CESTAT Allahabad sets aside ₹10.35 lakh service tax demand against Protectwell Security Services

February 01, 2026 : The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal has quashed a service tax demand of ₹10.35 lakh along with interest and penalties raised against M/s Protectwell Security Services, holding that the extended period of limitation was wrongly invoked and that liability under the reverse charge mechanism could not be fastened on the service provider.

The appeal arose from an order passed by the Commissioner (Appeals), Central Goods and Services Tax, Noida, which had upheld the confirmation of service tax for the financial year 2016–17. The demand was based on data received from the Income Tax Department showing a difference of about ₹69.06 lakh between gross receipts reflected in Form 26AS and income tax returns, and the taxable value declared in ST-3 service tax returns. On this basis, the Department alleged suppression of taxable value and issued a show cause notice on 21 October 2021 invoking the extended period under Section 73(1) of the Finance Act, 1994.

The adjudicating authority confirmed the demand of ₹10,35,930 with interest and imposed penalties under Sections 77 and 78, taking the view that the non-payment of tax came to light only through income tax data. The Commissioner (Appeals) upheld the order, primarily on the ground that the assessee failed to produce complete agreements, invoices and conclusive evidence to show that service tax had been paid by service recipients under the reverse charge mechanism.

Before the Tribunal, Protectwell Security Services argued that it was engaged in manpower supply and security services, which during the relevant period were fully covered under the reverse charge mechanism under Notification No. 30/2012-Service Tax as amended by Notification No. 07/2015-Service Tax. It was submitted that, under the statutory scheme, the entire service tax liability rested on the service recipient and not on the service provider. The appellant also pointed out that multiple show cause notices were issued due to technical duplication of service tax registrations, which caused confusion, and that there was no intent to suppress facts or evade tax.

A single-member Bench comprising Sanjiv Srivastava, Technical Member, accepted these submissions. The Tribunal held that in cases where service tax is payable entirely under the reverse charge mechanism, the liability of the service recipient is independent and distinct from that of the service provider. Even if the service recipient fails to discharge the tax, the demand cannot be raised against the service provider.

On limitation, the Tribunal found no material to support allegations of fraud, wilful misstatement or deliberate suppression. Relying on settled Supreme Court jurisprudence, including Uniworth Textiles, Chemphar Drugs and Liniments, Padmini Products and the recent decision in Stemcyte India Therapeutics Pvt. Ltd., the Bench reiterated that mere non-payment of tax or interpretational disputes do not justify invocation of the extended limitation period. It also noted that the Commissioner (Appeals) failed to record any specific findings on limitation and bona fide belief, despite these grounds being expressly raised.

Holding that the demand, interest and penalties were unsustainable in law, the Tribunal set aside the impugned order and allowed the appeal, granting consequential relief to the assessee.

Cause Title: M/s Protectwell Security Services v. Commissioner of Central Goods & Services Tax, Noida
Case No.: Service Tax Appeal No. 70812 of 2025
Coram: Sanjiv Srivastava (Technical Member)