Pranav B Prem

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has clarified that actual figures recorded in the assessee’s books of accounts can be considered for determining service tax liability if such figures are higher than those declared in statutory returns, provided that the amounts represent the value of taxable services. The Bench, comprising Judicial Member Binu Tamta and Technical Member P.V. Subba Rao, delivered this ruling in the case of Kalpakaaru Projects Pvt. Ltd. v. Principal Commissioner, CGST, Delhi South.

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Kalpakaaru Projects Pvt. Ltd., the appellant, was registered with a centralized service tax registration during the relevant period and was engaged in a variety of services, including works contract services, interior decoration, architecture, manpower supply, and business auxiliary services. Post-GST implementation, the registration was migrated accordingly. During an audit initiated in September 2017, the department alleged several discrepancies, including short payment of service tax on works contract services, incorrect availment of abatement under reverse charge mechanism, non-reversal of CENVAT credit on exempted services, and mismatch in taxable service value between financial records and ST-3 returns.

Consequently, a show cause notice was issued in October 2018, culminating in the Order-in-Original dated March 26, 2021, wherein the Principal Commissioner confirmed a demand of ₹3.63 crore in service tax for the period FY 2015–16 to June 2017. Additional demands included ₹70,224 in unreversed CENVAT credit under Rule 6(3) of the CENVAT Credit Rules, 2004; interest under Section 75; and penalties under Sections 77 and 78 of the Finance Act, 1994. The Commissioner invoked the extended period of limitation alleging willful suppression and intent to evade tax.

Challenging this, the appellant argued that the services rendered were in the nature of original works under Rule 2A(ii)(A) of the Service Tax (Determination of Value) Rules, for which 60% abatement is available. The appellant stated it had received bare structures and undertook comprehensive works including flooring, HVAC, plumbing, internal walls, partitioning, and electrical fittings—essentially converting raw spaces into functional commercial establishments. It was contended that such extensive construction amounts to original work, not merely finishing services as alleged by the department. The Tribunal concurred with this submission, holding that the appellant was justified in claiming 60% abatement and paying tax on 40% of the value.

Regarding the reverse charge mechanism, the demand of ₹19.51 lakh was raised on the ground that services received from sub-contractors were not original works but finishing services, making only 30% abatement admissible. However, the Tribunal noted that the appellant had availed CENVAT credit on the full service tax paid, making the situation revenue neutral. Since any service tax paid would have been claimed back as credit, there was no revenue loss or suppression. The Tribunal set aside this demand, observing that invoking the extended period of limitation was unjustified as the appellant had been filing ST-3 returns regularly.

On the issue of unreversed CENVAT credit of ₹70,224, the Tribunal upheld the demand only for the normal period of limitation. It was found that the appellant had availed common input services for both taxable and exempted outputs, and hence was liable to reverse proportionate credit under Rule 6(3). The case was remanded to the adjudicating authority solely for recalculating this amount for the eligible period.

A further demand of ₹1,69,468 was confirmed on the basis of differences between financial accounts and the figures in the ST-3 returns. The Tribunal, however, found no legal basis to adopt gross figures from commercial accounts unless it is established that those figures pertain exclusively to taxable services. The appellant had clarified that its books included revenue from both taxable and non-taxable services and had made all relevant records available during audit. Accepting this explanation, the Tribunal set aside the demand, observing: “If the books of accounts show higher figures than the statutory returns, the actual figures can be considered for determining the service tax payable by the appellant. However, before considering the figures in the statutory returns and other records, what needs to be ascertained is whether the figures therein represent the value of the taxable services provided or not.”

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Since the majority of the demands were set aside and only a minor issue concerning CENVAT credit remained for recomputation, the Tribunal also struck down all penalties imposed under Sections 77 and 78 of the Finance Act, 1994. In conclusion, the Tribunal partly allowed the appeal, setting aside the major demands and penalties, while remanding the matter to the adjudicating authority for the limited purpose of computing the CENVAT credit reversal for the normal limitation period under Rule 6(3) of the CENVAT Credit Rules.

Appearance

Present for the Appellant: Shri P.K. Sahu, Advocate

Present for the Respondent: Shri Anand Narayan, Authorised Representative

Cause Title: Kalpakaaru Projects Pvt Ltd v. Principal Commissioner, CGST-Delhi South

Case No: Service Tax Appeal No. 50302 OF 2022

Coram: Hon'ble Ms. Binu Tamta [Member ( Judicial)], Hon'ble Mr. P. V. Subba Rao [Member (Technical )]

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