By TIOL News Services

NEW DELHI, JULY 06, 2015: APPEAL is against the adjudication order dated 18/01/2013 passed by the Commissioner, Central Excise, Rohtak. The impugned order confirms service tax liability of Rs. 1,53,14,782/- for the period 2006-2007 to 2010-2011 apart from interest under Section 75 and penalties under Section 77 and 78, while dropping penalty under Section 76 of the Finance Act, 1944.

The show cause notice asserts that :

(a) the appellant was registered for providing Works Contract Service, taxable under Section 65 (105) (zzzza) of the Act ;

(b) that information was gathered by the Anti-Evasion Branch, Delhi which revealed that the appellant was engaged in providing "taxable services" to other clients but was not remitting the service tax due ;

(c) that investigation was therefore initiated and several letters were addressed to the appellant seeking copies of transactional documents and other relevant correspondence such as letters and agreements entered into in relation to Common Wealth Games Projects, copies of interim and final bills raised for providing services in relation to CWG projects and other documents such as audited financial statements and the like;

(d) that the appellant failed to respond; thereupon reminder letters were issued; that the appellant vide his letter dated 17/6/11 furnished certain documents including copies of its registration certificate, balance sheets from 2005-2006 to 2009-2010, service tax returns with challans, copies of award letters received from DDA/CPWD etc. and information of having received Rs. 375.16 lakhs for CWG works and had intimated that pending amount would approximately Rs. 53 lakhs ;

(e) that the appellant submitted copies of 28 letters in respect of works executed (details of which were set out in a table in para 5 of the show cause notice);

(f) that further investigation and summons ensued; that from scrutiny of the documents submitted by the appellant and the investigation, the appellant is seen to have filed nil ST-3 returns except for 2007-2008 and to have remitted service tax of a mere Rs. 998/-;

(g) and from the award letters submitted, appellant appears to have rendered "taxable services" but failed to remit the tax due.

In para 8 of the show cause notice, which the Tribunal considered critical to the validity of the show cause notice, it is stated :-

"8. Whereas from the documents submitted by the party it appears that they have rendered the taxable services which may either be classified under "Management, Maintenance or Repair service' or 'Erection, Installation and Commissioning services' and other construction linked services as defined under the Finance Act, 1994" (emphasis added).

After extracting the definition of Management, Maintenance and Repair services and setting out contents of the Board Circular dated 27/7/05 and definition of Erection, Commissioning or Installation service in para 9, para 10 observes that the appellant failed to provide detailed contractual documents for ascertaining the exact nature of the works executed and that on the basis of the facts and documents on record, a best judgment assessment method, provided under Section 72 of the Act is being pursued for valuation of the tax liability for the year 2010-2011, on account of absence of audited balance sheets for this period. In para 11, the quantum of liability to service tax is set out while noting that since the required documents/information was not provided by the appellant, income having a probability of classification under the Act is being taken as the value of the taxable services. In para 12 of the show cause notice, at more than one place it is alleged that the appellant had provided "taxable services" and is liable to service tax for services provided. Para 13 refers to provisions of the Act pertaining to the charge of service tax, valuation and other provisions specifying the requirement of registration and filing of returns as well as provisions authorising a best judgment assessment. This paragraph also alleges that since the appellant had suppressed the fact of having rendered "taxable services" despite being registered for providing works contract service it is clear that it was aware of the provisions of the Act and thus it is justifiable to invoke the extended period of limitation on account of fraud, collusion etc.

Tribunal noticed that in the entirety of the show cause notice there is not a single assertion proposing to levy and collect service tax on the basis of any specified taxable services allegedly rendered by the appellant except the several alternative taxable services speculated to have been proved and set out in para 8.

The Tribunal noted:

“The impugned adjudication order is drafted in 32 paras spread over 22 printed pages. Paragraphs 1 to 17 reiterate almost verbatim, the contents of the show cause notice dated 21/10/11. Para 18 elaborates the response of the appellant and its several defences to the vague and incoherent allegations in the show cause notice. Para 19 sets out particulars of the personal hearing provided. Paras 20 to 31 purport to be part of discussion and findings of the Commissioner. Para 20 is formal in nature and states to have considered the facts of the case, the records and as to providing personal hearing. Para 21 identifies the issues involved in the case. The third sentence in para 21 onwards is a reproduction of para 7 of the show cause notice. Paras 22 to 28 are reproduction of paras 8, 9, 11, 12, 14, 15, 16 and 17 of the show cause notice. Paras 29 to 31 could alone be considered, if at all, the analysis by the learned Commissioner. Para 29 asserts that none of the contentions of the appellant are tenable since it failed to provide the required information to the Department during investigation. It is also observed that the appellant obtained service tax registration for Works Contract on 10/12/07 and was therefore aware of the applicable law. From this observation, the Commissioner infers that the appellant willfully suppressed the fact of earning/receiving taxable income and withheld information which led to evasion of service tax. In para 31, the impugned order records that though the appellant intentional and willfully suppressed the taxable value and failed to remit service tax, the facts came to light only during the process of audit. Para 31 abruptly jumps to the conclusion, without any preceding analysis nor a finding as to the specific taxable services provided by the appellant, that service tax of Rs. 1,53,14,782/- is recoverable under the proviso to Section 73 (1) of the Act alongwith interest, excluding penalty under Section 76. Para 32 records the operative portion of the order declaring the specified liability to service tax, interest and penalties.

It is a axiomatic that a best judgment assessment under Section 72 could only be for ascertaining the quantum of the tax liability, in a context where the actual extent of liability cannot be determined with mathematical precision on account of non-availability of relevant documents or financial records. There cannot be a best judgment assessment regarding the specific taxable service provided. There can be no best judgment, for instance as to whether the tax liability is for income tax, sales tax, excise duty, customs duty, service tax or professional tax. A conclusion as to the taxable event and the liability to tax under the appropriate fiscal legislation authorizing the levy and collection of such tax is a matter for determination with precision and clarity and not by a process of guess-work or speculation.

Neither the show cause notice dated 21/10/11 nor the impugned adjudication order dated 18/1/13 record any assertion/ conclusion whatsoever as to which particular or specific taxable service the appellant had provided. In the absence of an allegation of having provided a specific taxable service in the show cause notice and in view of the failure in the adjudication order as well, neither the show cause notice nor the consequent adjudication order could be sustained.

We have noticed earlier that the show cause notice itself adverts to the fact that the appellant had provided copies of 20 work orders executed in relation to CWG Projects, particulars of which are set out in a tabular form in para 5 of the show cause notice. From the description of the works in this table, officers could have classified the several works into the appropriate taxable service which may appropriately govern rendition of these services. In any event officers are not handicapped and the Act provides ample powers including of search under Section 82 of the Act to obtain information necessary to pass a proper, disciplined and legally sustainable adjudication order. The disinclination to employ the ample investigatorial powers conferred by the Act is illustrative of gross Departmental failure and cannot afford justification for passing an incoherent and vague adjudication order. The failure to gather relevant facts for issuing a proper show cause notice cannot provide justification for a vague and incoherent show cause notice which has resulted in a serious transgression of the due process of law.