2025 (7) TMI 483 - AT - Service Tax

Levy of service tax - comparison of receipts of the Appellant as declared for income tax and in ST-3 returns - consideration received from NLC includes the amounts received for works contract services which were mistakenly shown under Maintenance and Repairs Service - HELD THAT - The Original Authority has accorded opportunity of personal hearing on 17.11.2014 08.12.2014 15.12.2014 15.01.2015 and lastly on 06.02.2015. The Appellant had not availed the opportunities provided to him. It is also evident that the Appellant has not submitted any reply to the Show Cause Notice No. 22/2014-ST dated 21.04.2014. There was no response from the Appellant to the Letters of the Superintendent of Central Excise and Service Tax Neyveli Range with reference to information sought and questions raised. As per the income tax statements the total taxable income of the Appellant was declared as Rs.7, 57, 06, 566/- whereas the taxable value of services rendered as declared in the ST-3 returns was only Rs.2, 88, 19, 435/-. Thus the difference in the taxable value as declared in the income tax statements and ST-3 returns was Rs.4, 68, 87, 131/- which can be termed as huge requiring reconciliation. The Appellant has not participated in the adjudication proceedings by not giving any reply and by not availing an opportunity of the personal hearing. Thus there is no compliance to the principles of natural justice due to the Appellant s apathy and non-responsive attitude. The adjudication process could not have been stifled in this way. In the absence of information from the Appellant it is not possible to decide the issues in this appeal. As such the Original Authority is directed to decide the issues afresh after receiving a reply from the Appellant. The Appellant is also directed to co-operate with the authorities by filing a reconciliation statement at the earliest. Strict compliance to principles of natural justice has to be ensured and all the issues are open. The appeal is allowed by way of remand for fresh determination by the Original Authority within a period of six months from the date of communication of this order.

Summary

The core legal questions considered in this appeal include:

1. Whether the extended period for service tax demand under the proviso to Section 73(1) of the Finance Act, 1994, was validly invoked by the Revenue against the Appellant.

2. Whether the Appellant had suppressed facts or failed to disclose taxable service receipts, justifying the invocation of extended limitation period.

3. The correctness and legality of the service tax demand based on the discrepancy between income declared in Income Tax returns (Form 26AS) and taxable turnover declared in ST-3 returns.

4. Whether the Show Cause Notice issued by the Department was valid and sufficiently detailed, particularly regarding the classification of services and the basis of demand.

5. The applicability of principles of natural justice in the adjudication process, especially in light of the Appellant's non-participation and failure to submit replies or attend hearings.

Issue-wise Detailed Analysis

1. Validity of Invocation of Extended Period under Section 73(1) Proviso

The legal framework governing the extended period for service tax recovery is Section 73(1) of the Finance Act, 1994, which allows the Revenue to demand tax beyond the normal limitation period if there is evidence of suppression of facts or fraud. The Appellant challenged the invocation of extended period on the ground that the Revenue was already aware of all relevant facts, having issued a prior Show Cause Notice for an overlapping period, and thus the extended period demand was not sustainable.

The Court referred to the Supreme Court precedent which held that when the Revenue is aware of all facts at the time of the first notice, subsequent invocation of extended limitation periods on the same facts is impermissible. The Appellant relied on this principle to argue that the second Show Cause Notice dated 21.04.2014 invoking the extended period was legally untenable.

However, the Court noted that the Appellant had not participated in the adjudication proceedings and failed to provide any explanation or reconciliation of the discrepancies in declared income and taxable turnover. This non-cooperation limited the Court's ability to conclusively determine whether suppression of facts had occurred. Consequently, the Court did not outrightly reject the invocation of extended period but emphasized the need for fresh adjudication after proper participation by the Appellant.

2. Discrepancy Between Income Tax Declarations and ST-3 Returns

The Department's demand arose from a significant difference between the income declared in Form 26AS (Rs.7,57,06,566/-) and the taxable turnover declared in ST-3 returns (Rs.2,88,19,435/-) for the period from October 2008 to March 2013, resulting in a short-declared taxable value of Rs.4,68,87,131/- and consequent service tax demand of Rs.53,72,124/-.

The Appellant contended that the difference arose because the declared taxable value in ST-3 returns reflected works contract services after abatement, while the income tax returns showed gross receipts. The Appellant also argued that the entire contract receipts were inadvertently disclosed under Maintenance or Repairs Service in ST-3 returns, leading to classification issues.

The Court observed that the Appellant did not submit any reconciliation or explanation during the adjudication process despite multiple opportunities. The absence of any reply or participation meant the Department's comparison stood unrebutted. The Court held that the onus was on the Appellant to reconcile the differences and clarify the nature of services rendered, especially since no service tax was paid for several half-yearly periods despite substantial income declared for income tax purposes.

3. Validity and Sufficiency of the Show Cause Notice

The Appellant challenged the Show Cause Notice on grounds that it was vague, did not specify the exact nature or category of taxable services, and failed to provide a clear basis for the demand. It was argued that the Department should have obtained detailed payment and contract information from the principal service recipient, M/s. Neyveli Lignite Corporation (NLC), to substantiate the demand.

The Court referred to a Tribunal precedent involving similar facts where show cause notices lacking clarity on the nature of taxable services and failing to specify the basis of demand were held to be defective and liable to be quashed. However, in the present case, the Court found that the Appellant's failure to respond or avail hearings deprived the adjudicating authority of any opportunity to clarify or rectify such defects.

Thus, the Court rejected the contention that the Show Cause Notice was invalid solely on the basis of vagueness or lack of clarity, emphasizing that the Appellant's non-cooperation was a significant factor preventing resolution of the issues.

4. Principles of Natural Justice and Adjudication Process

The Appellant's non-participation in the adjudication process despite multiple opportunities was a critical issue. The Court underscored the importance of compliance with principles of natural justice, which require that the assessee be given a fair chance to present their case and respond to allegations.

Since the Appellant neither submitted replies to the Show Cause Notice nor appeared for personal hearings, the Court concluded that the adjudication process was incomplete and the principles of natural justice were not satisfied. The Court held that the adjudicating authority could not proceed to finalize the demand without the Appellant's participation.

Accordingly, the Court remanded the matter to the Original Authority for fresh adjudication after the Appellant submits a reconciliation statement and participates meaningfully in the proceedings, directing strict adherence to natural justice.

5. Applicability of Precedents Regarding Classification and Taxability of Services

The Appellant relied on a High Court decision which emphasized the necessity of clear service-wise classification to determine taxability, exemptions, and liability. The Court acknowledged the principle that classification is a prerequisite for valid demand, but noted that the Appellant failed to provide any service-wise details or evidence to rebut the Department's assessment.

In absence of such particulars, the Court found it reasonable for the Department to rely on the available data from income tax returns and ST-3 filings to raise the demand, subject to verification and reconciliation by the Appellant.

Conclusions on Issues

The Court concluded that:

- The invocation of extended period under Section 73(1) proviso could not be summarily rejected given the Appellant's failure to participate and clarify discrepancies.

- The substantial discrepancy between income tax and service tax declarations warranted further examination and reconciliation.

- The Show Cause Notice, while challenged for vagueness, was not invalidated due to the Appellant's non-response.

- The principles of natural justice were not complied with due to the Appellant's apathy, necessitating remand for fresh adjudication.

- The adjudicating authority must ensure strict compliance with natural justice and allow the Appellant to file reconciliation and explanations before passing final orders.

Significant Holdings

"The adjudication process could not have been stifled in this way."

"In the absence of information from the Appellant, it is not possible to decide the issues in this appeal."

"Strict compliance to principles of natural justice has to be ensured and all the issues are open."

"The onus is on the Appellant to reconcile the declarations before the income tax with the service tax returns filed."

"The demands of tax that may have been resultant of these proceedings will fail, ab initio," was a finding in a precedent cited but distinguished on facts due to the Appellant's non-participation here.

The final determination was to allow the appeal by way of remand to the Original Authority for fresh adjudication within six months, directing the Appellant to cooperate and submit reconciliation statements, ensuring adherence to natural justice and a fair opportunity to present their case.