"(1) ST/30242/2023 CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Single Member Bench Court – I Service Tax Appeal No. 30242 of 2023 (Arising out of Order-in-Appeal No. HYD-SVTAX-MD-AP2-100-22-23-ST dt.30.01.2023 passed by Commissioner of Customs & Central Tax (Appeal-II), Hyderabad) Security Electronics Pvt Ltd H.No.1-7-12/2, Kamala Nagar, Post Kapra, ECIL, Hyderabad, Telangana – 500 062 ......Appellant VERSUS Commissioner of Central Tax Hyderabad - GST Kendriya Shulk Bhavan, LB Stadium Road, Basheerbagh, Hyderabad – 500 004 ……Respondent Appearance Shri K. Rajasekhar & Shri R. Ramesh Naik, Advocates for the Appellant. Shri B. Sangameshwar Rao, Authorized Representative for the Respondent. Coram: HON'BLE MR. A.K. JYOTISHI, MEMBER (TECHNICAL) FINAL ORDER No. A/30350/2024 Date of Hearing: 09.08.2024 Date of Decision: 14.08.2024 [Order per: A.K. JYOTISHI] M/s Security Electronics Pvt Ltd (hereinafter referred to as the Appellant) are engaged in providing Erection, Commissioning & Installation services (ECIS for short) and Annual Maintenance Services in respect of security equipment like Fire alarm, Burglar Alarm & CCTV Systems. The Department, in the course of reconciliation of turnovers of the Appellant, observed that they had reflected more turnovers in Profit & Loss Account as against turnovers shown in the periodical returns of Service Tax i.e., ST3. On inquiry, the Appellant, inter alia, clarified that the difference in turnover is due to split of their ECIS contracts into material value and service value and that they had applied formula of 67% material cost and 33% labour charges and thereafter, they had paid Service Tax on the labour charges (33%) only and reflected the same in the ST3 Returns. (2) ST/30242/2023 2. On further verification, the Department noticed that there was still some difference between the turnovers shown in the P&L account and that shown in the ST3 even after 33% labour charges was amplified to 100% contract value considered for Service Tax purpose. It was also observed by the Department that the Appellant availed incorrect rate of abatement of 67%, instead of eligible 60% in terms of Notification No.26/2012-ST and that there was short payment of Service Tax in the year 2017-18 when compared to liabilities shown in the ST3 returns. 3. SCN was issued and adjudicated by the Original Authority, who examined all these three issues raised. 4. In view of the submissions made by the Appellants regarding the discrepancies noticed by the Department, there is no dispute regarding the nature of service and the nature of contract, which in this case is a composite contract. Their main argument was that they have worked out the abatement of 67% of the contract value in terms of formula which they apply under state VAT for payment of VAT on material portion of the contract. They had also submitted that they were deducting from the gross value, the Service Tax paid to the vendors under bonafide belief. The Adjudicating Authority, after going through the documents like Form 26AS, invoices, ledgers showing Cenvat credit and other details and after detailed calculation, came to the conclusion that Appellant had short declared the value to the tune of Rs.52,88,505/- resulting in short payment of Service Tax of Rs.7,69,476/- during the period 2014-15 to 2016-17. He also held that there was short payment of Service Tax during the period 2017-18 (up to June, 2017) resulting in recovery of differential Service Tax of Rs.77,002/-. 5. On the issue of payment of Service Tax by availing wrong abatement of 67% instead of 60% during the period 2014-15 to 2017-18 (up to June, 2017), inter alia, held that the Appellant’s contention as regards abatement benefit for payment of Service Tax on ECIS under Notification No.26/2012- ST was not applicable. He has also mentioned in Para 24 that SCN erred in quoting the abatement of ECIS under Notification No.26/2012-ST as there is no mention of ECIS rendered by the Appellant in the said notification. However, the valuation of the said service is determined under Rule 2A of (3) ST/30242/2023 the Service Tax (Determination of Value) Rules, 2006 and as per the simplified scheme, the value of service portion is required to be determined as per clause (ii) of Rule 2A of the Service Tax Rules, 2006. The Adjudicating Authority also, in view of the Appellant’s having not produced any documentary evidence in the form of agreement with the sub- contractors, invoices raised towards receipt of such services, etc., to prove that services were received from sub-contractors, did not agree with the contention of the Appellant that they had deducted the value of services received as ‘input value deduction from Maintenance receipts’ and treated such amount as taxable. 6. On the issue of invocation of extended period, relying on the fact that the Department was not aware about the facts of the case or the Service Tax liability, according to the Adjudicating Authority, it is a settled law that the knowledge of the Departmental officers does not preclude the Department from raising the demand for extended period and relied on various judgments including Union Quality Plastic Ltd Vs CCE & ST, Vapi and Ispa Chemicals Pvt Ltd Vs CCE & ST, Daman [2013-TIOL-1072-CESTAT- AHM-LB]. The Adjudicating Authority has only imposed penalty under Section 78 and not under Section 76 as proposed in the SCN and thereafter, confirmed the total demand of Rs.8,94,161/- [Rs.7,69,476/- (+) Rs.47,683/- (+) Rs.77,002/-] and imposed total penalty of Rs.8,94,161/-. 7. On appeal, Commissioner (Appeals) has gone through the three issues which were the basis for raising the demand and confirmation thereof, as under:- a) Difference between the turnover shown in the P&L account and ST3 Return involving demand of Rs.7,69,476/- b) Availing abatement of 67% instead of eligible 60% involving demand of Rs.47,683/- and c) Short payment of Service Tax in the year 2017-18 (up to June, 2017) against declared value involving demand of Rs.77,002/-. 8. On the first issue, Commissioner (Appeals) has observed that even after accounting for the lapse of reflecting only the taxable value instead of gross value there was difference in turnover on which Service Tax was (4) ST/30242/2023 confirmed and thereafter, after considering all the facts, he upheld the Tax demand confirmed in this regard. 9. On the second issue, Commissioner (Appeals) has upheld the demand by holding the applicability of Rule 2A(ii)(a) of Service Tax (Determination of Value) Rules, 2006. 10. As regards third issue, Commissioner (Appeals) observed that there is no dispute about the fact of short payment and the Appellant did not make any specific submission and therefore, upheld the demand. 11. However, Commissioner (Appeals) has also examined the Appellant’s contention regarding eligibility of Cenvat Credit of Service Tax paid to their vendors/sub-contractors in view of statement showing invoice-wise details of input services availed along with copies of invoices and Form 26AS for 2015-16 of M/s Suraksha Services, who were claimed to be their sub- contractor for maintenance services. Commissioner (Appeals) observed that Appellant had claimed that they had Cenvat Credit of Rs.7,10,856/- during the relevant period which was rejected on the grounds the Appellant failed to reflect it in their ST3 Return where the Cenvat Credit balance was shown as ‘zero’. On going through the ST3 Return, it was found to be correct. However, Commissioner (Appeals) noted that in the year 2015-16 under Maintenance and Repair services Rs.29,39,653/- was shown as gross amount, Rs.22,63,969/- was shown as any other amount claimed as deduction and Rs.6,75,684/- was shown as taxable value. However, after going through the invoice-wise details of input services submitted by the Appellant, he observed that value of input services for the year 2015-16 was shown as Rs.22,48,460/- which matched with the amount claimed as deduction in the ST3 Return. He also observed that out of Rs.22,48,460/-, an amount of Rs.21,40,200/- pertains to M/s Suraksha Services, whereas, for the same year the Appellant had paid an amount of Rs.24,66,558/- to M/s Suraksha Services on which TDS was deducted. Therefore, he agreed with the contention of Appellant that Rs.22,63,969/- shown as deduction in the ST3 return pertains to the value of input services provided by their sub- contractor. Thereafter, despite observing that Appellant reflecting the value of input services as deduction from the gross value of services instead of reflecting Cenvat credit of Service Tax paid on such services in ST3 returns (5) ST/30242/2023 being not correct, he found that Appellant had tried to offset his tax liability on services provided against the services received during the same tax period, which in effect amounted to taking/claiming credit and the substantive benefit of Cenvat credit which otherwise is found to be eligible cannot be denied on this ground. Therefore, he allowed the input service credit of Rs.3,10,073/- on the value of Rs.22,48,460/- for which the documents submitted and it was adjusted against the demand of Rs.3,67,771/- confirmed for the year 2015-16 on account of discrepancy in turnover and only the balance was upheld to be payable. 12. He has, however, not allowed input service credit for the year 2014- 15, 2016-17 & 2017-18, where the Appellant had failed to avail the credit/declare in ST3 returns and also failed to submit any Cenvat credit account showing that they had taken credit in their books of accounts etc., keeping in view statutory restrictions and particularly that Cenvat credit has to be taken within one year from the date of issue of invoice and therefore, rejected the remaining claim. Commissioner (Appeals) also recalculated the differential turnover, after applying cum-tax benefit to arrive at the total service tax short paid on account of difference between turnover in P&L account and ST3 Return at Rs.6,71,569/- instead of Rs.7,69,476/-. He has also held that extended period is correctly invokable. 13. Learned Advocate for the Appellant has mainly reiterated the submissions made before the Original Authority and the Commissioner (Appeals) and has also submitted that while SCN alleged the violation of Notification No.26/2012-ST dt.20.06.2012, however, there is no provision for charging 40% abatement in respect of their services. He has also vehemently argued that in the facts of the case, there is no ground for suppression as it was within the knowledge of the Department and therefore, relying on certain case laws, alleged that extended period cannot be invoked and penalty cannot be imposed. He has also submitted that the Adjudicating Authority could not have resorted to valuation rules to apply 40% abatement as it was never invoked in the SCN. Their main ground is that they had inadvertently reported in ST3 returns only turnover pertaining to services liable to tax which cannot be termed as an action of suppression or under-declaration with an intention to avoid the tax, especially, when in the Order passed by the Adjudicating Authority, it was acknowledged that (6) ST/30242/2023 Appellant had discharged the Service Tax liability on the service portion and also VAT on the value of goods used or transferred. They have relied on the following case laws:- a) CCCE & ST-III Vs Shriram Chits Pvt Ltd [2024 (127) GSTR 423] b) Shriram Chits Pvt Ltd Vs CCCE & ST [2024 (127) GSTR 409] c) CCE, Bangalore Vs Pragathi Concrete Products (P) Ltd [2015 (322) ELT 819 (SC)] d) Blue Star Ltd Vs UOI [2015 (322) ELT 820 (SC)] e) CCE, Mumbai-IV Vs Damnet Chemicals Pvt Ltd & Ors [2007 (7) SCC 490] 14. They have also submitted that wherever the provision of service was sub-contracted and the sub-contractor collects tax from the Appellant and pays to the Government, such turnover is not liable to tax at the hands of the Appellant even otherwise if considered liable to tax and Cenvat credit to the extent tax paid by the Appellant is liable to be extended to the Appellant. They have requested for direction to the Original Authority to examine any balance of evidence now sought to be produced for grant of legitimate benefit under the Act as all these transactions, by way of input service through tax invoices raised by the sub-contractor having been registered in the books of accounts, cannot be denied lawfully available Cenvat credit. 15. On the other hand, learned AR supports the Order passed by the Commissioner (Appeals), wherein Commissioner (Appeals) has already extended certain relief to the Appellants. He points out that the Appellant’s contention regarding non-applicability of Notification No.26/2012-ST, in the facts of the case, is correct as already recorded by the Original Adjudicating Authority. However, by way of applicability of Rule 2A of determination of value of service portion in the execution of works contract, Rule 2A(ii) would be applicable which provides for payment of Service Tax on the 40% of the total amount charged for the works contract. There is no dispute on either side that nature of the contract being composite works contract. 16. He also supports that invocation of extended period is correct as the Appellants had failed to declare correct details of gross receipts, abatement claimed and taxable values in the ST3 returns, etc., during the relevant (7) ST/30242/2023 period and therefore, as held by the Adjudicating Authority and upheld by the Commissioner (Appeals), the extended period is applicable. He also points out that though they have filed the Appeal for the disputed amount of Service Tax of Rs.5,84,088/-, in terms of Order of the Commissioner (Appeals), the total confirmed demand is only Rs.4,86,181/- and the penalty would also be equal. Learned Advocate agrees with this and submits that there was an error in reflecting higher amount as confirmed Service Tax and penalty. Learned AR further submits that after confirming the demand, the Commissioner (Appeals) allowed Cenvat credit of Rs.3,10,073/- for the year 2015-16 which has to be adjusted against the demand of Rs.3,67,771/- and that Commissioner (Appeals) further extended the cum-duty benefit as per Section 67(2) of the Finance Act, 1994 and reworked the demand as under:- a) For the year 2014-15 : Rs.46,328/- b) For the year 2015-16 : Rs.3,21,198/- c) For the year 2016-17 : Rs.3,04,043/- The total demand confirmed after readjusting the admissible credit, allowing cum-tax benefit etc., stands at Rs.4,86,181/- only. 17. Heard both sides and perused the records. 18. The short question for determination in this case is whether there is any infirmity in the Order of the Commissioner (Appeals) who has partly upheld the Order of the Original Authority or otherwise. On going through the impugned order, I find that all the three issues covered in the SCN have been discussed in detail and the reasons for upholding the Order or differing with the confirmed demand as held by the Adjudicating Authority, has been explained in detail. 19. On the first issue, even though the demand has been confirmed to the extent of Rs.7,69,476/-, he has extended the benefit of input service tax credit of Rs.3,10,073/- for the year 2015-16, which was to be adjusted against the demand of Rs.3,67,771/- for the same period. Therefore, one of the major contentions regarding eligibility for deduction was allowed by the Commissioner (Appeals) having regard to the evidence produced by them and wherever the evidence could not be produced, the Commissioner (8) ST/30242/2023 (Appeals) did not extend the benefit. Revenue is not in Appeal against this adjustment allowed by the Commissioner (Appeals). 20. However, I find that when the Commissioner (Appeals) has allowed the deduction to the extent of Service Tax paid by their vendor from the gross value for working out differential demand, which has not been disputed by the Revenue nor appealed against, the same principle will have to be applied for the remaining years i.e., 2014-15, 2016-17 & 2017-18 (up to June, 2017). Commissioner (Appeals) has only stated that as the Appellant failed to submit any Cenvat Credit account showing that they had taken the credit in their books of accounts, credit cannot be allowed particularly in view of the restriction that Cenvat Credit has to be taken within one year from the date of issue of invoice. Learned Advocate for the Appellant has vigorously argued that they are entitled for the said credit/deduction as they had submitted all the relevant documents in support of their eligibility/deduction for the remaining years and the Commissioner (Appeals) should have considered those documents as well instead of restricting only to the year 2015-16. I find some merit in this argument as there is not much detail as to why the remaining credit claimed has been denied for deduction. Commissioner (Appeals) should have given a detailed speaking order as regards denying the Appellant’s claim for said deductions also. Therefore, this issue needs to be redetermined by the Commissioner (Appeals) where the Appellants will be at liberty to produce all supporting documents for seeking such adjustment/deduction. 21. On the issue of short payment of Service Tax by arriving at the demand on the net receipt basis, without giving them the benefit of cum-tax value, the Commissioner (Appeals) has already extended this benefit to the Appellant and recalculated the Service Tax paid as Rs.6,71,569/- (Para 14). Therefore, there is also no reason to interfere with this finding of the Commissioner (Appeals) on this ground. 22. With regard to Service Tax of Rs.47,683/- confirmed after abatement of 67% as against applicable 60%, the Commissioner (Appeals) has in terms of Rule 2A(ii)(a) of the Service Tax (Determination of Value) Rules, 2006 held that abatement admissible will be 60% and not 67% and therefore, upheld the demand of Rs.47,683/-. However, with regard to Service Tax (9) ST/30242/2023 demand of Rs.77,002/- confirmed on account of short payment of Service Tax for the period 2017-18 (up to June, 2017), since there was no dispute about the short payment nor Appellant has made any specific submission, confirmed demand was upheld as such. Therefore, on this issue also there appears no infirmity in Impugned Order. 23. As far as the merit of the case is concerned, I find that barring the issue of confirmation of demand of Rs.47,683/- by resorting to Rule 2A(ii)(a) of Service Tax Rules and not allowing certain adjustments against Service Tax paid to vendors/sub-contractors for remaining years, the rest of the Order does not need any interference as there is no ground substantiated by the learned Advocate to suggest that there was any gross error in arriving at such calculation or in denying any legal rights of the Appellant in the facts of the case or evidence on record. However, as far as the upheld demand of Rs.47,683/-, I find that the rules relied upon by the Commissioner (Appeals), was not invoked in the SCN, as admitted by the Adjudicating Authority also and therefore, the same could not become the basis for confirming the demand when the grounds on which demand is proposed to be confirmed was not disclosed in the SCN, in view of settled legal position in this regard. Therefore, to that extent, demand upheld by the Commissioner (Appeals) is not tenable and requires to be set aside. Similarly, the contention of the Appellant regarding eligibility for adjustment for remaining years also needs to be reexamined in view of lack of detailed reasons given for denial. 24. On the issue of invocation of extended period, I find that in the facts of the case, it is obvious that the Appellants were following certain method of calculation for discharge of Service Tax which was not proper or in accordance with the applicable laws, Rules, etc. The whole discrepancy was noticed only on detailed verification and plausible submissions made by the Appellants. Some of the submissions like deduction of Service Tax paid to the vendors, though accepted by the Commissioner (Appeals), and not disputed by Revenue, are debatable on the fair reading of applicable legal provisions which require service provider to discharge Service Tax and the service recipient is required to pay the Service Tax. The recipient of service on which service tax has been paid is also entitled to take credit and utilize against his further liability subject to provisions of Cenvat Credit Rules. (10) ST/30242/2023 Therefore, the payments including Service Tax made to the sub-contractor cannot suo moto become eligible for deduction from the gross value of recipient, which is required to be taken as basis for discharge of Service Tax. Since the Commissioner (Appeals) has already given the benefit in this regard and this aspect is not being disputed by the Revenue, this issue is not being examined by me. However, the fact remains that though the Appellants have claimed bonafide belief of the practice that was being followed by them regarding deductions from the gross value, it could not be said that following wrong practice or inconsistent practice which is not permissible under the law, would tantamount to their disclosure of facts to the Department and in turn prevent the Department from invoking the extended period. 25. I have perused the case laws relied upon by the learned Advocate. In the case of CCCE & ST-III Vs Shriram Chits Pvt Ltd (cited supra), the Hon’ble Supreme Court has dismissed the Civil Appeal in the case of Order of the Tribunal as reported at [2024 (127) GSTR 409]. In this case, the Tribunal, inter alia, examined the facts of the case and various case laws and held that material and relevant facts forming the basis of demand were already within the knowledge of the Revenue and in such event, the extended period cannot be invoked. Therefore, the issue is whether material facts were within the knowledge of Revenue or otherwise in the present case. Perusal of the SCN would indicate that the Department noticed certain discrepancies when they compared the P&L account as against turnover shown in the periodical returns and only when inquired further about the said discrepancy, the Appellant, vide their reply dt.27.05.2020, submitted certain documents and informed the reasons for difference in the turnover on account of certain facts. Therefore, based on the documents submitted by the Appellant on 27.05.2020, the discrepancies were noticed and were examined in the light of the legal provisions and thereafter, SCN dt.15.09.2020 was issued. Therefore, it is obvious that during the material time for which the demand has been made, no such documents or information were either available to Department or made available by Appellant and merely because ST3 returns were being filed, the Appellant can say that they had disclosed everything to the Department. Therefore, the judgment of the Tribunal cited, as confirmed by the Hon’ble Supreme Court, is distinguishable in the facts of the case. (11) ST/30242/2023 26. The case of Pragathi Concrete Products (P) Ltd (cited supra) of Hon’ble Supreme Court is also distinguishable in view of the facts of the case as the facts considered were that the Department had taken five years to serve the SCN and also in view of the unit of the Respondent being audited during the said period several times and there was physical inspections by the Department as well. No such facts are on record in the present case. 27. Similarly, in the case of Blue Star Ltd (cited supra), there was some bonafide belief as regards entry number of the product under erstwhile Item No. 29A(3) in view that facts were known to the Department as well as many High Courts have taken a view that tax on walk-in coolers will not be covered under Item No. 29A(3) and therefore, this case is also distinguishable in view of the facts that there was nothing on record to suggest that Appellants had any bonafide belief regarding method of calculation of gross value in view of any conflicting Court cases or directions of the Department regarding applicable method of valuation or claim of abatement in respect of their services etc. 28. Similarly, in the case of Damnet Chemicals Pvt Ltd & Ors (cited supra), the Hon’ble Supreme Court, inter alia, held that non-mentioning of license agreement in the classification list would not lead to the conclusion that there has been willful suppression of facts with an intent to evade payment of duty. Therefore, this case is also distinguishable in the facts of the present case. 29. Therefore, in the facts of the case, the grounds on which the Commissioner (Appeals) has upheld the decision of the Adjudicating Authority for invoking extended period are correct and therefore, there is no need to interfere with the findings of the Commissioner (Appeals) on this issue. In other words, the extended period will be applicable in the facts of the case. 30. To sum up, the Order of the Commissioner (Appeals) does not need any interference, except to the extent of its confirming the demand of Rs.47,683/- which cannot be sustained and denial of adjustment for the years 2014-15, 2016-17 & 2017-18 (up to June, 2017) without giving adequate reasons for its denial. This issue therefore requires to be redetermined by the Appellant Authority on the basis of documents (12) ST/30242/2023 submitted including any other relevant documents which Appellants may adduce in support of their claim. Penalty proposed under Section 78 will also has to be redetermined in view of final confirmed demand liable to be paid by the Appellants. Except for these modifications as discussed supra, the Order of Commissioner (Appeals) does not warrant any interference. 31. The Appeal is therefore partly allowed by way of setting aside the Order of confirmation of Rs.47,683/- by Commissioner (Appeals) and remanding the issue of eligibility and extent for adjustment against demand for the years 2014-15, 2016-17 & 2017-18 (up to June, 2017). (Pronounced in the Open Court on 14.08.2024) (A.K. JYOTISHI) MEMBER (TECHNICAL) Veda "