The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that where service tax was not paid and there is no evidence that it was collected separately from service recipients, the consideration received by the service provider must be treated as inclusive of tax.
The Bench of Ashok Jindal (Judicial Member) and P.V. Subba Rao (Technical Member) however, upheld the department’s use of contractual amounts to determine the tax liability for the period up to June 2017. The Tribunal noted that the assessee had failed to produce figures showing the actual value of services rendered or consideration received during that period.
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The assessee had obtained service tax registration on November 25, 2004, which was subsequently amended on July 24, 2008. According to the department, despite holding the registration, the assessee neither paid service tax nor filed service tax returns.
Acting on intelligence that taxable services had been rendered, the department initiated an investigation. It found that the assessee had reported gross receipts aggregating to approximately ₹26.59 crore for the period from 2014-15 to June 2017.
The receipts identified by the department stood at approximately ₹10.01 crore for 2014-15, ₹8.35 crore for 2015-16 and ₹6.41 crore for 2016-17. For the period from April to June 2017, the department adopted receipts of approximately ₹1.82 crore. The last figure was not based on an income-tax return because the relevant return had not been filed.
Based on its investigation, the department issued a show-cause notice on October 21, 2019, proposing the recovery of service tax amounting to ₹3.62 crore under the extended limitation period provided in the proviso to Section 73(1) of the Finance Act, 1994. Interest under Section 75 and penalties under Sections 77 and 78 were also proposed.
In the order passed on July 24, 2020, the Commissioner of Central Excise, Udaipur, confirmed a substantially reduced service tax demand of ₹1.26 crore, along with applicable interest and penalties.
Before the Tribunal, the assessee challenged only a portion of the confirmed demand. The principal objection was that the adjudicating authority had failed to grant the benefit of treating the receipts as inclusive of service tax.
For 2014-15, the tax payable had been determined at approximately ₹48.32 lakh, while the assessee accepted a liability of about ₹46.84 lakh. The disputed amount related primarily to the denial of cum-tax benefit.
A similar claim was raised for 2016-17. For the period up to June 2017, the assessee contested the entire demand of approximately ₹27.29 lakh on the ground that it had been calculated using contractual amounts rather than the actual consideration received for services rendered.
Addressing the cum-tax issue, the Tribunal ruled in favour of the assessee. It observed that the governing legal principle was well settled: if service tax has not been paid and the evidence does not show that tax was separately recovered from customers, the amount received as consideration must be regarded as a cum-tax amount.
Accordingly, the Tribunal directed that the tax component be worked out from the gross consideration instead of treating the entire amount as the taxable value over and above which service tax would become payable.
On the demand relating to 2017-18 up to June 2017, the Tribunal noted that the department did not have the assessee’s income-tax returns or balance sheets. It had therefore calculated the service tax liability based on the agreements entered into by the assessee.
Although the assessee disputed this method, it failed to place any alternative figures before the adjudicating authority or the Tribunal. No material was produced to establish the extent of services actually rendered or the amount received as consideration during the relevant period.
“In the absence of the necessary information from the assessee, the best-judgment determination could only be made using the figures available to the department,” the Tribunal observed in substance.
The Bench consequently upheld the use of contractual figures for determining the liability for that period. It nevertheless clarified that cum-tax benefit must be extended even while making that calculation.
The appeal was therefore partly allowed, and the dispute was remanded to the Commissioner solely for recalculating the service tax, interest and mandatory penalty after granting the cum-tax benefit.
The order records that the recalculation is required for “2013-14, 2016-17 and 2017-18.” However, the earlier discussion and tabulated computation in the order concern 2014-15, 2016-17 and 2017-18, indicating an apparent clerical discrepancy regarding the first financial year.
No one appeared for the assessee during the hearing. The Tribunal noted that the appeal had been listed on several occasions since September 23, 2025, and a final opportunity had been granted on May 22, 2026.
Relying on the Supreme Court’s decision in Balaji Steel Re-rolling Mills v. Commissioner of Central Excise and Customs, the Bench held that an appeal cannot be dismissed merely for default of appearance or want of prosecution. Even in the appellant’s absence, the Tribunal is required to examine and decide the appeal on its merits.
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