Facts of the Case:

The Commissioner of Central Tax, CGST Delhi South (“Petitioner”) appealed against the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, dated 30 July 2024, which dismissed the department’s appeal and upheld the adjudicating authority’s view that The Indure (P) Limited (“Respondent”) was not liable to pay differential Service Tax under the Works Contract Service category. The dispute arose from alleged discrepancies in returns filed under the Service Tax Act, 1994 and the Value Added Tax (VAT) Act, 2005 for the period 2007‑08 to 2011‑12, and the claim of short payment of service tax amounting to substantial figures based on comparative returns.

Issues Involved:

  1. Whether the Respondent was liable to pay differential Service Tax arising from reconciliation between VAT/WCT returns and ST‑3 returns.
  2. Whether the adjudicating authority and CESTAT erred in rejecting the demands raised on the basis of alleged short payment of Service Tax.
  3. Whether the “best judgment assessment” under Section 72 of the Finance Act, 1994, could be invoked to determine Service Tax liability without adequate basis.

Petitioner’s Arguments:

• The Respondent failed to discharge Service Tax correctly, creating a shortfall based on reconciliation between WCT/VAT figures and Service Tax returns.
• The adjudicating authority and CESTAT wrongly ignored the best judgment assessment and demanded tax without properly addressing the discrepancies.
• The Certificate issued by the Respondent’s statutory auditors should not have been allowed to override the discrepancy analysis.

Respondent’s Arguments:

• The alleged shortfall was misconceived as the Respondent had correctly disclosed taxable services and paid corresponding tax liabilities.
• The difference in figures between VAT/WCT and ST‑3 returns was explained and supported by statutory data and Chartered Accountant certificates.
• The Department’s reliance on best judgment assessment under Section 72 was unjustified where accurate information had been provided.

Court Findings / Order:

The Delhi High Court upheld the decisions of both the adjudicating authority and CESTAT, dismissing the appeal. The Court observed that:
• The comparison between VAT/WCT returns and ST‑3 returns was erroneous due to fundamental differences in levy and accounting concepts under Service Tax and VAT legislation.
• The Respondent had provided satisfactory documents and reconciliations, supported by auditor certificates, showing correct compliance with tax obligations.
• The demands raised using best judgment assessment were unsustainable in light of adequate information on record and judicial precedent requiring reasonable nexus with evidence.
• No substantial question of law warranted interference with the impugned order.

Important Clarifications:

• No Service Tax liability arises merely by comparison of returns if the taxpayer has properly discharged tax and reconciled records.
• Best judgment assessments under Section 72 must be grounded on reasonable evidence and cannot be invoked arbitrarily.
• The distinction between VAT/WCT and service tax principles must be carefully recognized in adjudications involving dual regimes.

Sections/Statutes Involved:

• Service Tax Act, 1994
• Finance Act, 1994 — Section 72 (Best Judgment Assessment)
• Value Added Tax Act, 2005 (for returns context)

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS21082025CEAC22025_131525.pdf

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