Delayed Retraction Can't Undermine Service Tax Demand Backed By Signed Digital Records: CESTAT Delhi

On 23 October the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at New Delhi held that delayed retraction of statements admitting unaccounted cash receipts from flat buyers cannot discredit a service tax demand when the statements were reaffirmed during the investigation and corroborated by signed printouts of electronic records recovered from the company.

A Bench of Judicial Member Dr. Rachna Gupta and Technical Member P.V. Subba Rao allowed the Revenue's appeal against AGC Reality Private Limited and set aside the Commissioner (Appeals)' order overturning the service tax demand. The Tribunal observed:

“A duty is cast upon summoned person to the state the truth or produces the document or other things as required by the Central Excise Officers. The duty is to tell the truth is not fettered by any limitation or prohibition described in law of evidence. So once the maker of the statement made the statement, it has to be red in the proceeding before the department or the appellate stage. The only rider is that the statement given is voluntary and true.”

The case arose from an investigation into allegations that AGC Reality had collected cash from flat buyers in its 'Homes-121' residential project in Noida without recording the receipts in its statutory books or paying service tax on them.

During a search on 21 January 2014, officers recovered six pen drives from Inder Kumar Gupta, the company's Assistant Manager (Accounts). Investigators took printouts of relevant electronic records in his presence and obtained his signature on them. The department alleged that the company had collected Rs. 17.47 crore in unaccounted cash towards the basic cost of residential flats between June 2011 and January 2014.

Gupta explained the pen-drive contents in his statement recorded on 21 January 2014 and reaffirmed the statement on 19 December 2014. The company's director, Deepak Kapoor, also confirmed the contents of Gupta's statement. During the investigation, the company deposited Rs. 25 lakh towards its anticipated service tax liability.

In June 2015, the department issued a show-cause notice proposing service tax demands on the alleged unaccounted cash receipts and differential values attributed to flat sales. The adjudicating authority confirmed the demands, along with interest and penalties. However, the Commissioner (Appeals) set aside the order, holding that the allegations lacked corroboration through evidence such as statements from flat buyers, bank details and balance sheets.

The Revenue challenged the appellate order before the Tribunal, arguing that the Commissioner (Appeals) had failed to appreciate the evidentiary value of the pen drives, the signed printouts and the statements made by Gupta and Kapoor.

The Tribunal noted that Gupta had not retracted his initial statement immediately after recording it. Instead, he reaffirmed the statement nearly eleven months later, while Kapoor also confirmed it in December 2014. The company raised the alleged retraction only in its reply to the show-cause notice issued in June 2015.

It held that the Commissioner (Appeals) had erred in treating the retraction as having been made at the earliest opportunity. Given the delay, it regarded the retraction as an afterthought.

The Bench also rejected the view that the absence of the alleged cash receipts from the company's books undermined the department's case. It noted that the transactions were allegedly kept outside the regular accounts and that separate flat-wise records were maintained in the pen drives. Gupta had explained the records, reaffirmed his statement and signed the printouts.

Referring to the Supreme Court's decisions in Vinod Solanki v. Union of India and K.I. Pavunny v. Assistant Collector (HQ), Central Excise Collectorate, Cochin, it considered the evidentiary value of confessional statements and the requirement that they be voluntary and true. It observed:

“As already observed above that the retraction of the appellant is a delayed act and is an afterthought. We believe that the earlier statements about receiving cash from the buyers of the flat in the statement of Shri Inder Kumar Garg recorded under Section 14 of the Central Excise Act is the cogent evidence proving the allegations leveled by the appellants.”

Further, the Tribunal held that the signed printouts extracted from the pen drives, recovered from Gupta and retrieved in his presence, sufficiently established the allegations in the show-cause notice. It concluded that the Commissioner (Appeals) had wrongly disregarded the statements and documentary evidence relied upon by the adjudicating authority.

Accordingly, the CESTAT set aside the Commissioner (Appeals)' order, restored the Additional Commissioner's order confirming the service tax demand, and allowed the Revenue's appeal.

Counsel for Appellant: Rakesh Kumar, Authorised Representative

Counsel for Respondent: A.K. Batra, Chartered Accountant