Demand cannot be raised solely based on the oral statement of witness without any further evidence or corroboration

The CESTAT, Ahmedabad in the case of Krish Corporation v. Commissioner of C.E. and S.T.-Surat -I [Service Tax Appeal No. 10686 of 2014-DB dated November 26, 2024] allowed the appeal and reduced the tax demand wherein the tax demand has been raised solely based on the statements of various witnesses during investigation without any evidence and further corroboration.

Facts:

Krish Corporation ("the Appellant") was in possession of the shops which has been given on rent. The Revenue Department ("the Respondent") based on the information received, contended that the Appellant is engaged in the supply of service of renting of immovable property which would be classifiable under Section 65(105)(zzzz) of the Finance Act. It was alleged that the Appellant collected the rent yearly basis in cash and suppressed the income generated from renting of shops. The Respondent came to the conclusion based on the inquiries made from the other tenants located in the marked and statement recorded thereafter. Thus, the Respondent issued Show Cause Notice dated June 06, 2013 ("the SCN") for recovery of service tax which was further confirmed by passing of order-in-original dated December 31, 2013 ("the Impugned Order").

Aggrieved by the Impugned Order passed, the Appellant filed an appeal before the CESTAT, Ahmedabad.

Issue:

Whether demand could be raised solely based on the oral statement of witness without any further evidence or corroboration?

Held:

The CESTAT, Ahmedabad in the case of Service Tax Appeal No. 10686 of 2014-DB held as under:

• Observed that, the primary dispute arising is relating to calculation of taxable value as the Respondent has calculated the value solely on the basis of statement recorded of persons as it has been alleged that the persons have admitted that the amount of rent has been collected by the Appellant in cash.
• Further observed that, "admission of persons, cannot be considered to be conclusive evidence to establish the guilt of the assessee. Burden of proof is on the Revenue and same is required to be discharged effectively. Without corroborative evidences only on the basis of statement of few tenants it cannot be concluded that the appellant has collected the part of rent in cheques and balance is taken in cash."
• Noted that, none of the persons whose statement was recorded and was relied upon for raising the demand was cross examined by Respondent Commissioner which was required as per Section 9D of the Central Excise Act, 1944, as applicable in service tax matters, regarding examination in chief of witness.
• Opined that, oral statement of service recipient is not admissible as evidence.
• Further opined that, based on the aforesaid points, the demand of service tax on the basis of statement of persons not sustainable
• Held that, the demand of tax amount is reduced and penalty would not be payable as the tax amount was paid before issuance of SCN

Our Comments:

The said judgment would certainly have implications on proceedings initiated under GST as there have been numerous cases wherein demand has been raised based on sole statement of supplier and other witnesses who have not been cross examined by the Department. Therefore, based on the points raised in the judgment relief can be claimed in proceedings initiated against assessee when demand under GST has been raised solely on the basis of statement made by the witness without any further evidence and corroboration.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED