67% Service Tax Abatement Cannot Be Denied For Omission In ST-3 Returns: CESTAT Kolkata

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 22 May held that substantive benefit of 67% abatement under Notification No. 1/2006-ST cannot be denied merely because the taxpayer failed to claim the benefit in its ST-3 returns, particularly when the record admitted use of materials in execution of construction services.

Judicial Member Ashok Jindal and Technical Member K. Anpazhakan set aside the service tax demand, interest and penalty imposed on Singh Construction Corporation after finding that the taxpayer had already paid tax in excess of its actual liability upon extending the eligible abatement. The Bench held:

“....the abatement eligible to the appellant cannot be denied on the ground that they have not claimed it. It is the responsibility of the proper officer to determine the duty liability payable by the appellant after examining the abatement eligible to them.”

Singh Construction Corporation challenged an Order-in-Original passed by the Commissioner of Customs, Central Excise and Service Tax, Durgapur, which confirmed service tax demand along with interest and penalties after rejecting the taxpayer's declaration under the Voluntary Compliance Encouragement Scheme (VCES), 2013.

The company provided “Construction Service other than residential complex, including commercial/industrial building or civil structure” and “Works Contract Service”. After introduction of the VCES in 2013, it declared tax liability of Rs. 59.03 lakh and deposited the amount.

The Department, however, rejected the declaration alleging that the taxpayer had not made a true disclosure of its tax liability. It subsequently issued a show cause notice demanding service tax exceeding Rs. 3.44 crore for the period 2009-10 to 2012-13 along with interest and penalties.

The adjudicating authority partly confirmed the demand to the extent of Rs. 1.88 crore, imposed equivalent penalty under Section 78, appropriated the amount already paid under the VCES and imposed penalty of Rs. 20,000 for non-filing of ST-3 returns for certain periods.

Before the Tribunal, Singh Construction argued that it had rendered construction services along with supply and use of materials and therefore qualified for 67% abatement under Notification No. 1/2006-ST. It contended that although it had not specifically claimed the abatement in the ST-3 returns, the Department itself had acknowledged use of materials such as stone chips, sand, bamboo, MS pipes, bricks and marbles during execution of the works contracts.

The Revenue argued that Singh Construction had failed to make a true declaration under the VCES and had not produced sufficient documentary evidence to establish entitlement to abatement.

The Tribunal noted that the taxpayer had rendered construction and works contract services involving supply and utilisation of materials. It also noted that the adjudicating authority itself had recorded use of construction materials while discussing the evidence on record.

Rejecting the Department's stand, the Bench held that the Department could not deny legally available abatement merely because the taxpayer had not claimed it in the ST-3 returns. It observed:

“...the Ld. adjudicating authority has not extended the benefit of 67% abatement on the Gross Contract Value in terms of the Notification No. 1/2006-ST dated 01.03.2006, as amended, on the ground that the appellant has not claimed the same in the ST-3 returns filed....”

The Tribunal further examined the reworked tax calculations submitted by the taxpayer and found that after extending the 67% abatement, total service tax payable for the disputed period worked out to approximately Rs. 1.01 crore, whereas the taxpayer had already paid more than Rs. 1.22 crore. It therefore concluded that the taxpayer had already paid excess tax.

Accordingly, the CESTAT set aside the demand of service tax, interest and penalty imposed under Section 78, while upholding penalty of Rs. 20,000 for failure to file ST-3 returns for the periods 2011-12 and 2012-13.

For Appellant: Shri Aditya Dutta, Advocate

For Respondent: Ms. Suman, Authorized Representative,