The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, has reiterated that adjudicating and appellate authorities cannot confirm a service tax demand under a category different from the one specified in the show-cause notice.
The assessee must be put on notice about the category of taxable service under which the demand is proposed.
The bench comprised Judicial Member Dr. Rachna Gupta and Technical Member P.V. Subba Rao.
The tribunal, relying on earlier decisions, observed,
“Once the show cause notice proposes demand of service tax under a particular category of taxable service, the adjudicating/appellate authorities cannot travel beyond the scope of allegations in the show cause notice and confirm the demand under a different category of taxable service as the assessee was not at all put on notice on the category of taxable service.”
The ruling arose from three appeals concerning construction work undertaken for the Greater Noida Industrial Development Authority (GNIDA), including residential houses. The department had proposed a service tax under “Construction of Complex Service”.
CESTAT had examined the dispute earlier and held that the clusters of houses constituted residential complexes. It also found that the construction was composite in nature, involving both supply of materials and provision of services. The matter was remanded for a fresh decision in light of the Supreme Court's ruling in Larsen & Toubro.
Despite that finding, the adjudicating authority again confirmed the demand under “Construction of Complex Service”. CESTAT noted that the department was not in appeal against the dropping of the demands relating to internal development works and construction of the boys' hostel.
Referring to Larsen & Toubro, the tribunal observed that Construction of Complex Service and Commercial or Industrial Construction Service covered only pure service activities without transfer of property in goods.
A separate statutory mechanism was introduced through the works contract service to exclude the value of transfer of property in goods.
CESTAT further noted that service tax could not be imposed on composite services for the period before June 1, 2007. For the period after June 1, 2007, the demand had to be classified under Works Contract Service for it to be confirmed.
The tribunal found that the adjudicating authority had not properly followed CESTAT's earlier remand directions.
It held that the demand was wrongly confirmed under Construction of Complex Service and that the authority had “violated the Principle of Judicial Protocol while not properly following the directions of remand.”
CESTAT accordingly set aside the three orders under challenge and allowed all three appeals.
Accordingly, CESTAT set aside the three orders and allowed all three appeals filed by Gandharva Infrastructure.
For Appellant: Advocate Atul Gupta
For Revenue: Authorised Representative Sunil Narayan