The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has set aside a service tax demand of ₹2.16 lakh against a company providing services to doctors, holding that it was entitled to the small service provider exemption and that the department had failed to establish grounds for invoking the extended period of limitation.

The bench of Sanjiv Srivastava (Technical Member) also found that the department had demanded tax on membership fees and commission income without correctly determining the classification of the services.

Buy Now: 80+ Judgements Indirect Tax – September 2026 E-Magazine

The dispute concerned the financial year 2016–17. The department initiated an investigation after receiving third-party information from the Income Tax Department showing receipts of ₹14,44,759.

According to the order, Doccel Services was not registered with the service tax department. The authorities issued letters dated March 23, June 29 and July 19, 2021, seeking documents, but the company did not respond.

The department consequently calculated service tax at 15% on the entire amount reflected in the income tax data and issued a show cause notice on October 18, 2021, demanding ₹2,16,714, including applicable cesses.

The adjudicating authority confirmed the demand with interest and imposed an equivalent penalty under Section 78 of the Finance Act, 1994. It also imposed four separate penalties of ₹10,000 each under different provisions of Section 77.

The Commissioner (Appeals) dismissed the company’s appeal, leading to the proceedings before CESTAT.

Before the appellate authority, the company contended that the income under consideration related to three years rather than a single year. It also sought the benefit of the ₹10 lakh threshold exemption.

The Commissioner (Appeals) examined a sample agreement and membership documents relating to doctors enrolled with the company. These documents indicated that the company provided “Legal and Administrative Services” against membership charges collected at the beginning of a three-year membership period.

Relying on Rule 3 of the Point of Taxation Rules, 2011, the Commissioner (Appeals) held that advance receipt of consideration triggered the obligation to discharge service tax, even where the services were to be provided subsequently.

The appellate authority also refused the threshold exemption on the ground that the company had not produced documentary evidence showing that its turnover in the preceding financial year, 2015–16, was below ₹10 lakh.

CESTAT examined the income tax return acknowledgements and balance sheets submitted with the appeal.

It found that the company’s profit and loss account disclosed revenue from operations of ₹9,16,756.40 for financial year 2015–16, below the ₹10 lakh limit relevant to eligibility under Notification No. 33/2012-ST dated June 20, 2012.

The Tribunal therefore held that the refusal to extend the notification’s benefit could not be sustained.

“Appellant was entitled to the benefit of exemption under the said notification,” the bench observed.

This finding concerned the company’s eligibility for the threshold exemption. The Tribunal also separately examined the classification of the receipts and the validity of invoking the extended limitation period before setting aside the impugned order.

The Tribunal noted that the financial statements separately recorded membership fees of ₹13,62,818 and commission income of ₹81,914.

However, the department had proceeded to demand service tax by treating the receipts as consideration for legal and administrative services to doctors without correctly determining the classification of the services.

The bench found this approach defective, observing that demanding service tax without determining the proper classification was not a correct exercise.

The finding questioned the basis on which the receipts had been taxed; it did not declare that membership fees or commission income are invariably outside the service tax net.

The Tribunal further examined whether the department could invoke the extended period of limitation for a notice issued in October 2021 concerning financial year 2016–17.

It noted that the adjudicating authority had relied on the company’s failure to obtain registration, pay service tax, file ST-3 returns and submit documents or representations.

CESTAT held that invoking the extended period required a specific finding that the assessee had positively suppressed or misdeclared facts with an intention to evade service tax. No such finding had been recorded.

The bench also considered the dispute interpretational and accepted that the company could have entertained a bona fide belief regarding its registration and tax obligations.

The Tribunal relied on the Supreme Court’s decision in Uniworth Textiles Ltd., which emphasises that allegations of wilful default require supporting evidence and that the burden of establishing mala fide conduct lies on the Revenue.

It also relied on Stemcyte India Therapeutics Pvt. Ltd., which reiterates that mere non-payment of service tax does not, by itself, justify invoking the extended period under Section 73 of the Finance Act, 1994.

Applying these principles, the Tribunal found that the department had not established the deliberate conduct necessary to sustain the extended limitation period.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Service Tax Order Pasted At Business Premises Starts Appeal Limitation: CESTAT