When Service Tax Is Shown Separately In Invoices, Assessee Can’t Later Claim Cum-Tax Benefit Merely Because Tenant Failed To Pay Tax: CESTAT

The Bengaluru Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT), has upheld a service tax demand against Bharat Builders, ruling that when service tax is shown separately in invoices, the assessee cannot later claim cum-tax benefit merely because the tenant failed to pay the tax component. The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that Section 67(2) of the Finance Act, 1994 applies in situations where the “gross amount charged” is inclusive of service tax. In such cases, the assessable value must be derived by treating the received amount as inclusive of tax. However, the Bench clarified that this statutory benefit cannot be invoked when the service provider itself has segregated the taxable value and tax liability in the invoice. By showing tax separately, the appellant had effectively represented that the tax was over and above the base rental value. The appeal arose from Order-in-Appeal No. 20/2018-CT dated June 11, 2018, passed by the Commissioner of Central Tax (Appeals), Belagavi Bharat Builders, a registered service provider, was engaged in providing taxable services including Construction of Residential Complex Service, Advertising Agency Service, Renting of Immovable Property Service, and Repair and Maintenance Service. During audit for the period October 1, 2012 to March 31, 2014, the department observed that the appellant had raised invoices reflecting service tax separately on rental services. However, tenants allegedly refused to pay the service tax component on the ground that the original rental agreements (executed in 2006) did not provide for such tax. Consequently, the assessee calculated and paid service tax on a cum-tax basis, leading to a short payment of ₹5,54,873/-. A show cause notice dated February 6, 2015 was issued seeking recovery of the differential amount The Tribunal’s analysis primarily turned on the nature of the invoices issued by the appellant. The Bench noted that the rent bills clearly reflected the service tax component separately from the rental amount. This factual aspect, according to the Tribunal, was decisive. Once the assessee consciously chose to issue invoices specifying rent and service tax as distinct elements, the value charged could not subsequently be re-characterised as a composite, tax-inclusive amount merely because the tenant refused to pay the tax portion. The Bench further observed that non-payment of service tax by the tenant does not absolve the service provider of its statutory obligation to discharge tax on the amount billed. Service tax being an indirect levy, the liability to pay it to the Government rests on the service provider, irrespective of recovery from the service recipient. Any commercial dispute regarding recovery must be resolved independently and cannot impact the computation of tax liability. The Tribunal distinguished the judicial precedents relied upon by the appellant. It noted that in the cited cases, there was no clear finding that service tax had been separately indicated in invoices. In contrast, the present matter involved explicit disclosure of service tax in billing documents. Therefore, the factual matrix was materially different, and those rulings were held inapplicable. The Tribunal also remarked that the appellant had alternative statutory remedies available. If the tax component remained unpaid, the appellant could have initiated recovery proceedings or issued debit notes in accordance with law. The failure to adopt such measures could not justify recalculating tax on a cum-duty basis after having raised invoices with separate tax disclosure. On the issue of limitation and penalty, however, the Tribunal adopted a more balanced approach. It noted that the appellant had paid the differential tax along with interest prior to the issuance of the show cause notice. The agreements in question were old, and the dispute arose in the backdrop of evolving jurisprudence concerning the taxability of renting of immovable property. The Bench found no deliberate suppression or intention to evade tax. Taking into account the bona fide conduct of the appellant and the fact that the entire liability had been discharged before adjudication, the Tribunal concurred with the appellate authority’s decision to extend the benefit of Section 80 of the Finance Act, 1994. Consequently, while the demand of tax and interest was sustained, the entire penalty was set aside. Case Details Case Title: Bharat Builders Versus Commissioner of Central Tax Citation: JURISHOUR-217-CES-2026(BANG) Case No.: Service Tax Appeal No. 21261 of 2018 Date: 03.03.2026 Counsel For Appellant: Swetha Elizabeth Sahor, Advocate Counsel For Respondent: M. Sreekanth, Authorized Representative Click Here To Read Order Read More: ITAT Remands Rs. 1.47 Crore Addition Over Unexplained Cash Deposits Under S. 69A

When Service Tax Is Shown Separately In Invoices, Assessee Can’t Later Claim Cum-Tax Benefit Merely Because Tenant Failed To Pay Tax: CESTAT

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