (4) TMI 613]. Page 18 of 20 Appeal No.: ST/76716/2016-DB 10.4. By relying on the ratio of the decisions cited supra, we hold that the demand of service tax of Rs.60,61,591/- confirmed in the impugned order, on the basis of difference between ST-3 and Debtors' Summary - i.e., alleged short reporting of receipts vis-à-vis Debtors ledger, is not sustainable and hence, we set aside the same. 6.1. Thus, by relying on the decision cited supra, we hold that the demand confirmed in the impugned order is not sustainable on this ground itself. 7. Regarding the merits of the case, we observe that the appellant's proprietress has also been engaged in the supply of drugs, medicines and other pharmaceutical products to various hospitals and medical Depa....
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....ed. 7.3. We also observe that income earned from operation of the guest house in question as also from supply of drugs, medicines and pharmaceutical products through M/s Elke Products Distributor was duly accounted for in the income tax documents of Mrs. Margaret Lyngdoh. We observe that the Ld. adjudicating authority has failed to acknowledge that M/s Elke Drugs Distributor was a licenced supplier of medicines, drugs and pharmaceutical products and, under no circumstance, income from sale of medicines, drugs and pharmaceutical products could be charged to service tax. All the supplies by M/s Elke Drugs Distributor which was another business concern of Mrs. Margeret Lyngdoh had been assessed to VAT for the financial year 2015-16 by the State VAT authorities. M/s Elke Drugs Distributor had also been issued 'No Objection' for the period of dispute upon completion of scrutiny, as appearing at Page Nos. 39-48 of the Paper Book, which conclusively establishes that the figures reported in the VAT returns were true and correct. The adjudicating authority ought to have noticed the bar under Section 66D(e) of the Finance Act read with Section 65B(44)(a)(i) thereof, as rightly sub....
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....ered 'works contract services'. In this regard, we hold that the figure of tax deduction at source for Rs. 1,45,225/- by the State Health Society related to supply of drugs and pharmaceutical products against M/s Elke Drugs Distributor's sale bill of Rs. 1,45,22,470/-. This is evident from the certificate issued by the Mission Director, National Health Mission, Government of Meghalaya on 18.02.2022. We find that the said document had been duly furnished at the adjudication stage vide email dated 18.02.2022 sent by the appellant's representative and yet the adjudicating authority observed that the appellant had executed works contract for Rs. 1,45,22,470/- without obtaining appropriate service tax registration. Accordingly, we hold that the demand of service tax of Rs. 18,15,309/- confirmed under the category of 'works contract services' is not sustainable. 9. In our opinion the Commissioner of CGST, Shillong also misdirected himself while recording his observations at paragraph Nos. 4.2.4, 4.2.5 and 4.2.9 of the impugned order at page Nos. 7 and 8 thereof. The Learned Commissioner erroneously recorded that the revised income tax return of Mrs. Margaret Lyngdoh ha....
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.... v. CST, Delhi, reported in 2013 (4) ECS 218 (T) = 2014 (33) STR 638 (T), which is wholly distinguishable on facts. It may also be noted that the said decision of the Tribunal was reversed on appeal by the Hon'ble Delhi High Court in Mahesh Sunny Enterprises Pvt. Ltd. v. Commr. of Service Tax, New Delhi, reported in 2014 (34) STR 21 (Del.). 10.1. We also observe that, in any event, the entire demand in the instant case rests on figures shown in the assessee's income tax return/Form 26AS, in which case the longer period under the proviso to Section 73(1) of the Finance Act could not have been invoked. Our reasoning is duly supported by the ratio laid down in the case of Balaji Machinery v. Commissioner of CGST and Excise, Patna-II, reported in 2022 (66) GSTL 440 (T) as well as the decision dated 22.11.2024 of this Tribunal in M/s Munna Construction v. Commissioner of Central Excise and Service Tax (ST/76359/2014). 11. As the demand of service tax under the category of 'accommodation service' and the demand of service tax under the category of 'works contract services' are not sustainable, we hold that the question of demand for interest or ascertained interest ....