The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Ahmedabad Regional Bench, has set aside a service tax demand of Rs. 8,41,478 along with interest and penalty, holding that payment made under a wrong assessee code does not constitute non-payment when the tax was duly deposited with the government and there was no intention to evade tax.
Background & Facts
The Genesis
The appellant, Sara Consultant, a partnership firm registered under Service Tax No. ABFFS0608ESD001, provided consultancy services during the Financial Year 2016-17 with a declared service value of Rs. 56,09,850 and paid Service Tax of Rs. 8,41,478. However, the tax was erroneously paid through challans issued under the proprietorship firm’s Service Tax Registration No. ABMPA5721FST001 belonging to one of the partners, Mr. S.K. Anand.
Key Facts
- The appellant’s service value for FY 2016-17 was Rs. 56,09,850 as per P&L account.
- Service Tax of Rs. 8,41,478 (14% ST + 0.5% SBC + 0.5% KKC) was paid after receipt of payments from clients.
- The appellant did not file half-yearly ST-3 returns for FY 2016-17 due to lack of awareness of legal compliance.
- The proprietorship firm (ABMPA5721FST001) and partnership firm (ABFFS0608ESD001) are separate legal entities under service tax law.
- The appellant’s 26AS reflected income matching the service tax paid, but the challans were generated under the wrong registration number.
Procedural History
- 07.10.2021: Show Cause Notice (SCN) issued demanding Service Tax of Rs. 8,41,478, interest, and penalty.
- 26.02.2024: Order-in-Original passed by Deputy Commissioner, CGST & Central Excise, Nadiad-Vadodara confirming demand, interest, and penalty of Rs. 8,41,478.
- 05.12.2024: Appeal dismissed by Commissioner (Appeals), CGST & Central Excise, Vadodara.
- 08.04.2026: Appeal heard by CESTAT Ahmedabad.
- 21.07.2026: Final order pronounced allowing the appeal.
The Parties' Positions
Appellant’s Case:
- The tax was paid in full and on time; the error was a bonafide mistake due to lack of knowledge.
- There was no intention to evade tax, and the tax paid under the wrong code was credited to the government.
- The extended period of five years under Section 73(1) proviso cannot be invoked as there was no fraud or intent to evade.
- Reliance placed on Devang Paper Mills Pvt Ltd v. Union of India (2016) 41 STR 418 (Guj.), Singh Enterprises v. Union of India (2016) 45 STR 508 (Jhar.), and Auro Pumps Pvt Ltd v. Union of India (2017) 353 ELT 7 (Guj.).
Revenue’s Case:
- The appellant failed to file ST-3 returns and paid tax under a wrong registration number, tantamounting to suppression of facts with intent to evade tax.
- The extended period of limitation applies as the appellant did not file returns and suppressed facts.
- The separate legal identity of the proprietorship and partnership firms means compliance under one cannot substitute the other.
The Legal Issue
The central question was whether the extended period of limitation under Section 73(1) proviso of the Finance Act, 1994 can be invoked when Service Tax was paid under a wrong assessee code due to a bonafide error, and whether such payment constitutes valid compliance despite non-filing of returns.
Arguments Presented
For the Appellant
The learned Consultant argued that:
- The appellant paid the full Service Tax liability of Rs. 8,41,478 and there was no intent to evade tax.
- The error in using the wrong assessee code was a clerical mistake and the tax was duly credited to the government.
- The extended period of five years cannot be invoked as there was no fraud, collusion, or wilful misstatement.
- Reliance was placed on judgments of the Gujarat High Court and Jharkhand High Court holding that payment under wrong code does not constitute non-payment.
For the Respondent
The learned Authorised Representative contended that:
- The appellant did not file ST-3 returns and paid tax under a wrong registration number, which amounts to suppression of facts with intent to evade tax.
- The separate legal identity of the proprietorship and partnership firms means compliance under one cannot substitute the other.
- The extended period of limitation applies as the facts were not disclosed to the department.
- The impugned order was passed in accordance with law and judicial precedents.
The Court's Analysis
The Tribunal examined the facts and legal principles:
- The appellant paid the full Service Tax of Rs. 8,41,478 and the amount was credited to the government account.
- The error in using the wrong assessee code was a bonafide mistake and not an attempt to evade tax.
- The separate legal identity of the proprietorship and partnership firms means that compliance under one cannot substitute the other, but this does not invalidate the tax paid under the wrong code when the tax was duly deposited.
The Tribunal relied on the following precedents:
"Whatever be the accounting difficulty, when undisputed fact is that the petitioner did pay a certain excise duty, merely mentioning wrong code in the process, cannot result into such harsh consequence of the entire payment not being recognized as valid, incurring further liability of repayment of the basic duty with Interest and penalties." Devang Paper Mills Pvt Ltd v. Union of India (2016) 41 STR 418 (Guj.).
The Tribunal also noted:
"This being purely a clerical error, we, hereby, direct respondent Nos. 1 and 2 to treat Form G.A.R.-7 ... as of this petition having Service Code Number as ALBPS4133JST001." Singh Enterprises v. Union of India (2016) 45 STR 508 (Jhar.).
The Tribunal concluded that the ingredients of Section 73(1) proviso were not attracted as there was no intent to evade tax. The extended period of limitation was wrongly invoked.
The Verdict
The appeal was allowed. The impugned order dated 05.12.2024 and the Order-in-Original dated 26.02.2024 were set aside. The Service Tax demand of Rs. 8,41,478, interest, and penalty of Rs. 8,41,478 were quashed. The Tribunal held that the appellant’s bonafide error in paying tax under the wrong assessee code does not constitute non-payment or intent to evade tax.
What This Means For Similar Cases
Bonafide Errors Do Not Attract Extended Limitation
- Practitioners must distinguish between bonafide errors and deliberate evasion. When tax is paid under a wrong registration number due to clerical or procedural oversight, the extended period of limitation under Section 73(1) proviso cannot be invoked if there is no intent to evade tax.
- Documentary evidence of tax payment is crucial. The fact that tax was duly credited to the government account is a decisive factor in such cases.
Separate Legal Identity Does Not Nullify Valid Payment
- The separate legal identity of entities does not invalidate tax paid under a wrong code if the tax was duly deposited. The Tribunal clarified that while compliance must be under the correct registration, the payment itself is valid if credited to the government.
- Practitioners should advise clients to rectify clerical errors promptly. The Tribunal’s direction to treat the payment as valid underscores the importance of correcting procedural errors to avoid unnecessary litigation.
Procedural Compliance Must Be Balanced With Substance
- Substance over form is critical in tax litigation. The Tribunal’s approach reflects a pragmatic stance where the substance of compliance (payment of tax) is prioritized over technical defects (wrong assessee code).
- Natural justice and fair opportunity remain paramount. The Tribunal’s emphasis on bonafide errors aligns with the principle that harsh consequences should not follow from procedural oversights without intent to evade.
Key Takeaways for Practitioners
- Document and evidence of tax payment are non-negotiable. Always retain challans, bank statements, and acknowledgments to prove payment.
- Distinguish between bonafide errors and intent to evade. The burden of proving intent lies on the revenue.
- Leverage judicial precedents on clerical errors. Cases like Devang Paper Mills and Singh Enterprises provide strong support for rectifying procedural errors.
- Advise clients to correct errors promptly. Rectification of registration or return filing errors can prevent prolonged litigation and penalties.
