Service tax demand cannot sustain merely on basis of income declared under Income Tax Disclosure Scheme (IDS): CESTAT

Briefly stated the facts of the case are that the appellant are engaged in providing Construction of Residential Complex & Construction of Commercial Complex Service and Real Estate Service. On the basis of information that assessee has sold many properties in cash after the demonetization of old currency note and deposited the said cash in the bank account an enquiry was initiated. Revenue directed the appellant to produce documents/ details and information related to the financial statements and documents regarding disclose of income before the income tax authority under the Income Tax Disclosure Scheme (IDS) 2016. The Revenue approached the Deputy Director (Cost) to work out the gross receipts
/revenue in respect of the cash amount of Rs. 32.50 Crores deposited in the bank/declared under IDS. The Deputy Director (Cost) after considering the various financial aspect, furnished report dated 22.10.2019 wherein the gross receipts/ revenue was worked out and estimated as Rs. 86,87,78,400/- The said investigation was culminated into show cause notice where the amount of Rs. 32,50,10,000/-considered as profit and gross receipts worked out at Rs. 86,87,78,400/- in respect of the said profit. Demand of service tax of Rs. 3,90,95,028/- along with interest under Section 75 and penalty under Section 77 and 78 of the Finance Act, 1994 was proposed on gross receipt considered as taxable value towards rendering taxable service.The said notice was adjudicated by the Principal Commissioner, Ahmedabad vide impugned order. He confirmed the impugned demand along with interest and penalty and in addition, Penalty of Rs. 1 Lakh was also imposed on Shri Mukesh R Agarwal, Director of Appellant Company. Aggrieved by the impugned order the present Appeals have been filed with Customs Excise and Service Tax Appellate Tribunal (CESTAT).

CESTAT order

4.9 From the discussions made above and following the decisions cited supra, we hold that the service tax demand cannot sustain merely on the basis of income declared under IDS and requires to be set aside, which we hereby do so.

4.10 Without prejudice, we also find that the meaning of “income” has been defined under Section 2(24) of the Income tax Act, 1961 is very wide and it cover all types of Income. Income can also be earned from taxable, non- taxable, exempted activity. The provisions of Income-tax Act and IDS scheme are having specific scope, purpose and intent, as decided by the legislature. Further, under the Income tax, income declared by the assessee cannot be assumed that the said income earned from taxable service only, whereas under the income tax “income” have wide meaning. In the present matter department‟s allegation that the income disclosed under the IDS scheme is attributable to construction services provided to their clients/ customers is based on the assumption that Appellant have no other activity except construction service. But it is seen that apart from the construction activity, Appellant also earned income from the business of land sale, sale of flat, sale of office and shop. The activity of land sale is exempted from payment of service tax. We also observed that Construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, where the entire consideration is received after issuance of certificate of completion by a competent authority also exempted from the service tax. In the present matter Appellant also produced the details of payment received after obtaining Business use (BU) i.e. sales of flats, shop etc. after receipt of the completion certificate. Therefore it cannot be said that the income declared by the Appellant under IDS Scheme is attributable to the taxable service provided by them to their clients. In this case, evidence gathered by the Department is not sufficient to establish even the preponderance of probability. Therefore, the demand on the ground that the income declared under IDS scheme is earned from the taxable service is not sustainable.

4.11 Since the demand of service tax itself is not sustainable in the present case on merit, we are not going into the other issues of valuation of taxable value, limitation and issue of preconsultation for issue of Show Cause Notice etc., raised by Appellant in appeal memo and during the course of arguments.

14. In result, the impugned order is set aside and the appeals filed by the Appellants are allowed with consequential relief, if any, as per law.