2026-VIL-1714-CESTAT-KOL-ST
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SERVICE TAX CESTAT Cases

Service Tax – Validity of demand founded on comparison of returns with payment challans without independent verification – Show Cause Notice alleged short-payment of Service Tax for April 2015 to March 2017 on the basis of discrepancies between the ST-3 Returns, the GAR-7 challans and the Statement of Accounts. The demand was confirmed in de novo adjudication after the Tribunal remanded the matter to examine the revised ST-3 Returns. The adjudicating authority held that the revised Returns were already considered in the Show Cause Notice – Whether a demand formulated on a mere comparison of figures, without independent investigation and without examining the revised Returns as directed in remand, is sustainable – HELD – A comparison of figures in the Returns with the challans may be a starting point but cannot by itself constitute the investigation. The Department was required to ascertain the underlying transactions, the nature of the services, the status of the recipients and the governing statutory provisions. The Show Cause Notice gave no service-wise quantification and no computation showing how the distinct allegations culminated in the aggregate demand. The observation that the revised Returns were considered in the notice is factually incorrect, as they were filed about one year after its issuance. Once a matter is remanded for examination of a particular aspect, it must be addressed with a reasoned finding, and mechanical reiteration of the demand is impermissible. An allegation based on identical taxable values in two categories is a clerical error and is untenable without further investigation. The deficiencies strike at the foundation of the liability and the demand is set aside – Appeal allowed - Service Tax – Manpower recruitment or supply agency service – Reverse charge under Notification No. 07/2015-S.T. dated 01.03.2015 – Appellant, a proprietorship concern registered for manpower supply, contended that the services were rendered to body corporates, so the liability stood shifted to the recipients. The Respondent proceeded on gross figures in the Returns without examining individual transactions – Whether the Appellant is liable to pay Service Tax on manpower supply services rendered to body corporates – HELD – The sample invoices describe the service as charges for providing manpower towards dismantling and mechanical erection work. This establishes that the services are manpower supply services rendered to body corporates. The Respondent produced no contrary evidence, and the benefit cannot be rejected merely on gross figures in the Returns. The liability stands shifted to the service recipient under Notification No. 07/2015-S.T. – Demand on this count is not sustainable - Service Tax – Classification of erection, commissioning or installation service as works contract service – Partial reverse charge and valuation under Rule 2A of the Service Tax (Determination of Value) Rules, 2006 – Appellant contended that the services declared as erection, commissioning or installation service were works contract services, the classification in the Returns being a clerical error. The Respondent relied on an earlier Show Cause Notice to hold otherwise – Whether the services are works contract services eligible for partial reverse charge and valuation for original works – HELD – The sample invoices and work orders show that materials were involved, and consideration was linked to placement of material on the foundation. The Respondent brought no independent material to show why the contracts necessarily fell within erection, commissioning or installation service. The services including materials are classifiable as works contract service, so the partial reverse charge under Notification No. 07/2015-S.T. is available and the entire liability cannot be fastened on the Appellant. The nature of the work reflects substantive structural modification, so the claim of valuation for original works carries weight. The CENVAT Credit availed is to be reversed as undertaken by the Appellant. The adjudicatory process cannot commence with a conclusion – Demand on this count is not sustainable - Service Tax – Services rendered in relation to Special Economic Zone unit – Exemption – Procedural lapse – Appellant rendered services at the premises of an SEZ unit through a contractor and produced certificates from the Assistant Development Commissioner and the contractor with the list of invoices, but not Forms A1 and A2. The Respondent denied the exemption for want of documents – Whether the exemption can be denied for want of Forms A1 and A2 – HELD – The certificates substantially support the claim that the services were rendered in connection with the authorised operations of the SEZ unit. The Respondent produced no evidence that the services were outside authorised operations or were diverted to the Domestic Tariff Area. A substantive benefit cannot be denied for procedural infractions when the other requirements are fulfilled. The Tribunal had also set aside the demand on services in the same SEZ area in the Appellant's own case. The services are exempt – Demand on this count is not sustainable - Service Tax – Reconciliation statement supported by Chartered Accountant's Certificate – Evidentiary value – Appellant furnished a reconciliation statement giving effect to the revised Returns, the reverse charge, the works contract classification, the valuation provisions and the SEZ exemption, supported by a Chartered Accountant's Certificate – Whether the reconciliation can be accepted to hold that no further liability remains – HELD – A reconciliation statement is not conclusive proof by itself. The Certificate, however, represents a professional's considered certification after verification of books and records, and cannot be rejected without cogent reasons or verified factual errors. The reconciliation proceeds from the very records on which the Respondent founded the demand and is not a bald denial of liability. The reconciled computation merits acceptance, and the demand is unsustainable on the substantive merits as well - Service Tax – Pre-Show Cause Notice consultation – Mandatory requirement under Board's Instruction dated 21.12.2015 and clarification dated 10.03.2017 – Show Cause Notice was issued on 10.04.2018 without pre-consultation. The adjudicating authority found force in the objection but declined to decide it, as the Department had appealed against the judgment of the Delhi High Court in Amadeus India – Whether the Show Cause Notice issued without mandatory pre-consultation is vitiated – HELD – Pre-consultation was mandatory during the relevant period and was made non-mandatory in cases involving suppression only by the Circular dated 11.11.2021. The mere pendency of an appeal, without any stay or contrary binding decision, does not efface the legal position in Jay Mahakali Industrial Service and SIS Ltd. The Appellant had responded to the initial communication and furnished the documents called for, and the discrepancies were later shown to be capable of explanation. The denial of consultation caused manifest prejudice and is not a mere procedural irregularity. The failure goes to the root of the proceedings and vitiates the Show Cause Notice. The demand along with interest and penalties is set aside and the appeal is allowed with consequential relief, if any.
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