The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld a service tax demand after finding that receipts from one of the proprietor’s firms were omitted from the ST-3 return and that the receipts of the other firm were reported at a lower figure.
The bench of Hemambika R. Priya (Technical Member) rejected the appellant’s claim that the discrepancies were merely clerical errors and held that the extended period for issuing the demand notice had been correctly invoked.
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The dispute concerned advertising agency services provided during the financial year 2016–17. The department examined information received from the Income Tax Department alongside the proprietor’s financial records, Form 26AS, income tax return and ST-3 returns. It found that Prompt Publicity had receipts of ₹17,63,824 and that assessee, another firm of the same proprietor, had receipts of ₹8,34,550. The combined receipts were ₹25,98,374.
The ST-3 return, however, showed ₹15,39,884 as Prompt Publicity’s receipts for October 2016 to March 2017. The appellant had claimed a ₹10 lakh threshold exemption and paid ₹80,983 in service tax on the balance shown in the return. The receipts of assessee were not reported in the ST-3 return. The department also noted that the assessee was not registered with the service tax authorities.
A show-cause notice issued on October 21, 2021 proposed recovery of service tax for the period from April 2016 to March 2017. After the demand was confirmed, the appellant challenged it before the Commissioner (Appeals) and then the tribunal.
The appellant argued that the notice was issued beyond the ordinary limitation period under Section 73(1) of the Finance Act, 1994. According to its grounds of appeal, the five-year extended period could apply only where non-payment arose from fraud, collusion, wilful misstatement or suppression of facts with intent to evade tax. It said it had furnished its balance sheet, income tax return, Form 26AS, ST-3 returns, sample invoices and work orders when asked, and that the incorrect figures resulted from oversight during preparation of the return.
The appellant acknowledged that Prompt Publicity’s receipts had been shown as ₹15,39,884 instead of ₹17,63,824 and that assessee’ ₹8,34,550 in receipts had been left out. It also accepted that the threshold exemption had been claimed wrongly. It nevertheless maintained that the records were reconciled while preparing its income tax return and that the omissions did not establish deliberate suppression.
The department opposed that account. Its representatives pointed out that the income tax records reflected the receipts while the ST-3 return did not disclose the correct taxable value. They argued that the omission of an unregistered second firm’s receipts, the lower figure reported for Prompt Publicity and the wrongful exemption claim supported the use of the extended period.
The tribunal agreed with the department. It found that the appellant’s own admissions established that the ST-3 return disclosed a taxable value lower than the actual receipts. The tribunal held that this understatement showed an intent to evade service tax and therefore justified invocation of the extended period. It also found no material on record proving the appellant’s eligibility for the ₹10 lakh threshold exemption.
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