Service Tax | 67% Abatement Can’t Be Denied for Procedural Lapses: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata Bench, has set aside a Service Tax demand of ₹1.88 crore along with interest and equivalent penalty against a construction service provider, holding that a substantive benefit such as statutory abatement cannot be denied merely because it was not specifically claimed in ST-3 returns. The bench of Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that tax departments are obligated to determine the correct tax liability after considering all legally available benefits. The appeal arose from proceedings initiated after the assessee had availed the Voluntary Compliance Encouragement Scheme (VCES), 2013 and declared a tax liability of ₹59.03 lakh, which was paid under the scheme. Subsequently, the department rejected the declaration alleging that the disclosure was not truthful and issued a show cause notice seeking recovery of ₹3.44 crore in Service Tax for the period from 2009-10 to 2012-13, together with interest and penalties. During adjudication, the Commissioner reduced the demand and confirmed Service Tax liability of ₹1.88 crore with an equivalent penalty under Section 78 of the Finance Act, 1994 while also appropriating the amount already deposited under VCES. Before the Tribunal, the appellant argued that while rendering construction and works contract services, materials had been supplied and utilized in execution of projects. Therefore, it was entitled to the 67% abatement available under Notification No. 1/2006-ST. The appellant submitted that due to ignorance, the abatement had not been claimed in the ST-3 returns and Service Tax had been paid without availing the benefit. It was contended that the department itself had accepted the use of materials and therefore denial of abatement solely for failure to claim it in returns was unjustified. The Tribunal noted that the adjudicating authority had itself acknowledged use of materials such as stone chips, sand, bamboo, MS pipes, bricks, marbles and tiles in the construction activities undertaken by the assessee. Despite recording this finding, the authority denied abatement solely because it was not claimed in the statutory returns. Rejecting this approach, the Tribunal held that substantive tax benefits cannot be denied because of procedural lapses. It observed that determining the correct duty or tax liability is the responsibility of the proper officer and that legitimate abatements cannot be ignored merely because a taxpayer failed to formally claim them. The Bench relied on earlier judicial precedents including Jay Iron & Steel Industries Ltd., Makkar Construction Co., and Munna Construction, where procedural deficiencies were held insufficient to deny otherwise available statutory benefits. The Tribunal also examined the re-computed tax calculations submitted by the appellant. According to the recalculation after extending the 67% abatement, the total Service Tax liability for the disputed period worked out to approximately ₹1.01 crore. However, the appellant had already paid around ₹1.22 crore towards Service Tax during the relevant period, resulting in excess payment over the actual tax liability. The CESTAT concluded that the demand of Service Tax and corresponding interest was legally unsustainable. Consequently, it also set aside the equivalent penalty imposed under Section 78 of the Finance Act, 1994. However, the Tribunal retained a separate penalty of ₹20,000 for failure to file ST-3 returns for the period 2011-12 and 2012-13. Case Details Case Title: Singh Construction Corporation Versus Commissioner of Central Excise and Service Tax Citation: JURISHOUR-1383-HC-2026(Ker) Case No.: Service Tax Appeal No. 76819 of 2016 Date: 22.05.2026 Counsel For Appellant: Aditya Dutta, Advocate Counsel For Respondent: Suman, Authorized Representative Click Here To Read Order Read More: Madras HC Quashes GST Demands on TASMAC Bar Licence Fee

Service Tax | 67% Abatement Can’t Be Denied for Procedural Lapses: CESTAT

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