CESTAT Allahabad Upholds ₹5.22 Lakh Service Tax Demand, Holds Services To Non-Educational Institutions Not Exempt

The Allahabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently upheld a service tax demand of ₹5.22 lakh, along with interest and penalties, against DK Infosolutions Pvt. Ltd.

It held that the company was not entitled to claim exemption meant for services provided to educational institutions because its services were rendered to commercial entities.

A single-member bench of Technical Member Sanjiv Srivastava dismissed the company's appeal.

The tribunal observed, “When the agreement itself provided for the payment of service tax there cannot be any dispute that service tax was leviable in respect of these services and was being collected by the appellant from its clients. It also do not leaves any doubt or bonafide belief that could be pleaded by the appellant.”

The case arose after the Department received third-party information from the Income Tax Department for the financial year 2016-17. The information reflected service receipts disclosed in the company's Form 26AS and Income Tax Return.

The Department issued repeated letters seeking records, including balance sheets, service tax returns, invoices and other documents. It also issued a summons. The company did not furnish the records. A show cause notice was subsequently issued demanding service tax of ₹5.22 lakh, along with interest and penalties.

DK Infosolutions argued that its services were exempt because they related to the conduct of examinations for educational institutions. It also contended that the extended limitation period could not be invoked, as its balance sheets and income tax returns were available in the public domain.

The tribunal examined two agreements produced during the appellate proceedings. One was with Mahindra & Mahindra Ltd. for developing a computer-based training module on the company's Code of Conduct.

The other was with BAJA SAE INDIA for conducting online assessments, preparing test papers and providing related support services. The tribunal held that neither recipient was an educational institution. It therefore found that the exemption could not be claimed.

On limitation, the tribunal observed, “From the discussions it is evident that appellant has no ground also on limitation. They have in fact suppressed the agreements which were never produced before the authorities below even when called for by letters dated 24.02.2021, 19.03.2021 & 31.08.2021 and summon dated 09.09.2021.”

The tribunal also rejected the company's argument that its balance sheets and income tax returns were publicly available. It noted that the company had admitted it never informed the jurisdictional authorities that those records were available on its website, despite the requirement under the Service Tax Rules.

Holding that suppression of material facts with intent to evade payment of service tax was established, the tribunal upheld the extended limitation period. It also sustained the demand of service tax, interest and penalties before dismissing the appeal.

For Appellant: Advocate Arun Srivastava,

For Respondent: Chitra Srivastava, Authorised Representative