The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has restored service tax demands against a real estate developer over alleged unaccounted cash receipts from flat buyers, holding that electronic records recovered from its accounts employee, supported by statements subsequently reaffirmed by the employee and the company’s director, sufficiently established the allegations.
The Bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the Commissioner (Appeals) had wrongly disregarded the recovered records and admissions and had erred in accepting a belated retraction made in the reply to the show cause notice.
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The central issue was whether pen drive records detailing alleged cash collections, read with statements explaining and confirming those records, could sustain a service tax demand despite the absence of additional evidence such as statements from buyers or a banking trail.
The company provided construction of residential complex services and was registered with the service tax authorities. The investigation concerned its “Homes-121” residential project in Noida, Uttar Pradesh.
According to the Directorate General of Central Excise Intelligence (DGCEI), the company collected part of the consideration for residential flats in cash without recording those receipts in its statutory accounts or paying service tax on them. Intelligence indicated that details of these collections were maintained by its Assistant Manager (Accounts), Inder Kumar Gupta.
DGCEI officers searched the company’s office on January 21, 2014, and recovered six pen drives from Gupta. Relevant electronic files were examined in his presence, and printouts were taken and signed by him.
The department alleged that the electronic data disclosed cash collections of ₹17,47,15,000 from customers towards the basic cost of flats between June 2011 and January 2014. Gupta explained the entries, including that figures appearing against flat numbers and buyers’ names represented amounts in lakhs.
The company also deposited ₹25 lakh during the investigation towards its anticipated service tax liability.
The proceedings involved a demand of ₹50,77,000 on the alleged unaccounted cash receipts and another demand of ₹50,49,750 based on the department’s analysis of differences in flat prices. A subsequent statement of demand covering 2014-15 resulted in a further demand of ₹11,36,830.
The Additional Commissioner confirmed the demands with interest and penalties and appropriated the ₹25 lakh already deposited. The Commissioner (Appeals), however, set aside the adjudication order, finding the evidence insufficient.
The appellate authority considered that the department had not adequately verified the allegations through buyers’ statements, bank details, balance sheets or other transaction evidence. It also held that the accounts employee’s statements could not alone justify working out liability through an untested hypothesis.
Challenging that decision, the Revenue argued that the case rested on both documentary evidence and admissions. It relied on the recovered pen drives, the signed printouts, Gupta’s explanation of the entries and the company director Deepak Kapoor’s confirmation of Gupta’s statement.
The Revenue also argued that the ₹25 lakh payment during investigation supported its case that the company had accepted liability on the unaccounted collections.
The company disputed the allegations and maintained that the department had failed to establish actual cash receipts through independent evidence. It pointed out that no cash had been recovered during the search, no buyer’s statement confirming cash payment had been recorded and no money trail had been established.
It also challenged the separate demand arising from differences in selling prices. According to the company, the department grouped flat transactions by payment plan, selected an assumed benchmark price and treated differences between that price and the declared transaction value as suppressed consideration.
The company argued that price variations were inherent in real estate transactions and could reflect negotiated discounts and commercial arrangements. It referred to buyer affidavits denying cash payments and builder-buyer agreements showing discounts.
It further relied on favourable outcomes in income tax proceedings involving similar allegations and contested the invocation of the extended limitation period under Section 73(1) of the Finance Act, 1994.
The Tribunal nevertheless found that the recovered electronic material and the statements explaining it had been wrongly ignored.
A significant part of its reasoning concerned the timing of the retraction. Gupta’s first statement was recorded on January 21, 2014. He reaffirmed it on December 19, 2014, approximately eleven months later. On the same date, director Deepak Kapoor also agreed with the contents of Gupta’s statement.
The Tribunal noted that the retraction relied upon by the Commissioner (Appeals) appeared in the company’s reply to the show cause notice issued on June 10, 2015. It rejected the contention that the statements had been retracted at the earliest opportunity.
“Any retraction in such reply cannot be called anything other than an afterthought,” the Bench observed.
It reasoned that if the initial statement had been obtained through coercion, Gupta should have retracted it promptly. Instead, he reaffirmed it several months later, and the director independently confirmed its contents.
The Tribunal also invoked Section 106 of the Indian Evidence Act, concerning facts especially within a person’s knowledge. It held that Gupta, who maintained the accounts and possessed the pen drives, had particular knowledge of the electronic files. His explanation of those files, subsequent reaffirmation and the director’s confirmation were therefore material evidence.
Rejecting the view that the case lacked supporting documentation, the Tribunal emphasised that printouts had been extracted from the recovered pen drives in Gupta’s presence and signed by him. The evidence consequently extended beyond oral statements.
The Bench also examined statements recorded under Section 14 of the Central Excise Act, 1944, as applicable to service tax through Section 83 of the Finance Act, 1994. It explained that such statements must be voluntary and true to carry evidentiary value.
On the facts before it, the Tribunal accepted the earlier statements and the electronic records as sufficient proof of the allegations. It held that the Commissioner (Appeals) had committed an error in setting aside the demands.
CESTAT set aside the appellate order, restored the Additional Commissioner’s order and allowed the Revenue’s appeal.
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