2024 (8) TMI 1562 - AT - Service Tax

Rejection of VCES declaration - independent identity of proprietorship concern from its proprietor - applicability of Best Judgment method enumerated in Section 72 of the Finance Act, 1994 - non-determination of Service Tax dues correctly with an intent to evade payment of Service Tax - levy of penalties. Whether a proprietorship concern has an identity independent of its proprietor? - HELD THAT - There are no merits in any submissions which run contrary to the preposition that proprietorship concern has no independent identity. It has the identity of the proprietor. Commissioner has in the impugned order referred to series of decisions holding so. Hon ble Allahabad High Court has in case of Manoj Singh 2019 (5) TMI 796 - ALLAHABAD HIGH COURT observed that proprietary concern is not a company. Company in terms of the Explanation appended to Section 141 of the Negotiable Instruments Act means any body corporate and includes a firm or other association of individuals. Director has been defined to mean in relation to a firm a partner in the firm. Thus whereas in relation to a company incorporated and registered under the Companies Act 1956 or any other statute a person as a Director must come within the purview of the said description so far as a firm is concerned the same would carry the same meaning as contained in the Partnership Act. - The preposition to the effect whereby appellant has sought to argue on the basis of two his firms being registered separately with the service tax authority would not support the case of the appellant as both the firm in their registration certificate have common PAN identifier identifying them with the sole proprietor. It is evident from the ST-2 filed by the appellant that he had been providing same services from the same premises under the guise of two separately registered entities. Whether the Best Judgment method enumerated in Section 72 of the Finance Act 1994 may be applied to present proceedings? - HELD THAT - Undoubtedly appellant has not filed the ST-3 returns regularly by the prescribed date and have not assessed the tax liability on the receipts made. The fact of the appellant having not filed or irregularly filing the return beyond the due date is noted in the impugned order and also penalties have been imposed for the same in manner as prescribed by the Finance Act 1994. In such a situation resort made to the provisions of Section 72 prescribing for best judgement assessment cannot be faulted with - there are no merits in the submissions made by the appellant challenging findings arrived in the impugned order on the basis of best judgement assessment made as per section 72 of the Finance Act 1994. Whether Shri Uday Veer Singh had not determined his Service Tax dues correctly with an intent to evade payment of Service Tax? - HELD THAT - From the perusal of the above reconciliation filed by the appellant duly certified by the Chartered Accountant in the court and it is found that amount of the service tax short paid by the appellant during the entire period of dispute has been show as same. The reconciliation made by the Chartered Accountant on the basis of the books of account in fact certifies the calculations made by the adjudicating authority in para 3.31 of the impugned order. As the figures in the impugned order have been reconciled with the books of account there are no reason to doubt the correctness of figures arrived in the para 3.31 of impugned order and hold that appellant had in fact evaded the payment of this amount as service tax. Whether the demand should remain limited to the period covered in the VCES declaration filed by the noticee? - HELD THAT - It is evident that mere filing of declaration under VCES scheme is not sufficient the same could have been rejected if found substantially false and proceedings initiated against the declarant in respect of the tax not paid or short paid. In present case when in the view of revenue appellant had short paid the service tax then proceedings as per the above referred section have been contemplated. There are nothing wrong in the proceedings initiated against the appellant. Hon ble Madhya Pradesh High Court has in the case of Yashwant Agrawal Co. 2017 (2) TMI 1074 - MADHYA PRADESH HIGH COURT observed that In the present case petitioner submitted a declaration form in which he had wrongly declared that no inquiry or investigation or audit is pending against him which is a basic disqualification to avail the benefit of the Scheme therefore by virtue of Section 106 the declaration submitted by the petitioner was liable to be rejected. Section 101 is applicable to a situation where the assessee is entitled for availing the benefit of the Scheme however the issue in respect of tax dues not paid or short-paid is involved and in such a situation the limitation period of one year is provided. If the issue of entitlement to avail the Scheme is to be decided then provisions of Section 106 would apply and in the present case respondents/authority has rightly exercised the powers under Section 106 by passing the impugned order dated 16-10- 2014. Appellant have contended that the demand made on the basis of the book of accounts cannot be justified without co- relating the same with specific transaction. The book of accounts are the statutory documents made by the appellant. Balance Sheet and Profit Loss accounts are made on the basis of entries in the book of accounts which are also required to be statutorily audited. The entries in the book of accounts could not have been brushed aside on the basis of the above submission specifically when the reconciliation made by the qualified Chartered Accountant certifies the same. The demand made on the basis of the entries in such book of accounts after allowing for all the possible adjustment cannot be set aside in absence of anything contrary on record. Levy of penalties - HELD THAT - The appellant have suppressed the information with intent to evade payment of Service Tax penalty imposed on the appellant under Section 78 is upheld in view of the decisions of Hon ble Apex Court in case of Rajasthan State Spinning and Weaving Mills Ltd. 2009 (5) TMI 15 - SUPREME COURT - penalties for various contraventions imposed under section 77 (1) 77 (1) (b) 77 (1) (c) of Finance Act 1994 along with penalty imposed under Rule 7 (C) of the Service Tax Rules 1994 upheld. Conclusion - i) The appellant is the sole person liable for the service tax dues of both proprietary concerns. ii) Best judgment assessment under Section 72 was rightly applied to determine suppressed service tax dues. iii) The appellant suppressed taxable value and evaded payment of service tax with intent justifying demand interest and penalties. iv) The VCES declaration filed was substantially false and immunity under Section 108 was withdrawn. v) Amounts collected as service tax but not deposited are recoverable under Section 73A. vi) Penalties under Sections 78 77 and Rule 7(C) of Service Tax Rules 1994 are validly imposed. Appeal is dismissed.

Summary

The core legal questions considered by the Tribunal in this appeal are as follows:

1. Whether a proprietorship concern has an independent legal identity separate from its proprietor for the purposes of service tax liability and proceedings.

2. Whether the Best Judgment assessment method under Section 72 of the Finance Act, 1994, is applicable in the present case for determining service tax dues.

3. Whether the appellant had correctly determined and paid his service tax dues or had willfully evaded payment with intent to evade service tax.

4. Whether the demand for service tax should be restricted to the period covered by the Voluntary Compliance Encouragement Scheme (VCES) declaration filed by the appellant.

5. Whether the amounts collected as service tax but written off or not deposited with the exchequer are recoverable under Section 73A of the Finance Act, 1994.

6. Whether penalties and interest are properly imposed under the relevant provisions of the Finance Act, 1994 and 2013, and Service Tax Rules, 1994.

7. Whether the appellant was eligible to file a VCES declaration for the period declared, given prior filing of service tax returns for that period.

Issue-wise Detailed Analysis:

1. Legal Identity of Proprietorship Concern

Legal Framework and Precedents: The Tribunal examined the legal position that a proprietorship concern is not a separate legal entity distinct from its proprietor. It relied on authoritative decisions including the Supreme Court ruling in Ashok Transport Agency v. Awadesh Kumar (1998), and various High Court decisions such as S.K. Real Estates v. Ashok Meeran (Madras HC), and the Allahabad High Court in Manoj Singh (2019). These authorities establish that a proprietorship concern is merely a trade name and the proprietor is the real person liable in law.

Court's Interpretation and Reasoning: The Tribunal held that the appellant, though operating two registered proprietary concerns, is the single legal entity liable for service tax. The registrations under different business names with the same PAN do not create separate legal entities. The proprietor and the proprietary concerns are one and the same person for tax purposes.

Application to Facts: The appellant's contention that demands raised on him by clubbing two proprietary concerns were arbitrary was rejected. The Tribunal emphasized that the appellant's use of multiple trade names does not shield him from consolidated tax liability.

Conclusion: The Tribunal affirmed that the proprietor alone is liable for service tax dues, and the proprietary concerns have no independent legal identity.

2. Applicability of Best Judgment Assessment under Section 72

Legal Framework: Section 72 of the Finance Act, 1994 empowers the tax authority to make a best judgment assessment if the assessee fails to furnish returns or assess tax correctly. The Tribunal also referred to the Delhi High Court decision in National Building Construction Company (2019) and CESTAT Bangalore in Fort Health Club (2010) to elucidate the scope of Section 72.

Court's Reasoning: The appellant had failed to file timely ST-3 returns for certain periods and had not correctly assessed tax on receipts. The Tribunal held that resort to best judgment assessment was justified and not arbitrary, as the appellant failed to provide adequate records or explanations.

Application to Facts: The appellant's failure to maintain separate accounts for the two proprietary concerns and to file returns for all periods led to reliance on best judgment assessment based on available documents such as balance sheets and income tax returns.

Conclusion: The Tribunal upheld the use of best judgment assessment to determine the correct service tax dues.

3. Determination of Service Tax Dues and Intent to Evade

Legal Framework: Sections 66, 67, 68, 70, 73A of the Finance Act, 1994, Rule 6 of Service Tax Rules, 1994, and Point of Taxation Rules, 2011 govern determination and payment of service tax. Case law on burden of proof and onus to prove exemption was cited, including Supreme Court decisions such as CCE v. Harichand Shri Gopal and Hotel Leela Ventures.

Court's Interpretation: The Tribunal found that the appellant had suppressed taxable receipts by splitting income between two proprietary concerns and not declaring the full value of taxable services in ST-3 returns. The appellant's claim that service tax could not be demanded without identifying each transaction was rejected because the department had reconciled income tax returns, balance sheets, and service tax returns, excluding non-taxable income. The appellant's failure to maintain proper accounts and issue invoices was also noted.

Key Evidence and Findings: The Tribunal relied on reconciliations of income tax returns, balance sheets, and service tax returns, which showed suppression of taxable value amounting to Rs. 1,95,52,026/-. The appellant had also written off service tax collected from clients but not deposited with the government (Rs. 1,01,347/-). The appellant failed to produce evidence such as loan contracts or Chartered Accountant certificates to justify the nature of advances claimed as loans.

Application of Law to Facts: The Tribunal applied the statutory provisions to hold that the appellant was liable to pay service tax on suppressed income, advances received, and amounts collected but not deposited. The onus was on the appellant to prove any claimed exemptions or non-taxability, which he failed to discharge.

Treatment of Competing Arguments: The appellant's arguments about the nature of transactions, cancellation of bookings, and timing of service completion were rejected as afterthoughts or lacking merit. The Tribunal noted that the appellant had been aware of the legal provisions but failed to comply.

Conclusion: The appellant was held liable for service tax dues of Rs. 20,65,472/- plus Rs. 1,01,347/- collected but not deposited, with interest and penalties.

4. Limitation of Demand to Period Covered by VCES Declaration

Legal Framework: Sections 105 to 111 of the Finance Act, 2013, govern the VCES scheme, including eligibility, declaration, payment, immunity, and consequences of false declaration.

Court's Interpretation: The appellant had filed a VCES declaration for a limited period (April 2011 to September 2012) despite having filed returns for that period, making him ineligible under Section 106(1) proviso. Further, the declaration was found to be substantially false as it did not disclose full tax dues for the entire period from 1.10.2007 to 31.12.2012 as required by Section 105(e). The Tribunal relied on the Gujarat High Court decision in Sadguru Construction Company to hold that all tax dues for the specified period must be declared.

Application to Facts: The Tribunal held that the immunity under Section 108 of the Finance Act, 2013 was rightly withdrawn due to the substantially false declaration. The demand was not limited to the declared period but extended to the full period covered under the scheme and limitation provisions.

Conclusion: The demand for service tax was valid beyond the period covered by the VCES declaration, and immunity was withdrawn.

5. Recovery of Service Tax Collected but Not Deposited

Legal Framework: Section 73A of the Finance Act, 1994 mandates recovery of service tax collected from clients but not deposited with the government.

Court's Reasoning: The appellant admitted writing off Rs. 1,01,347/- collected as service tax but not paid to the exchequer. The Tribunal held that such amounts cannot be written off and are recoverable. The appellant failed to provide evidence to justify the write-off.

Conclusion: The amount collected but not deposited is recoverable under Section 73A.

6. Imposition of Penalties and Interest

Legal Framework: Sections 75, 76, 77, 78 of the Finance Act, 1994, and Rule 7(C) of Service Tax Rules, 1994, govern interest and penalties for delayed payment, non-filing of returns, suppression, and evasion. The Tribunal referred to Supreme Court rulings including Pratibha Processors v. Union of India, Dharamendra Textile Processors, and others, which clarify that penalty under Section 78 is mandatory once the conditions are met and mens rea is not essential.

Court's Interpretation: The appellant's failure to file returns timely, suppression of taxable value, and evasion of service tax were held to justify imposition of penalties under Section 78 and not under Section 76, as the latter is not applicable where fraud or willful misstatement is involved. Interest was held to be compensatory and payable on delayed payment.

Application to Facts: Penalties totaling Rs. 21,66,819/- under Section 78, Rs. 30,000/- under Section 77(1) clauses (b), (c), (e), and Rs. 94,000/- under Rule 7(C) were imposed. Interest was also imposed under Section 75.

Conclusion: Penalties and interest were validly imposed and recoverable.

7. Eligibility to File VCES Declaration

Legal Framework: Section 106(1) of the Finance Act, 2013 disqualifies persons who have filed returns disclosing true liability for the period covered from filing VCES declarations for that period.

Court's Interpretation: Since the appellant had filed ST-3 returns for the period April 2011 to September 2012, he was ineligible to file a VCES declaration for that period. Filing such a declaration was held to be substantially false under Section 111.

Conclusion: The appellant's VCES declaration was liable to be rejected and immunity withdrawn.

Other Relevant Findings:

The Tribunal rejected the appellant's claim that service tax cannot be levied merely on financial entries without correlating specific transactions, holding that reconciled books and returns are sufficient evidence. It also held that advances received are taxable unless proven otherwise, and the appellant failed to produce necessary evidence to support claims of loans or prior payment of service tax on advances. The appellant's failure to maintain proper records, issue invoices, and reconcile accounts was also noted as aggravating factors.

Significant Holdings:

"The proprietor and its proprietary concerns cannot be distinguished from each other being one and the same. The Business name adopted for proprietary concerns acts only a brand of the proprietor for convenience of the business activity undertaken by him. The proprietary concern does not have any separate legal or juristic identity independent of its proprietor."

"Section 72 of the Finance Act, as the heading states, empowers and authorises the Central Excise Officer to make and pass an order known as 'best judgment assessment'. The expression 'best judgment assessment' in tax enactments refers to fair estimate and reasonable determination of the taxable amount made by the Assessing Officer, when it is not possible to compute the taxable amount on the basis of records and material made available."

"The appellant had willfully suppressed the facts regarding the correct value of taxable service rendered by him, made wilful mis-statement, contravened provisions of chapter-V of the Finance Act-1994 and rules made there-under, with intent to evade payment of Service Tax."

"Any person who has furnished return under Section 70 of the Chapter and disclosed his true liability, but has not paid the disclosed amount of service tax or any part thereof, shall not be eligible to make declaration for the period covered by the said return."

"Section 111 of the Finance Act, 2013 provides that where the Commissioner has reasons to believe that the declaration made by a declarant under the VCES Scheme was substantially false, he may reject the declaration and initiate proceedings for recovery of tax dues not paid or short paid."

"Penalty under Section 78 of Finance Act-1994 is imposable upon a person who has willfully suppressed facts or made misstatements with intent to evade payment of Service Tax. Mens rea is not an essential element for imposing penalty for breach of civil obligations."

"Interest under Section 75 is compensatory in nature and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable."

"The demand for service tax cannot be limited to the period covered by the VCES declaration if the declaration is found to be substantially false. The entire period specified under Section 105(e) must be considered."

"The amounts collected as service tax but not deposited with the exchequer cannot be written off and are recoverable under Section 73A."

"The appellant's failure to file timely returns and maintain proper books of account attracts penalty under Rule 7(C) of Service Tax Rules, 1994."

Final Determinations:

- The appellant is the sole person liable for the service tax dues of both proprietary concerns.

- Best judgment assessment under Section 72 was rightly applied to determine suppressed service tax dues.

- The appellant suppressed taxable value and evaded payment of service tax with intent, justifying demand, interest, and penalties.

- The VCES declaration filed was substantially false and immunity under Section 108 was withdrawn.

- Demand is valid for the entire period specified under the Finance Act, 2013, not limited to declared period.

- Amounts collected as service tax but not deposited are recoverable under Section 73A.

- Penalties under Sections 78, 77 and Rule 7(C) of Service Tax Rules, 1994 are validly imposed.

- The appeal is dismissed with all demands, interest, and penalties upheld.