Custom, Excise & Service Tax Tribunal
Ms Embellishment vs Ce & Cgst Lucknow on 18 December, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT No.II
(E-Hearing)
Service Tax Appeal No.70208 of 2021
(Arising out of Order-in-Original No.09/PC/2020-2021 dated 29/01/2021
passed by Commissioner of Central Excise & CGST, Lucknow)
M/s Embellishment, .....Appellant
(4/15, Vivek Khand,
Gomti Nagar, Lucknow-226010)
VERSUS
Commissioner of Central Excise &
Service Tax, Lucknow ....Respondent
(7-A, Ashok Marg, Lucknow-226001)
WITH
Service Tax Appeal No.70193 of 2021
(Arising out of Order-in-Original No.09/PC/2020-2021 dated 29/01/2021
passed by Commissioner of Central Excise & CGST, Lucknow)
Commissioner of Central Excise &
Service Tax, Lucknow .....Appellant
(7-A, Ashok Marg, Lucknow-226001)
VERSUS
M/s Embellishment Anita V Mishra, ....Respondent
(4/15, Vivek Khand,
Gomti Nagar, Lucknow-226010)
APPEARANCE:
Shri Dharmendra Kumar, Chartered Accountant for the Assessee
Smt Chitra Srivastava, Authorised Representative for the Revenue
CORAM: HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70886-70887/2025
DATE OF HEARING : 16 October, 2025
DATE OF PRONOUNCEMENT : 18 December, 2025
Service Tax Appeal No.70208 & 70193 of 2021
2
SANJIV SRIVASTAVA:
These appeals one filed by the assessee (appellant) and
other filed by the revenue are directed against Order-in-Original
No.09/PC/2020-21 dated 29.01.2021 of the Principal
Commissioner, CGST & Central Excise Lucknow. Vide the
impugned order following has been held:
"ORDER
1. I demand and confirm the Service Tax amounting to Rs.
1,92,36,661/- (Rupees One Crore Ninety Two Lakh Thirty
Six Thousand Six Hundred and Sixty One Only) (including
Ed.Cess, H.Ed.Cess. SBC & KKC as applicable) for the period
from April' 2013 to March'2017 upon M/s Embellishment
(Anita V. Mishra), 4/15, Vivek Khand, Gomti Nagar,
Lucknow Uttar Pradesh under proviso to Section 73(1) of
the Act read with Section 173, 174 & 142 of Central Goods
& Services Tax Act, 2017 (hereinafter referred as "CGST
Act"). I also appropriate the Service Tax amounting to Rs.
55,00,000/- deposited during course of investigation for
which challans are available on record, against the tax
liability being confirmed. If any other amount as claimed by
the Noticee has been deposited the same shall also be
appropriated subject to production of evidence to the
satisfaction of proper officer in this regard.
2. I also demand and confirm interest due on the Service Tax
being confirmed at the applicable rate on the Noticee under
Section 75 of the Act read with Section 173, 174 & 142 of
CGST Act.
3. I also impose a penalty of Rs. 96,18,331/- (Rupees Ninety
Six Lakh Eighteen Thousand Three Hundred and Thirty One
only), upon M/s Embellishment (Anita V. Mishra), 4/15.
Vivek Khand, Gomti Nagar, Lucknow under Section 78 of
the Act for non-payment of due Service Tax by suppressing
the value of taxable services with intent to evade the
payment of Service Tax from the department, read with
Section 173 & 174 of CGST Act The penalty imposed herein
Service Tax Appeal No.70208 & 70193 of 2021
3
shall be further reduced to 25% of the demand of Service
Tax confirmed herein subject to the condition that the
benefit of reduced penalty shall be applicable only if the
amount of such reduced penalty is also paid along with the
Service Tax confirmed and the interest payable thereon
within a period of 30 days of receipt of this order.
4. I also impose a penalty of Rs. 10,000/- upon M/s
Embellishment (Anita V. Mishra), 4/15 Vivek Khand, Gomti
Nagar, Lucknow under Section 77(2) of the Act read with
Section 173 & 174 of CGST Act for the contravention of the
provisions of the Act and Rules made there under as
discussed foregoing Paras.
2.1 Appellant is a proprietorship firm is registered with the
department vide Service Tax Registration No. AIPPM9730JST001
for providing services under the category of "'Beauty Parlour
/Beauty Treatment Service, as defined in the Finance A ct. 1994.
2.2 Acting on intelligence that the appellant was engaged in
providing taxable services i.e. Beauty Parlour /Beauty Treatment
Service under franchise of M/s Lakme but was not paying
Service Tax. Acting on the aforesaid A team of the officers of
visited the registered premises of the Appellant to , scrutinize &
verify the facts. On scrutiny it was found that;-
firm was engaged in providing taxable services from five
different places i.e. Vivek Khand, Gomti Nagar, Lucknow,
Vibhuti Khand, Gomti Nagar, Lucknow, Aliganj, Lucknow,
Ashiyana, Lucknow and Mahmoor Ganj, Varanasi but
accounting and taxation of all branches were being done
from 4/15 Vivek Khand, Gomti Nagar, Lucknow (registered
premises of the appellant).
that they were charging service tax on services provided
but the same was not being deposited in Government
Exchequer.
service tax liability was admitted by the Proprietor of the
firm. All the proceedings were conducted under the cover
of panchanama dated 24.01.2017 drawn on spot.
Service Tax Appeal No.70208 & 70193 of 2021
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Statement of Mrs. Anita V Mishra, Proprietor of Appellant
dated was recorded under Section 14 of Central Excise Act,
1944 made applicable to Service Tax matters as per
provisions of Section 83 of the Finance Act, 1994.
2.3 Appellant was vide letter dated 08.01.2018 was requested
to clear off their complete Service Tax liability alongwith due
interest but they did not pay any heed. Therefore, the summon
dated 26.09.2018 was issued to provide information/documents
regarding their Service Tax compliance but the appellant neither
appeared nor submitted the desired documents.
2.4 On scrutiny of the documents i.e. Balance Sheet and From
3CD of Income Tax for the Financial Year 2013-14 to 2016-17 it
was observed that the appellant had received a huge amount
against Beauty Parlour service during this period. They had also
received Rental Income. These receipts against the activity
undertaken qualify as taxable service as per Section 65 B (44),
65B(22), 66 (B) & 66(E) of the Finance Act, 1994.
2.5 From the Balance Sheet and other Financial Records of the
appellant following was observed:
BEAUTY PARLOUR RECEIPT
(amount in Rs.)
Financial Year 2013-14 2014-15 2015-16 2016-17
Value as per Balance 20434509 44513346 48114244 44474511
Sheet
Value as per 3CD 20434509 44513346 48114244 Not
available
Taxable Value 20434509 44513346 48114244 44474511
INCOME FROM RENT RECEIPT
Value as per Balance 364000 473000 0 0
Sheet
Value as per 3CD 364000 0 837029 Not
available
Taxable Value 364000 473000 837029 0
2.6 Service Tax (inclusive of all cesses) due in respect of the
above receipts against the taxable services provided by the
appellant was calculated as in table below:
Service Tax Appeal No.70208 & 70193 of 2021
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BEAUTY PARLOUR RECEIPT
(amount in Rs.)
Financial Year 2013-14 2014-15 2015-16 2016-17 Total due
Taxable Value 20434509 44513346 48114244 44474511
Rate of 12.36 12.36 14.50 15.0
Service Tax
(%)
Service Tax 2525705 5501850 6976565 6671177 21675297
due
INCOME FROM RENT RECEIPT
Taxable Value 364000 473000 837029 0
Rate of 12.36 12.36 14.50 15.0
Service Tax
(%)
Service Tax 44990 58463 121369 0 224822
due
Grand Total 21900119
of Tax Due
Thus appellant has short paid the service tax as indicated in the
table above. As month wise details about the receipts were not
provided by the appellant the calculation was made by applying
the highest rate of tax applicable in particular financial year.
2.7. Appellant being registered with the department for
providing taxable services was well aware of their service tax
liability but they had deliberately suppressed the fact with regard
service ax liabilities as they had neither filed ST-3 Returns nor
paid Service Tax. Moreover, during the course of investigation it
was found that the Appellant had charged as well as collected
the service tax from their client (service recipients) and retained
the same with themselves instead of paying the same to the
department. This was an act of willful suppression of facts and
also contravention of the provisions of Section 73 A of the Act
with intent to evade service tax. Therefore, extended period for
recovery of service tax was invokable as per proviso to Section
73 (1) of the Act. Thus appellant was also found to be liable to
imposition of penalty under Section 78 of the Finance Act 1994.
2.8 Appellant had failed to file periodical Returns assessing the
due tax on services provided by the date prescribed, as per
Service Tax Appeal No.70208 & 70193 of 2021
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provisions of Section 70 of the Act. Therefore they were liable for
penalty under Section77(2) of the Act of Service Tax Rules. 1994
2.9 A Show Cause Notice dated 12.10.2018 was issued to the
appellant asking them to show cause, as to why :-
a. Service Tax amounting to Rs. 2,19,00,1 19/- (Rupees Two
Crore Nineteen Lakh One Hundred Nineteen Only)
(including Ed. Cess, H.Ed.Cess, SBC & KKC as applicable)
due upon them for the period from April '2013 1o
March'2017 should not be demanded and recovered under
proviso of Section 73(1) & 73(A) of the Act read with
Section 173 174 & 142 of Central Goods & Services Tax
Act, 2017 (hereinafter referred as "CGST Act").
b. Interest due thereon at the applicable rate should not be
demanded and recovered from them under Section 75 &
73B of the Act read with Section 173, 174 & 142 of CGST
Act on the amount of Service Tax short paid.
c. Penalty should not be imposed upon them under Section
78 of the Act for non-payment of due Service Tax by
suppressing the value of taxable services with intent to
evade the payment of Service Tax from the department
read with Section 173 & 174 of CGST Act.
d. Penalty should not be imposed upon them under Section
77(1)(c) of the Act read with Section 173 & 174 of CGST
Act for failure to furnish the full information & records as
desired by the department.
e. Penalty should not be imposed upon them under Section
77(1)(d) of the Act read with Section 173 & 174 of CGST
Act for failure to pay service tax electronically to the
department.
f. Penalty should not be imposed upon them under Section
77(2) of the Act read with Section 173 & 174 of CGST Act
for the contravention of the provisions of the Act and Rules
made there under as discussed foregoing paras.
2.10 The show cause notice has been adjudicated as per the
impugned order.
Service Tax Appeal No.70208 & 70193 of 2021
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2.11 Aggrieved by the fact that impugned order imposes
penalty of 50% of the Tax evaded for the entire period of
demand and not 100% for period prior to insertion of proviso
providing for 50% penalty in specified case with effect from
14.05.2015 in Section 78 of the Finance Act, 1994 revenue has
filed the appeal.
2.12 Aggrieved by the order in original appellant has also filed
the appeal.
3.1 We have heard Shri Dharmendra Srivastava Chartered
Accountant for the Assessee and Ms Chitra Srivastava for the
Revenue.
3.2 Arguing for the appellant learned Chartered Accountant
submits;-
The taxable value of the services provided by the
appellant, should be reduced by the amount received by
the appellant towards the sale of goods in retail from their
beauty parlour. Appellant being franchisee of M/s Lakme
Lever was also selling the goods in retail to the customers,
from their beauty parlour. The amount received by them
towards the sale of goods cannot be made the part of
taxable value of services provided by them from their
premises.
The appellant is entitled to claim cenvat credit in respect of
the input services received by them and the amount of
CENVAT Credit should be reduced from the demand
confirmed. Reliance is placed on following decisions:
o Antares Seervices Pvt Ltd. [2024 (160)
Taxmann.com 23 (CESTAT Chandigarh)];
o Kaybee Developers Private Ltd. [Order dated
30.09.2025 in Service Tax Appeal No 87531 of 2023]
o mPortal India Wireless Solutions P Ltd. [2012 (27)
STR 134 (Kar)]
o Indus Valley Partners (India) (P) Ltd. [Final Order No
70026/2024 dated 17.01.2024]
Service Tax Appeal No.70208 & 70193 of 2021
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Appellant has not suppressed any facts with the intent to
evade payment of tax, hence invocation of extended
period of limitation for making this demand is bad in law,
and for the same reason penalty imposed under Section 78
needs to be set aside.
3.3 Authorized representative reiterated the findings recorded
in the impugned order and the grounds taken in the appeal.
4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of arguments.
4.2 Impugned order records the findings as follows:
"8. On the basis of above allegations and defense
submissions I observe that following are the issues
pending before me for determination & adjudication.
a. Whether the taxable value determined in the Show
Cause Notice includes the value of goods actually sold
as claimed by the Noticee and whether such sale value
needs to be deducted from the taxable value
determined in the Show Cause Notice;
b. Whether the taxable value is inclusive of Service Tax as
claimed by the Noticee or whether the taxable value
determined in the impugned Show Cause Notice is
exclusive of Service Tax in the light of allegation that
Service Tax was charged by the Noticee from their
client;
c. Whether the benefit of CENVAT Credit of the levied tax
paid by the Noticee on input services is liable to be
allowed to the Noticee and to be adjusted from the Net
tax liability;
d. Whether interest on Service Tax payable is liable to be
demanded and confirmed.
e. Whether penalty is liable to be imposed upon the
Noticee.
9. Coming to the point enumerated at (a) above, I find
that the Noticee, in order to buttress her argument that
Service Tax Appeal No.70208 & 70193 of 2021
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value of goods sold is included in the taxable value
determined in the Show Cause Notice, has submitted
copies of balance sheet and profit & loss a/c for the
relevant period. She has also submitted, as she claims the
month wise sale of goods ledger and also a chart showing
year wise receipt from the beauty parlour, sale of goods,
then net parlour services, rent and total value of taxable
services. In the said chart she has also claimed the value
of input services said to have been involved and the net
Service Tax payable as calculated by her.
10. I have examined all these documents carefully in
order to find if the taxable value determined in Show
Cause Notice includes the value of goods sold. I observe
from the perusal of profit & loss a/c that the receipts from
beauty salon during 2013-14 is Rs. 2,04,34,508.94; during
2014-15 is Rs. 4,45,13,346.00; during 2015-16 is Rs.
4,81,05,244.00 and during 2016-17 is Rs. 4,44,74,51 1.00
to the credit side of P & L A/c besides rental income of Rs.
4,73,000/- during 2014-15, and Rs. 9,000/- as Incentive
and Commission during 2015-16. Against this, the amount
of consumable goods during 2013-14 is Rs. 20.96,816/-
and during 2014-15 is Rs. 1,75,79, 1 83/-. During 2015-16
and 2016-17, instead of the value of goods consumed, the
purchase value of Rs. 1,68.32,473/- during 2015-16 and
Rs. 1,67.72,948/- during 2016-17 has been shown in
respective Profit & loss A/c.
As against this, the Noticee has claimed that they have
sold the goods amounting to Rs.10,86.900/- during 2013-
14; Rs. 1,98,02,669/- during 2014-15; Rs. 1,96,22,849/-
during 2015-16 and Rs. 1,88,94,902/- during 2016-17. In
order to further buttress her argument, the Noticee has
also submitted copies of certain invoices which she claims
are invoices for goods sold. I have gone through these
invoices and to my utter surprise I find that, all the so
called invoices submitted by the Noticee have been issued
Service Tax Appeal No.70208 & 70193 of 2021
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for cash and also in none of the invoice is there any
mention of State VAT. To my considered opinion all the
beauty products claimed to have been sold by the Noticee
are chargeable to State VAT if sold to the customer. I also
take note of the fact that during 2013-14 and 2014-15, the
value of goods has been accounted for as consumable
goods meaning thereby that the goods were consumed
during the course of provision of service. During 2015-16
and 2016-17, however, the purchase of goods has been
accounted for but the value of goods consumed during the
course of provision of service to clients has not been
accounted for separately and therefore the only logical
conclusion that can be drawn is that the amount accounted
for as purchases is nothing but the value of goods
consumed during the course of provision of service. This
analysis is further supported by the fact that neither in the
invoices said to be the invoices covering the sale of goods
nor in the Profit & loss A/c, has any VAT been shown to
have been paid by Noticee.
The Noticee has also not submitted any proof of payment
of VAT on sale of goods claimed by her. I have also
considered the fact that during 2013-14 the value of goods
consumed is Rs. 20,96,816/- as against the claimed sale of
Rs. 10,86,900/-, meaning thereby that the Assessee
herself is not taking the rebate of entire goods consumed.
On the contrary the value of goods sold is more than the
value of goods consumed or the value of goods purchased
in the Financial Years 2014-15, 2015-16 and 2016-17,
which is evident from the table below:-
Financial Year Value of Goods Consumed / Purchased as per P& L Ac Sale of goods as per ledger
2013-14 20,96,816 10,86,900
2014-15 1,75,79,183 1,98,02,669
2015-16 1,68,32,473 1,96,22,849
2016-17 1,67,72,948 1,88,94,902
Service Tax Appeal No.70208 & 70193 of 2021
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11. I therefore take note that except for a mere claim, the
Noticee has not submitted any evidence to prove that the
value of taxable services as mentioned in Show Cause
Notice (which has been admittedly arrived at from the
audited accounts and Balance Sheet and P & L A/c
maintained by the Noticee) includes the value of goods
sold. It is a fundamental principle of interpretation that the
onus of proof lies on the claimant. I take support in this
regard from the decision of Hon'ble Supreme Court in the
case of Mysore Metal Industries v/s Collector of Customs,
Bombay 1988 (36) ELT 369 (SC) and also on the decision
of Hon'ble Tribunal in the case of Inox Wind ltd. v/s
Commissioner of Service Tax. Noida 2020 (35) GSTL 0123
(Tri.-All.). In absence of any evidence of sale of goods, I
have no hesitation in holding that the Noticee has failed
substantiate her argument that the value of goods sold
was included in the value of taxable services determined in
the impugned Show Cause Notice.
12. I now take up the point enumerated at (b) above
relating to whether the taxable value determined in the
Show Cause Notice is inclusive of Service Tax or not. I find
that it has been alleged in the Show Cause Notice that the
Noticee has charged and collected the Service Tax from
her customers and has not deposited the same with the
department and accordingly the value in the Profit & Loss
A/c has been treated as exclusive of Service Tax. On the
contrary the Noticee has claimed in her written reply that
Service Tax was not collected from her clients and that at
the time of rendering her statement it was written in haste
and due to panic.
13. I find from a perusal of records of the Show Cause
Notice and the relied upon documents that none of the bill/
invoice issued to the customers by the Noticee has been
made a relied upon document. The allegation is based only
on oral statement of the Noticee. It is well settled that the
Service Tax Appeal No.70208 & 70193 of 2021
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statement has to be corroborated by some other evidence.
I also take note that the investigating officers should have
taken pains to properly substantiate the allegation of
collection of Service Tax by the Noticee from its customers.
I find that except for the oral statement no evidence
documentary or otherwise is on record to support the
allegation
14. Even otherwise I find from the Profit & Loss A/c
which are duly audited, that except for the receipts from
beauty salon no other amount has been credited by the
Noticee in the P & L A/c. According to the standard
accounting principles, the amount indicated in the P & L
A/c is the gross amount received. There is no entry of
Service Tax either in credit side or the debit side of the P &
L A/c. On the basis of these facts, I am of the considered
opinion that the amount in the P & L A/c of the Noticee
should be treated as the gross amount even if the Service
Tax is charged from the customers, the gross amount will
reflect in the credit side of the P & L A/c. I therefore hold
that as per provisions of Section 67 of Finance Act, 1994,
the gross value should be treated as cum tax value. I take
support in this regard from the decision of Hon'ble Tribunal
in following cases:-
BSNL Vs. Comm. of Central Excise, Jaipur-I 2011 (24)
S.T.R. 435 (Trl- Del)
Demand-Valuation of Service - Service tax not
collected from customer though service was taxable
- Demand to be worked out on the basis of cum-tax
value i.e. the amount received by service provider
less tax payable - Sections 67 and 73 of the Finance
Act, 1994 read with Service Tax (Determination of
Value) Rules, 2006. [Para 6]
(2) Kopran Ltd. Vs. Comm. of Central Excise; Raigad; 2011
(23) S.T.R. 627 (Tri. Mumbai).
Service Tax Appeal No.70208 & 70193 of 2021
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Valuation (Service tax) - Service lax deductible from
the gross amount charged, for arriving at the taxable
value of the service inasmuch as it is not the
Revenue's case that appellant collected Service tux
separately from Cadila- Sect on 67(2) of Finance
Act,1994. [Para 11]
(3) Municipal Corporation of Delhi Vs. Comm. of Service
tax Delhi; 2009 (16) S.T.R. 654 (Tri. - Del.).
Demand - Non-payment of Service tax - Facilities let
out for marriage and NGOs at nominal price and
Service tax stated as not recovered separately-
Service lax liability present- Value received to be
considered as cum tax as Service tax not separately
recovered from customers - Matter remanded to
original authority for re-calculation of demand -
Interest and penalty to be re-determined Sections
73, 75 and 76 of Finance Act, 1994. [Paras 2,4)
Accordingly I hold that in light of the above legal
pronouncements and legal position the Noticee is entitled
to cum tax benefit while calculating the service tax liability.
15. In view of my discussions and findings, herein
above, the demand of Service Tax is re-quantified as
under:-
Financi Gross Value of taxable services Rate Taxable Service
al Year of value Tax
Beauty Renting Total
Servic Payable
Parlour of
e Tax
immova
ble
property
2013- 2043450 364000 2079850 12.36 1851059 228791
14 9 9 % 9 0
2014- 4451334 473000 4498634 12.36 4003768 494865
15 6 6 % 8 8
2015- 4811424 837029 4895127 14.50 4275220 619907
16 4 3 % 3 0
2016- 4447451 0 4447451 15% 3867348 580102
17 1 1 8 3
1575366 1674029 1592106 1399739 192366
10 39 78 61
Service Tax Appeal No.70208 & 70193 of 2021
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16. Now I take up the issue mentioned at (c) i.e. of
allowing CENVAT Credit of Service Tax paid by the Noticee
on input services used in providing output services. The
Noticee has claimed that various input services have been
used for providing output services, mainly Royalty for
franchise service, among other services. I have gone
through all the documents submitted by the Noticee in her
defense. I do not find any document wherein Service Tax
has been charged from the Noticee. CENVAT Credit
admissible under CENVAT Credit Rules, 2004 are subject to
observance of conditions provided therein and also Rule 9
of the said rules provides the list of documents which alone
are admissible for availing the credit. The Noticee has not
submitted an, such document. As I have already observed
herein above, the burden to prove the admissibility of any
benefit under the Act or Rules is on the person claiming
such benefits. I hold that the Noticee has failed to
substantiate her claim for CENVAT Credit of Service Tax
said to have beer paid on input services used for providing
output services. I am therefore unable to allow any
CENVAT Credit in absence-of any evidence-on-record-in
this-regard. Even-otherwise the credit cannot be allowed
at this stage in absence of any records having been
maintained by the Noticee for this purpose.
17. A regards the demand of interest on the Service Tax
not paid by the Noticee [point (d)], I find that the Noticee
has not disputed the levy of interest on non- payment/
delayed payment of Service Tax. However, I feel in the
interest of justice to examine legality of payment of
interest by the Noticee on non- payment of Service Tax.
The provisions of payment of interest on Service Tax are
contained under Section 75 of Finance Act, 1994 which
provides that every person, liable to pay tax, who fails to
credit the tax to the account of Central government within
the period prescribed shall pay simple interest as is being
fixed from time to time by the Central Government. I
Service Tax Appeal No.70208 & 70193 of 2021
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therefore hold that the Noticee is also liable to pay the
interest on the Service Tax herein confirmed. I take
support in this regard on the decision of Hon'ble High
Court, Gujarat in the case of M Ibrahim Ansari v/s
Additional Commissioner 2020 (9) TMI 356 Gujarat High
Court wherein Hon'ble Court observed as under:-
So far as interest is contented, it is a settled issue
that Ms automatic and every person, liable to pay
service tax, shall in addition to the service tax, be
liable to pay interest in accordance with the
provisions of Section 75 of the Finance Act,1994.
Accordingly, I hold that interest at the appropriate rate on
the amount of service tax not paid/short paid is required to
be recovered from them under Section 75 of the Finance
Act, 1994.
I also take support in this regard from the decision of
Hon'ble Supreme Court in the case of Pratibha Processers
v/s Union of India 1996 (88) ELT 12 (SC) wherein Hon'ble
Court held that-
Meaning of - Interest is compensatory in character
and is imposed on an assessee who has withheld
payment of any tax as and when it is due and
payable - Levy of interest is geared to actual amount
of tax withheld and the extent of the delay in paying
the tax on the due date, thus essentially it is
compensatory and different from penalty, which is
penal in character.
18. A regards the imposition of penalty [point (e)], I
observe that it is on record that the Noticee was providing
taxable services under the franchise of M/s. Lakme which
is a known brand. It is also on record that the value of
taxable services was running in Crores. Leviability of
Service Tax on ' Beauty Parlor Services' is well known and
well accepted in the trade. The Noticee has submitted that
she was under the impression that Service Tax shall be
Service Tax Appeal No.70208 & 70193 of 2021
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dealt with by the franchiser i.e. M/s. Lakme. She has also
argued that mensrea is essential for imposing the penalty.
19. I have carefully examined the submissions made by
the Noticee in this regard. The Noticee has no reason for
harbouring presumption that franchiser shall be dealing
with the matters of payment of Service Tax. It is also not
on record if she has made any efforts to find out the facts
in this regard. As regards the mensrea, the Noticee was
providing taxable services for years together under Service
Tax Registration but she has neither filed any return nor
paid Service Tax nor did she take pains to know her
liability of Service Tax. It has been alleged in the Show
Cause Notice that she was collecting the Service Tax from
her clients (Service recipients). Although as I observed
herein above, the investigating officers did not take pains
to collect any documentary evidence in this regard, but it
is also true that the proprietor has admitted before the
investigating officers that she has collected the Service Tax
from her clients. The Noticee also has not taken pains to
submit bills/ invoices issued to her customers to
substantiate her claim in this regard.
20. In totality, it is on record that the Noticee is admittedly
liable to pay the Service Tax. It is also on record that even
during the course of adjudication, the Noticee tried to
mislead the proceedings under the garb of sale of goods
which could not be substantiated, as discussed herein
above. The Noticee has not claimed sale of goods when the
investigation was being carried out. I am therefore
convinced that the Noticee was aware of her Service Tax
liability but deliberately refrained from paying the tax. It
was only during the course of search conducted by the
officers of department on a specific intelligence that the
evasion of Service Tax came into light. The Noticee
suppressed the facts of providing taxable services from the
department. I therefore hold that the Noticee is liable to
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imposition of penalty under Section 78 of Finance Act,
1994. I also take support in this regard from the decision
of Hon'ble Supreme Court in the case of Motibhai Fulabhai
Patel & Co. v/s R. Prasad, Collector of Central Excise 1978
(2) ELT J370 (SC) wherein Hon'ble Supreme Court held as
under:-
Interpretation of statute - Confiscation a penal
measure - Provision to be construed strictly.
Interpretation of statute - Penal provision - No
person to be allowed to benefit by his wrongful act.
21. However, I take note in this regard of the fact that
the entire transactions have been recorded in statutory
records maintained by the Noticee and the figures in the
impugned Show Cause Notice have been taken from such
audited records and Balance Sheet and Profit & Loss
Account. Therefore, the penalty imposed is reduced to
50% of the Service Tax confirmed as per provisions of
proviso to Sub-section (1) of Section 78 of the Finance Act,
1994
22. The Noticee has failed to file periodical ST3 returns
thereby violating the provisions of Section 70 of the Act
read with Rule 7 of Service Tax Rules, 1994. The Noticee is
therefore liable to imposition of penalty under Section 77
(2) of the Finance Act, 1994.
4.3 Appellant have challenged the impugned order claiming
that the during the course of operation of "beauty parlour" she
also was selling certain products of the franchisor. The value of
the goods sold should have been deducted from the arrive at the
taxable value, from the gross receipts in respect "beauty
parlour" taken from her profit and loss account. The said claim
made has been examined in the impugned order and it was
found that the appellant has failed to establish the claim made in
respect of the sale of goods. We find that appellant claim for
from the gross receipt remains unsubstantiated even before us.
To claim the sale of the goods appellant should have produced
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documents in respect of the sale so affected. Appellant has not
produced any sale document - invoice, bill etc made for affecting
such sale. They have claimed the sale of goods by relying on the
entry made in the book of accounts for the purchase of goods.
4.4 In order to test the correctness of the claim made by the
appellant we refer to the certain clauses of the Franchisee
Agreement and Schedule C of the same with Lakme Lever Pvt.
Ltd., reproduced below:-
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From the above it is evident that appellant
was required to pay royalty @ 18% on the net sale value
from the parlour every tenth day.
All the purchase price of the goods was to be paid
immediately as per agreed terms and instructions.
Was required to maintain complete accounts in respect of
each customer serviced from the salon.
Could not have issued any paper bill/ invoice in respect of
transactions undertaken from the salon.
The account statements were to be submitted to the
franchisor.
The accounts were subject to audit and inspection by the
franchisor.
Was liable for payment of all taxes both central and state;
Before the commencement of business service tax
registration was to be taken.
Thus we find that appellant was required to maintain the details
each transaction whether in respect of the sale of the goods or
provision of the services and report the same periodically to the
franchisor also. Appellant has been asked to produce the
documents in respect of the sale of goods by the authorities at
the time of search, investigation and adjudication. However they
have failed to produce the same before either of authorities.
Certain manual bills which were produced by the appellant
before the Commissioner have been rightly rejected by him. In
terms of the above agreement appellant could not have issued
any invoices/ bills in respect of sale transactions under this
agreement. Appellant has not produced any invoice, which has
been issued in the manner outlined by this agreement even
before us either along with the paper book or subsequently at
the time of hearing. In case there were transaction of sale of
goods in retail by the appellant why are they shying away and
not producing the same. In absence of any direct evidence in
form of invoices issued in prescribed manner, we are not in
position to accept the claim put forth. We also observe that no
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Notes on Accounts, which would have been part of the audited
balance sheet/ profit and loss account, showing the proceeds
from the sale of goods have been produced during the entire
proceedings. In profit and loss account the receipts are shown
under the head "Receipts from Beauty Salon", No break up is
available. In absence of any assumption the authorities have
rightly presumed that the entire receipts are in respect of
provision of services. Looking from another angle if appellant
was selling the goods from their beauty salon, then definitely
they would have been registered with VAT authorities and would
be paying VAT in respect of the goods sold. No document in
respect of discharging the VAT in respect of the sales affected
has been produced. Thus we reject the claim made by the
appellant in this respect.
4.5 To understand the manner of computation of the
franchisee fees, as per the Schedule C to the agreement we
reproduce one of the invoices issued, for charging franchisee
fees from the appellant. This invoice is also depicted in the
ledger account of Franchisee Fees maintained by the appellant:
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From the above invoice it is evident for calculation of the
franchisee fees, the total sale value of services as per franchise
agreement for the ten day period is taken (in the invoice it is Rs
5,34,556.39/-). Then the franchisee fees is computed @ 18% of
the sale value as per Schedule C to the franchise agreement
reproduced above. (0.18 * 534556.39 = Rs 96,220.15/-). On
this value of franchisee fees VAT, Service Tax, Swacch Bharat
Cess and Krishi Kalyan Cess is paid.) Thus we can compute the
value of services provided under this agreement just by dividing
the Franchisee Fees paid by the appellant to its franchisor by
0.18. (Rate of Franchisee Fees as per the Schedule C)
4.6 We further observe from the ledger account maintained by
the appellant in respect of franchisee fees paid by them during
the each year that appellant has paid the franchisee fees as
indicated in column 3 of the table below. This franchisee fees as
per ledger is shown as expense in the profit and loss account of
the appellant for each year.
Financial Franchisee Fees Calculated Receipts as
Year @ % as per Schedule C to Amount Net Sale per profit Loss
agreement Value A/c
1 2 3 4 5
2013-14 18 6932365 38513139 20434509
2014-15 18 8211377 45618761 44513346
2015-16 18 9647112 53595067 48114244
2016-17 18 8522284 47346022 44474511
Total 29557621 164209005 157536610
From the perusal of the column 4 and 5 of the table above, the
reason for non production of the invoices is apparent. The values
even indicated in the Profit and Loss Account as receipts from
the Beauty salon services do not tally with the invoice value.
However though above table clearly shows the mismatch in the
data, we are helpless at this stage. Revenue authorities have
failed to investigate this crucial aspect at the time of
investigation, and we cannot make a new case at this stage.
4.7 Appellant has claimed that they should be allowed the
benefit of the CENVAT Credit in respect of the input services
received by them during the period of dispute. They have also
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produced invoices evidencing the payment of service tax against
such input services. They have relied upon the following
decisions in support of their claim:
Antares Seervices Pvt Ltd. [2024 (160)
Taxmann.com 23 (CESTAT Chandigarh)];
Kaybee Developers Private Ltd. [Order dated
30.09.2025 in Service Tax Appeal No 87531 of 2023]
mPortal India Wireless Solutions P Ltd. [2012 (27)
STR 134 (Kar)]
Indus Valley Partners (India) (P) Ltd. [Final Order No
70026/2024 dated 17.01.2024]
The issue in respect of the admissibility of CENVAT Credit if not
claimed within prescribed period from the date of invoice is no
longer res-integra. By Notification No 21/2014-CE (NT) dated
11.07.2014 following amendments were made to Rule 4 of the
CENVAT Credit Rules, 2004:
3.In the said rules, in rule 4, -
(a) in sub-rule (1), after the second proviso, the
following proviso shall be inserted with effect from
first day of September 2014,namely :-
"Provided also that the manufacturer or the
provider of output service shall not take
CENVAT credit after six months of the date of
issue of any of the documents specified in sub-
rule (1) of rule 9.";
(b) in sub-rule (7),-
(i) for the first and second provisos the
following provisos shall be substituted,
namely:-
"Provided that in respect of input service
where whole of the service tax is liable to
be paid by the recipient of service, credit
shall be allowed after the service tax is
paid:
Provided further that in respect of an
input service, where the service recipient
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is liable to pay a part of service tax and the
service provider is liable to pay the
remaining part, the CENVAT credit in
respect of such input service shall be
allowed on or after the day on which
payment is made of the value of input
service and the service tax paid or payable
as indicated in invoice, bill or, as the case
may be, challan referred to in rule 9:
Provided also that in case the payment of
the value of input service and the service
tax paid or payable as indicated in the
invoice, bill or, as the case may be, challan
referred to in rule 9, except in respect of
input service where the whole of the service
tax is liable to be paidby the recipient of
service, is not made within three months
of the date of the invoice, bill or, as
the case may be, challan, the
manufacturer or the service provider
who has taken credit on such input
service, shall pay an amount equal to
the CENVAT credit availed on such input
service and in case the said payment is
made, the manufacturer or output service
provider, as the case may be, shall be
entitled to take the credit of the amount
equivalent to the CENVAT credit paid earlier
subject to the other provisions of these
rules :"
(ii) (ii)after the fifth proviso, the following
proviso shall be inserted with effect from
first day of September, 2014, namely :-
"Provided also that the manufacturer
or the provider of output service shall
not take CENVAT credit after six
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months of the date of issue of any of
the documents specified in sub-rule (1)
of rule 9."
4.8 Larger Bench of Tribunal has in case of Kusum Ingots
[2000 (120) E.L.T. 214 (Tribunal - LB)]
12. We find that after the decision of the Hon'ble
Supreme Court in the case of Eicher Motors Ltd. v.
Union of India (Supra), Sub-Section XXVIII is
introduced in Section 37 to provide for Rules which
empower the Government to make rules for not
allowing credit to be utilised for payment of duty on
excisable goods, by Section 131 of Finance Act, 1999.
Therefore, after this amendment reliance by the
appellants on the decision in the case of Eicher Motors
Ltd. v. Union of India will not help them. If a
manufacturer wants to avail the benefit of Modvat credit
in respect of inputs used in or in relation to the
manufacture of final product on payment of duty on
such final products under Rule 57A of the Central Excise
Rules, he should follow the procedure laid down under
the Modvat Scheme. The contention of the appellants is
that if on the inputs the manufacturer had already paid
the duty on the basis that when the goods are utilised
in the manufacture of final product then tax on these
goods are to be adjusted and this right accrued to the
manufacturer on the date when they paid the tax on the
inputs. The right will continue till the facility is available.
A manufacturer who is working under the Modvat
Scheme can certainly utilise the credit of the duty paid
on the inputs used in or in relation to the manufacture
of final product for payment of duty on such final
product; but he has to take credit on such inputs within
six months from the date of issue of the duty paying
documents. After the amendment credit cannot be
taken on duty paying documents which are more than 6
months old.
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13. In view of the above discussions, we answer the
question referred to Larger Bench in the favour of
Revenue. Therefore, the view taken in case of Osram
Surya Pvt. Ltd. v. Commissioner of Central Excise,
Indore, reported in 1998 (29) RLT 684 is the correct
view and the contrary view taken in correct.
The decision of tribunal in case of Osram Surya Pvt. Ltd. referred
in para 13 of the above decision has been upheld by the Hon'ble
Supreme Court as reported at [2002 (142) E.L.T. 5 (S.C.)] and
following was observed:
8. It is vehemently argued on behalf of the appellants
that in effect by introduction of this rule, a manufacturer in
whose account certain credit existed, would be denied of
the right to take such credit consequently, as in the case of
Eicher (supra), a manufacturer's vested right is taken
away, therefore, the rule in question should be interpreted
in such a manner that it did not apply to cases where
credit in question had accrued prior to the date of
introduction of this proviso. In our opinion, this argument
is not available to the appellants because none has
questioned the legality, or the validity of the rule in
question, therefore, any argument which in effect
questions the validity of the rule, cannot be permitted to
be raised. The argument of the appellants that there was
no time whatsoever given to some of the manufacturers to
avail the credit after the introduction of the rule also is
based on arbitrariness of the rule, and the same also will
have to be rejected on the ground that there is no
challenge to the validity of the rule.
9. Without such a challenge, the appellants want us to
interpret the rule to mean that the rule in question is not
applicable in regard to credits acquired by a manufacturer
prior to the coming into force of the rule. This we find it
difficult because in our opinion the language of the proviso
concerned is unambiguous. It specifically states that a
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manufacturer cannot take credit after six months from the
date of issue of any of the documents specified in the first
proviso to the said sub-rule. A plain reading of this sub-
rule clearly shows that it applies to those cases where a
manufacturer is seeking to take the credit after the
introduction of the rule and to cases where the
manufacturer is seeking to do so after a period of six
months from the date when the manufacturer received the
inputs. This sub-rule does not operate retrospectively in
the sense it does not cancel the credits nor does it in any
manner affect the rights of those persons who have
already taken the credit before coming into force of the
rule in question. It operates prospectively in regard to
those manufacturers who seek to take credit after the
coming into force of this rule. Therefore, in our opinion,
the Tribunal was justified in holding that the rule in
question only restricts a right of a manufacturer to take
the credit beyond the stipulated period of six months
under the rule. Therefore, this appeal will have to fail.
4.9 It is evident from the records of the case that though
appellants were registered for payment of service tax with the
department, they were during the period neither paying any
service tax nor filing any return. They have never claimed the
CENVAT Credit in respect of the input services at any time before
the commencement of adjudication proceedings. The
proceedings against the appellant were initiated on the basis of
intelligence gathered and are not on the basis of comparison of
figures from the Income Tax data and ST-3 return. In fact
appellant ahs never filed any ST-3 return. The observation made
by the Chandigarh Bench in case of Antares Services (P) Ltd. &
Mumbai Bench in case Kaybee Developers Private Ltd., which go
contrary to the above provisions of the Rules and decision of
Larger Bench of Tribunal and Hon'ble Supreme Court cannot be
relied as binding precedent. The decision of Allahabad Bench in
case of Indus Valley Partners (India) Pvt. Ltd. is clearly
distinguishable. In that case the credit was sought to be claimed
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in respect of the tax paid on reverse charge basis within the
prescribed period.
4.10 We also observe that the decision of Hon'ble Karnataka
High Court in case of mPortal India Wireless Solution P. Ltd. is
for the period when there was no such restriction prescribed for
taking the credit. Hence that decision is also distinguishable.
Hon'ble High Court has in the said decision held as follows:
"7. Insofar as requirement of registration with the
department as a condition precedent for claiming
Cenvat credit is concerned, learned counsel
appearing for both parties were unable to point out
any provision in the Cenvat Credit Rules which
impose such restriction. In the absence of a
statutory provision which prescribes that
registration is mandatory and that if such a
registration is not made the assessee is not entitled
to the benefit of refund, the three authorities
committed a serious error in rejecting the claim for
refund on the ground which is not existence in law.
Therefore, said finding recorded by the Tribunal as well as
by the lower authorities cannot be sustained. Accordingly,
it is set aside."
The necessary corollary of the above observation is if there was
restriction prescribed by the statute then the same should be
respected. Thus we also do not find any support from this
decision to hold in favour of appellant. Thus we do not find any
merits in the submissions made by the appellant to the effect
that the demand should be adjusted against the CENVAT Credit,
which could have been claimed by them against the input
services received by them.
4.11 From the perusal of the farnchisee agreement and the fact
that appellant was registered with the service tax department for
providing the beauty parlour services we are of the view that
appellant was fully aware of its liability to pay the service tax in
respect of the services provided. The agreement specifically
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provided that the franchisee i.e. appellant was responsible for
discharging the service tax liability in respect of the services
provided. The submission made by the appellant that she was
under impression that the service tax would be paid by the
franchisor goes contrary to the express provisions of the
agreement reproduced above. It is evident that appellant had
knowingly suppressed the facts in respect of the services
provided by her from her beauty salon, with intent to evade
payment of service tax. She also in her statement recorded on
24.01.2017 admitted her liability to pay service tax for the entire
period and in fact provided the cheques as detailed below to the
officers who had visted the premises:
S No Details of Cheque Amount
Bank No Date
1 Kotak Mahindra 000268 24.02.2017 2500000
2 Kotak Mahindra 000269 15.03.2017 2500000
3 Kotak Mahindra 000271 31.03.2017 5000000
Total 10000000
We also reproduce the letter dated 09.11.2017 of the appellant:
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From the discussions as above and from the conduct of the
appellant we have no hesitation in holding that the appellant has
with sole intent of evading payment of due service tax,
suppressed the facts in relation to the services provided by her.
Extended period of limitation has been rightly invoked in the
present case to demand the tax. Tribunal has in the case of
Applied Solar Technologies (India) Pvt. Ltd. [2023 (70) G.S.T.L.
378 (Tri. - Del.)] held as follows:
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26.There is no error in the finding recorded by the
Commissioner in this regard, as indeed the appellant did
try to evade payment of service tax by treating the
amount as a security deposit when in fact it was clearly an
advance, which fact was very specifically mentioned in the
Agreement. The intention to evade payment of service tax
by suppression of material facts is writ large.
Hon'ble Allahabad High Court has in case of Sharp Carbon India
[2016 (331) E.L.T. 513 (All.)] held as follows:
15. Thus we find that firstly the assessee had not
produced invoices, etc., despite being demanded by the
Central Excise Officers vide letters dated 10-1-1990, 23-1-
1990, 5-3-1990, 27-3-1990, 24-4-1990 and 14-5-1990
and when the Central Excise Officers visited the
manufacturing unit on 17-5-1990 then the appellant took
the stand that the records have burnt in a fire accident on
20-4-1990. The inquiry made by the Central Excise
Officers revealed that neither fire brigade was called in the
alleged incident of fire accident nor any furniture in the
premises get damaged. It is also relevant to note that
although the appellants were knowing well that the Central
Excise Officers are repeatedly asking certain documents to
be produced yet they had not given any intimation with
regard to the alleged fire accident to the concerned Central
Excise Officers about the alleged fire accident except
stating that the intimation was sent by letter under
Certificate of Posting. All these facts and circumstances
were clearly indicative of suppression of material facts by
the appellants.
4.12 Thus we hold that extended period of limitation has been
rightly invoked for making this demand. As we find that
appellant had suppressed the facts with the intention to evade
payment of service tax and extended period as per proviso to
Section 73 (1) of the Finance Act, 1994 is justifiable, penalty
under Section 78 will follow as held by the Hon'ble Supreme
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Court in case of Rajasthan Spinning and Weaving Mills Ltd.
[2009 (238) ELT 3 (SC)] observing as follows:
14. Sub-section 1A of Section 11A provides that in case
the person in default to whom the notice is given under the
proviso to sub-section 1 makes payment of duty in full or
in part as may be accepted by him, together with interest
under Section 11AB and penalty equal to 25% of the
accepted amount of duty within thirty days of the date of
receipt of notice then the proceeding against him would be
deemed to be conclusive (without prejudice to the
provisions of Sections 9, 9A and 9AA) as provided in the
proviso to sub-section 2 of Section 11A. Sub-section 1A
and the proviso to sub-section 2 were inserted with effect
from July 13, 2006 and, therefore, have no application to
the periods relevant to the two appeals.
15. Sub-section 2B of Section 11A provides that in case
the person in default makes payment of the escaped
amount of duty before the service of notice then the
Revenue will not give him the notice under sub-section 1.
This, perhaps, is the basis of the common though
erroneous view that no penalty would be leviable if the
escaped amount of duty is paid before the service of
notice. It, however, overlooks the two explanations
qualifying the main provision. Explanation 1 makes it clear
that the payment would, nevertheless, be subject to
imposition of interest under Section 11AB. Explanation 2
makes it further clear that in case the escape of duty is
intentional and by reason of deception the main provision
of sub section 2B will have no application.
16. The other provision with which we are concerned in
this case is Section 11AC relating to penalty. It is as
follows :
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[11AC. Penalty for short-levy or non-levy of duty in
certain cases.- where any duty of excise has not
been levied or paid or has been short-levied or
short-paid or erroneously refunded by reasons of
fraud, collusion or any wilful mis-statement or
suppression of facts, or contravention of any of the
provisions of this Act or of the rules made
thereunder with intent to evade payment of duty,
the person who is liable to pay duty as determined
under sub-section (2) of section 11A, shall also be
liable to pay a penalty equal to the duty so
determined :
[Provided that where such duty as determined under
sub-section (2) of section 11A, and the interest
payable thereon under section 11AB, is paid within
thirty days from the date of communication of the
order of the Central Excise Officer determining such
duty, the amount of penalty liable to be paid by such
person under this section shall be twenty-five per
cent of the duty so determined :
Provided further that the benefit of reduced penalty
under the first proviso shall be available if the
amount of penalty so determined has also been paid
within the period of thirty days referred to in that
proviso :
Provided also that where the duty determined to be
payable is reduced or increased by the Commissioner
(Appeals), the Appellate Tribunal or, as the case may
be, the court, then, for the purpose of this section,
the duty as reduced or increased, as the case may
be, shall be taken into account :
Provided also that in case where the duty determined
to be payable is increased by the Commissioner
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(Appeals), the Appellate Tribunal or, as the case may
be, the court, then, the benefit of reduced penalty
under the first proviso shall be available, if the
amount of duty so increased, the interest payable
thereon and twenty-five per cent of the
consequential increase of penalty have also been
paid within thirty days of the communication of the
order by which such increase in the duty takes effect
-
Explanation. - For the removal of doubts, it is hereby declared that -
(1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-section (2) of section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(1) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.]
17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced.
18. One cannot fail to notice that both the proviso to sub- section 1 of Section 11A and Section 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend Service Tax Appeal No.70208 & 70193 of 2021 47 the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.
****
23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty Service Tax Appeal No.70208 & 70193 of 2021 48 determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides.
4.13 As the appellant was not filing the ST-3 returns and paying the service tax by the due date, penalties imposed under Section 77 (2) are also upheld.
4.14 As we uphold the demand of service tax, demand of interest in terms section 75 of Finance Act, 1994 to is upheld.
4.15 Revenue has filed appeal challenging the imposition of penalty @ 50 % of the Tax evaded for the period 2015-16 and 2016-17. The reason for making such a challenge that the amendments made in section providing for 50% penalty in specific cases were introduced by Finance Act, 2015 and the statutorily penalty of 50% of tax evaded was provided for the period upto the day of enactment. We reproduce the amended section below:
"Penalty for failure to pay service tax for reasons of fraud, etc. -
(1) Where any service tax has not been levied or paid, or has been short-levied or short-paid, or erroneously refunded, by reason of fraud or collusion or willful mis-
statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax, the person who has been served notice under the proviso to sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty which shall be equal to hundred per cent. of the amount of such service tax :
Provided that in respect of the cases where the details relating to such transactions are recorded in the specified records for the period beginning with the 8th April, 2011 upto the date on which the Finance Bill, 2015 receives the assent of the President both Service Tax Appeal No.70208 & 70193 of 2021 49 days inclusive), the penalty shall be fifty per cent of the service tax so determined.
(Emphasis supplied) The Finance Act, 1994 received the assent of the President on the 14th May, 2015).
4.16 From perusal of the above amended section it is evident that statutorily it has been provided that penalty imposed in respect of transaction taken between the period 08.04.2011 to 14.05.2015 only penalty at @ 50% of the tax evaded is imposable. For the period after 14.05.2015 the penalty has to be 100% of the tax evaded. This being statutorily provided the adjudicating authority was not having any discretion to impose lesser penalty for the period after 14.05.2015, this what has been held by Hon'ble Supreme Court in case of Rajasthan Spinning and Weaving Mills Ltd., referred earlier by us. Delhi bench in the case of Indus Media and Communication Ltd. [Final Order No. 50734 /2025 dated 19.05.2025 in Customs Appeal No. 50229 OF 2020] held as follows:
"11. This section was introduced effective from 13.7.2006. Evidently, if any person knowingly made or used any false material in any document after this date, it would attract this section. The Bill of Entry and all the documents with it were filed on 26.6.2003 when this section was not in the statute. There is nothing in this section which suggests that it has retrospective effect. Unless otherwise indicated, all laws will only apply prospectively...."
4.17 Thus we find merits in the appeal filed by the revenue, penalty imposed upon the appellant for the period 2015-16 and 201-17 is modified accordingly to 100% of the tax evaded. Thus we modify the penalty imposed upon the appellant under Section 78 as follows:
Financial Year Service Tax Demanded Penalty under Section 78 2013-14 22,87,910 11,43,955 Service Tax Appeal No.70208 & 70193 of 2021 50 2014-15 49,48,658 24,74,329 2015-16 61,99,070 61,99,070 2016-17 58,01,023 58,01,023 Total 1,56,18,377 4.18 Thus we summarize our findings in the matter as follows:
Demand of Service Tax of Rs 1,92,36,661/- is upheld. Demand of Interest on the above amount of service tax not deposited by the due date is upheld.
Penalty under Section 78 is modified to Rs 1,56,18,377/- Penalty under Section 77 (2) is upheld.
5.1 Appeal filed by the Appellant is dismissed.
5.2 Appeal filed by the revenue is allowed.
(Order pronounced in open court on- 18 December, 2025) (P. DINESHA) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp