STC-29/O&A/SCN/SWASTIK/ADC/D-III/13-14 Page 1 of 26

STC-29/O&A/SCN/SWASTIK/ADC/D-III/13-14 Page 1 of 26

BRIEF FACTS OF THE CASE :

1.1M/s. Swastik Arcade Pvt. Ltd., D-15, Riddhi Siddhi Apartments, Near Kameshwar School, Jodhpur Cross Roads, Satellite, Ahmedabad-380015 (hereinafter referred to as “the assessee”)are providing the service under the categories of Construction Services in respect of (1) Commercial or Industrial Buildings & Civil Structures, (2) Construction of Residential Complex and (3) Transport of Goods by Road; which are taxable services under Section 65 of the Finance Act, 1994 and are registered with Range-XV of Service Tax, Division-III, Ahmedabad Commissionerate, being allotted Service Tax Registration No. AAJCS8472LST001, dated 14.06.2006, under Section 69 of the Finance Act, 1994 (32 of 1994) and having undertaken to comply with the conditions prescribed.

1.2.During the course of test audit of the records of the assessee on12.06.2013, the following observations have been noticed:

1.3.The assessee had provided services to (1) M/s. Katira Constructions Ltd., Bhuj (2) M/s. Standard Buildcon, Jamnagar and (3) M/s. Hariom Projects, Ahmedabad; and had not discharged the service tax liability on the services provided to the above three firms. On being asked, the assessee informed that the services provided to these three firms are towards construction of some Government projects and that the above firms had informed them that the services are not taxable according to Circular No. 80/10/2004-ST, dated. 17.09.2004. On being asked as to whether there is any written contract/agreement between them and the three firms concerned, the assessee informed that there was no written contract/agreement. However, they produced letters from these firms, wherein the firms have stated that the services received by them from the assessee, were towards contract received by them from the Government Department/s. The letters are general in nature and do not mention any quantification of the value of work assigned to the assessee. The assessee also did not provide the approved plans of the projects involved, evidencing the purpose of the projects, on the basis of which the non-commercial nature of the projects could be decided/identified. The value of taxable service provided by the assessee to these firms and the service tax applicable is as under:

(Amount in Rs.)

Sr No / Year / Katira Constructions Ltd., Bhuj / Standard Buildcon, Jamnagar / Hariom Projects, A’bad / Total Value / Total Taxable Value after abatement @ / Tax Payable
1 / 2008-09 / 1,49,50,000 / 12,77,629 / 0 / 1,62,27,629 / 53,55,118 / 6,61,892
2 / 2009-10 / 48,00,000 / 96,03,688 / 38,96,458 / 1,83,00,146 / 60,39,048 / 6,22,022
3 / 2010-11 / 1,30,14,550 / 92,36,598 / 21,61,149 / 2,44,12,297 / 80,56,058 / 8,29,774
4 / 2011-12 / 3,30,50,000 / 6,86,830 / 0 / 3,37,36,830 / 1,11,33,153 / 11,46,715
TOTAL / 6,58,14,550 / 2,08,04,745 / 60,57,607 / 926,76,902 / 3,05,83,377 / 32,60,403

1.4. The exemption claimed by them was not substantiated with proper evidences/documents and hence they appear to liable to pay the service tax on the services provided to the above said three firms as the exemption claimed by them appeared to be ineligible to them. The assessee also stated that these firms had informed them that the services provided to them were not taxable and hence they have not paid the service tax as the same was not charged & collected by them. The assessee also did not agree to pay the applicable service tax under the guise of exemption.

1.5.Therefore, it appeared that the benefit as envisaged under the Circular No.80/10/04-ST, dated 17.09.2004, is not available in respect of the taxable services rendered by the assessee as per above details. The assessee was required to pay the applicable Service Tax amounting to Rs 32,60,403/- under Sub-Rule 1 of Rule 6 of Service Tax Rules, 1994. As such the assessee has violated Rule 6 of Service Tax Rules in as much as they failed to pay and the service tax amounting to Rs 32,60,403/- is required to be recovered from them along with interest at applicable rate.

1.6.Further, on scrutiny of Annual Accounts and freight expenses ledger of the assessee, it was noticed that during the period from 2008-09 through 2011-12, the assessee was engaged in trading of sand and grit to their clients. For this activity, the assessee had, in some cases, provided the transportation through their own vehicles and in some cases, had availed the transportation services from third parties. The transportation expenses incurred by the assessee for the sale of sand and grit, and the transportation expenses incurred by the assessee for their construction activity have been shown under separate heads by the assessee in their financial records. The assessee has discharged their tax liability on transportation expenses incurred towards their construction activity.

1.7.Since the assessee is falling in the specified category of person liable to pay Service Tax as recipient of taxable service in terms of sub clause (v) of clause (d) of sub rule (1) of Rule 2 of the Service Tax Rules, 1994, it was obligatory on the part of the taxpayer to discharge service tax liability under the category of Transport of Goods by Road (GTA) Services. The Service tax liability for all the above years are calculated as under:

(Amount in Rs.)

Year / Actual Expenditure / Abatement / Total Taxable Value / S.T. Payable
2008-09 / 7268690 / 5451517.5 / 1817172.5 / 224603
2009-10 / 6257101 / 4692825.75 / 1564275.25 / 161120
2010-11 / 7812905 / 5859678.75 / 1953226.25 / 201182
2011-12 / 9021049 / 6765786.75 / 2255262.25 / 232292
TOTAL / 819197

1.8.As per provision of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994; as amended, every person providing taxable service to any person liable to pay service tax at the rate prescribed in Section 66 ibid to the Central Government by the 5th of the month / quarter immediately following the calendar month / quarter in which the payments are received towards the value of taxable services (except for the month of March which is required to be paid on 31st March).

1.9.In the instant case, it appeared that the assessee has failed to pay the service tax of Rs. 40,79,600/-(education cess & s.h.edu cess included)[ Rs. 32,60,403/- + Rs.8,19,197/-] for the period from 2008-09 to 2011-12, thereby violated the provisions of Section 68(1) read with Rule 6 of the Service Tax Rules, 1994.

1.10.According to Section 70 of the Finance Act, 1994; every person liable to pay Service Tax is required to assess the tax himself due, on the services provided by him and thereafter furnish a return to the jurisdictional Superintendent of Service tax by disclosing wholly & truly all materials facts in ST-3 returns. The form, manner and frequency are as prescribed in Rule 7 of the Service Tax Rules, 1994. The assessee has failed to self-assess the tax liability which was in fact due upon him, thereby contravened the said provisions of the Section 70 of the Finance Act, 1994.

1.11.The assessee had not disclosed full, true and correct information about the value of the service provided by them. Thus, it appeared that there was a deliberate withholding of essential and material information from the department about service provided and value realized by them. It appeared that all these material information have been concealed from the department deliberately, consciously and purposefully to evade payment of service tax. Therefore, in this case all essential ingredients exist to invoke the extended period in terms of Section 73 (1) of Finance Act 1994 to demand the Service tax not paid.

1.12.As per Section 75 ibid every person liable to pay the tax in accordance with the provisions of Section 68 or Rules made thereunder, fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed, is liable to pay simple interest (as such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by Notification in the Official Gazette), for the period by which such crediting of the tax or any part thereof is delayed.

1.13.Since, the assessee has failed to make payment of service tax in the prescribed time limit framed under the Rules and provisions of the Finance Act, 1994, they are liable to pay interest at appropriate rate on the service tax liability of Rs 40,79,600/-[Rs. 32,60,403/- + Rs. 8,19,197/-] (education cess & s.h.edu. cess included) for the period 2008-09 to 2011-12.

1.14.The Government had from the very beginning placed full trust on the service provider so far service tax is concerned and accordingly measures like Self-assessments etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal business purposes are accepted, practically for all the purpose of Service tax. All these operate on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider, no matter how innocently. From the evidence, it appeared that the assessee had not taken into account all the incomes received and expenses incurred by them for rendering taxable services for the purpose of payment of service tax and thereby minimize their tax liabilities. The deliberate efforts to mis-declare the value of taxable service and not paying the correct amount of service tax is utter disregard to the requirements of law and breach of trust deposed on them such outright act in defiance of law appeared to have rendered them liable for penal action as per the provisions of Section 78 of the Finance Act, 1994 for suppression, concealment and furnishing inaccurate value of taxable service with intent to evade payment of service tax.

1.15.From the above paras, it appeared that, the assessee had contravened the provisions of:

i). Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, as they have failed to discharge the service tax liability correctly and thereby there was a non payment/short payment of service tax as mentioned in foregoing paras for the period as discussed in forgoing paras and failed to credit the service tax in Government account within the stipulated time limit;

ii). Section 70 of the Finance Act, 1994, as the assessee has not disclosed full, true and correct information about the value of the services provided by them and not assess the correct service tax liability and not filed the proper and correct ST-3 returns. Thus, it appeared that there was a deliberate withholding of essential and material information from the department about service provided and value realized by them. It appeared that all this material information have been concealed from the Department deliberately, consciously and purposefully suppressed the facts with intent to evade payment of service tax. Therefore, in this case all essential ingredients exists to invoke the extended period in terms of Section 73 (1) of the Finance Act, 1994 to demand the service tax not paid/ short paid.

iii). Section 75 of the Finance Act, 1994 in as much as they have failed to make payment service tax along with interest at the rate prescribed from time to time.

iv).Section 69 of the Finance Act, 1994 and Rule 4 of the Service Tax Rules, 1994 for not getting themselves registered with the Department under the category of GTA.

v).Rule 4A of the Service Tax Rules, 1994 for not showing rate and amount of Service Tax in the invoices issued to their clients for taxable service provided.

1.16.All the above acts of contravention on the part of the assessee appear to have been committed by way of suppression of facts and in contravention of the provisions of above referred Sections of the Finance Act, 1994 and Rules of the Service Tax Rules, 1994 with intent to evade payment of service tax. The above omission and commission on the part of the assessee appeared to be covered under clause (d) “Suppression of facts” and (e) “contravention of any of the provisions of the Finance Act and the Rule made thereunder with intent to evade payment of service tax” of the proviso to Section 73(1) of the Finance Act, 1994. Therefore, the service taxRs 40,79,600/-[Rs. 32,60,403/- + Rs. 8,19,197/-] (Education Cess & S.H. Edu. Cess included) not paid/short paid is required to be demanded and recovered from them under the proviso to Section 73(1) of the Finance Act,1994 by invoking extended period of five years along with interest under Section 75 of the Finance Act, 1994.

1.17.It appeared that the assessee have contravened the provisions of Section 68 of the Finance Act, 1994 and the provisions of Rule 6 of the Service Tax Rules, 1994 in as much as they failed to pay the service tax within prescribed time limit as discussed in the forgoing paras, therefore they are also liable for penalty under Section 76 of the Finance Act, 1994.

1.18.Further, it appeared that the assessee have contravened the provision of Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 in as much as they failed to registered under the Goods Transport Agency service with the Service Tax Departments as they are liable to pay service tax under the category of GTA, therefore the assessee are also liable for penalty under Section 77(1)(a) of the Finance Act, 1994. It also appeared that the assessee contravened the provisions of Section 70 of the Finance Act, 1994read with Rule 7 the Service Tax Rules, 1994 in as much as they fails to file correct and proper ST-3 returns and failed to assess correct amount of their service tax liability. It also appeared that they have contravened theprovision of Rule 4A in as much as they failed to issue proper invoice containing the details prescribed in the above Rule, therefore theyare also liable for penalty under Section 77(2) of the Finance Act, 1994.

1.19.All these act of contraventions of the provisions of Section 68, 69 and 70 of the Finance Act,1994 read with Rule 4, 6 and 7 of Service Tax Rules,1994 on the part of the assessee appeared to have been committed deliberately by way of not declaring material facts to the Department and not paying the Service Tax during the period as discussed above, suppressing the correct taxable amount and not paying service tax under Construction Services and Goods Transport Agency Services as detailed in the above paras. The above omission and commission on the part of the assessee appeared to be covered under clause (d) “Suppression of facts” and (e) “contravention of any of the provisions of the Finance Act and the Rule made thereunder with intent to evade payment of service tax” of the Section 78(1) of the Finance Act, 1994.

1.20.Therefore, M/s. Swastik Arcade Pvt. Ltd., D-15, Riddhi Siddhi Apartments, Near Kameshwar School, Jodhpur Cross Roads, Satellite, Ahmedabad-380015were called upon to show cause, vide Show Cause Notice bearing F. No. STC-29/O&A/SCN/SWASTIK/ADC/D-III/13-14 dated 15/10/2013, to the Additional Commissioner of Service Tax, Central Excise Bhavan, 5th Floor, Ambawadi, Ahmedabad within 30 days from receipt of the notice, as to why;

(i)Service Tax amounting to Rs. 32,60,403/-(Thirty Two LakhSixty Thousand Four Hundred Three only) short paid / not paid by them for the period from 2008-09 through 2011-12, under the category of Construction Services, should not be demanded and recovered from them under the proviso of Section 73(1) read with Section 68 of the Finance Act, 1994 invoking the larger period of five years as discussed hereinabove.

(ii)Service Tax amounting to Rs.8,19,197/- (Rs. Eight LakhNineteen Thousand One Hundred and Ninety Seven only) short paid / not paid by them for the period from 2008-09 through 2011-12, under the category of Goods Transport Agency, should not be demanded and recovered from them under the proviso of Section 73(1) read with Section 68 of the Finance Act, 1994 invoking the larger period of five years as discussed hereinabove.

(iii)Interest at the prescribed rate should not be charged in terms of the provisions of Section 75 of the Finance Act, 1994 as amended from time to time.

(iv)Penalty under Section 76 of the Finance Act, 1994 should not be imposed on them in as much as they failed to pay service Tax as mentioned hereinabove in prescribed time limit.

(v)Penalty under Section 77(1) (a) of the Finance Act, 1994 as amended should not be imposed on them in as much as they failed to registered under the category of GTA.

(vi)Penalty under Section 77(2) of the Finance Act, 1994 as amended should not be imposed on them in as much as they failed to assess correct amount of their service tax liability and failed file correct and proper ST-3 return with the Service Tax Department.

(vii)Penalty under Section 77(2) of the Finance Act, 1994 as amended should not be imposed on them in as much as they failed issue proper and correct invoice as prescribed under Rule 4A of the Service Tax Rules, 1994.

(viii)Penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 as amended for suppressing the facts and contravention of the provisions of Finance Act, 1994 and Rule made there under with an intent to evade payment of service tax as mentioned above.

DEFENCE:

Written Submission:

2.1.The assessee have furnished a written submission dated 16/12/2013 at the time of personal hearing held on 16/01/2014. The assessee have submitted issue-wise contention in their defence reply dated, 16/12/2013. Their issue-wise contentions in brief as under: