The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that receipts reflected in Income Tax records cannot, by themselves, establish that the amounts represent consideration for taxable services.
It set aside a ₹3.03 crore service tax demand against Orissa Bengal Transport Co.
“The mere reflection of receipts in the appellant's Income Tax records may furnish a basis for initiating an inquiry, but cannot, by itself, directly establish either the taxable character of those receipts or the precise nature of the services allegedly rendered,” the tribunal held.
Judicial Member Ashok Jindal and Technical Member K. Anpazhakan allowed the company's appeal. They found that the Department had demanded a tax on the entire receipts without specifying the taxable services allegedly rendered. The tribunal also held that the extended period of limitation could not be invoked and set aside the penalties imposed on the company.
The demand of ₹3.03 crore, including cesses, arose from receipts of ₹20.93 crore recorded for the financial year 2015-16. The proceedings were initiated based on information received from the Central Board of Direct Taxes (CBDT)/Income Tax Department. The adjudicating authority confirmed the demand after quantifying the service tax liability through a best-judgment assessment under Section 72 of the Finance Act, 1994.
The company challenged the demand, arguing that its services did not qualify as services provided by a Goods Transport Agency (GTA). It contended that its transportation services were covered by the negative list under Section 66D(p)(i) of the Finance Act. During the relevant period, the provision excluded services by way of transportation of goods by road from service tax, except services provided by a GTA or courier agency.
The tribunal noted that the adjudicating authority had itself observed that the services “cannot be construed to be a GTA service by any stretch of imagination”. It held that the authority should have examined the applicability of the negative-list provision instead of confirming the demand without identifying the taxable service.
“The nature of the service actually provided must first be ascertained, for the statutory scheme draws a material distinction between transportation undertaken by a Goods Transport Agency and transportation by road falling outside that category,” the tribunal observed.
On limitation, the tribunal held that the extended period could not be invoked because the receipts were already reflected in records available to the tax administration. There was no independent investigation establishing deliberate concealment or an intent to evade service tax.
The tribunal also found that the company's failure to obtain registration or file returns arose from a bona fide belief or understanding of the applicable law, in light of the documentary evidence submitted during adjudication.
The tribunal set aside the demand, interest, and penalties and allowed the appeal with consequential relief.
For Appellant: Advocate Shreya Mundhra
For Respondent: Desh Dulal Chatterjee, Authorised Representative