Service Tax Demand Raised Purely on ST-3 and ITR Discrepancy Without Scrutiny of Books of Accounts Is Unsustainable: CESTAT Allahabad

Case Background

Vinyl Tech Vs Commissioner (CESTAT Allahabad)

The CESTAT Allahabad, in a significant ruling, allowed the appeal preferred by M/s Vinyl Tech, a proprietary concern owned by Shri Jitendra Singh Chauhan, and quashed the Order-In-Appeal that had been passed by the Commissioner (Appeals), CGST & Central Excise, Allahabad. The judgment has important ramifications for service tax proceedings where demands are initiated without adequate examination of financial records and are based solely on apparent mismatches between statutory filings.

Registration and Nature of Business

M/s Vinyl Tech held registration with the Service Tax Department under the category of "Construction Service other than Residential Complex including Commercial Industrial Building" — a category that falls outside the Negative List with effect from 01.07.2012. The firm was engaged in job work, works contract services, and trading of goods, and the receipts from these activities were duly reflected in its books of accounts under distinct heads.

How the Proceedings Were Initiated

The entire chain of events was set in motion on the basis of third-party information received by the Revenue, which alleged that the assessee had rendered taxable services without discharging the corresponding service tax liability in full. Following letters and reminders issued by the department — to which the assessee duly responded — a Show Cause Notice dated 22.10.2021 was issued proposing recovery of service tax amounting to Rs. 4,77,120/- along with applicable interest and penalties under various provisions.

A reply to the SCN was filed by the assessee. The adjudicating authority passed an Order-In-Original dated 19.02.2024, confirming the demand, which was subsequently upheld by the Commissioner (Appeals), leading the assessee to prefer an appeal before the CESTAT Allahabad.

Assessee's Submissions Before the Tribunal

Financial Year 2016-17: Bifurcation of Gross Receipts

The assessee placed on record the Financial Statements for FY 2016-17, specifically the Trading and Profit & Loss Account, which clearly bifurcated gross receipts under the following distinct heads:

The assessee's counsel drew the Tribunal's attention to a detailed chart at Annexure 7 (Page No. 90 of the Appeal Paper Book), which reflected the taxable value for job work and the computed service tax liability of Rs. 3,08,819/-. Of this: