The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, has ruled that a service tax demand cannot be sustained merely on the basis of differences between the turnover disclosed in an assessee’s Balance Sheet or Trial Balance and its ST-3 returns without identifying the taxable services provided and establishing the receipt of taxable consideration.
The bench of P.A. Augustian (Judicial Member) and R. Bhagya Devi (Technical Member) set aside the demand arising from the difference in financial figures, allowed CENVAT credit on most disputed input services, and rejected the invocation of the extended limitation period and penalties. However, it upheld the denial of credit on certain expenses and invoices issued in the names of other entities.
The appellant/assessee was engaged in providing taxable services under the category of “management, maintenance or repair services.” The department alleged that the company had failed to pay service tax on amounts collected under various additional charges.
The adjudicating authority compared the income reflected in the company’s financial records with the taxable value declared in its ST-3 returns. On finding a difference, it confirmed the service tax demand on the alleged differential taxable value.
The company argued that the figures in its Balance Sheet were maintained on an accrual basis, whereas its ST-3 returns, for the relevant period, reflected amounts on a receipt basis. It relied on a certificate issued by a chartered accountant explaining the reconciliation.
According to the company, the department had also failed to account for deductions relating to property and municipal taxes, electricity and water charges, price negotiations and amounts that had not actually been received.
The company further submitted that part of the rent reflected in its accounts related to a period before June 1, 2007, when renting of immovable property was not subject to service tax.
The Tribunal observed that the department could not reject the chartered accountant’s certificate and confirm the demand merely because the figures in the Balance Sheet or Trial Balance were higher than those declared in the ST-3 returns.
It noted that the reconciliation contained amounts relating to rent for the period before renting of immovable property became taxable, property and municipal taxes, unpaid consideration and collections towards electricity and water supply.
The Tribunal found that the adjudicating authority had confirmed the demand without specifying the nature of the taxable service allegedly provided by the company.
Referring to the decision in Alpha Management Consultancy, which was upheld by the Karnataka High Court and the Supreme Court, the bench observed that service tax was payable on the provision of taxable services and could not be recovered merely on the basis of figures appearing in income tax or financial records.
The Tribunal also reiterated that where the Revenue makes an allegation of unpaid service tax, the burden lies on the department to establish that taxable services were actually provided and that the disputed amount represented consideration for those services.
“Thus, the demand confirmed based on the differential value between Balance Sheet/Trial Balance and ST-3 Returns is unsustainable,” the bench held.
The Tribunal separately examined the denial of CENVAT credit on services such as pest control, rent, stall fees, membership fees, advertisement and publicity, repairs and maintenance, motor maintenance, telephone services, building maintenance, travel and conveyance, land lease rentals, annual maintenance of the company’s website, licence fees and import clearance.
It concluded that most of these services qualified as “input services” for the purpose of the CENVAT Credit Rules, 2004.
Accordingly, the Tribunal allowed CENVAT credit on those services. Credit relating to pooja expenses and credit-card payments was, however, disallowed.
The assessee also sought credit on invoices issued in the names of Safina Technology Park and Safina Hotels. It argued that these were not independent legal entities but were facilities owned, operated, maintained and leased by the company.
The company contended that Safina Technology Park was merely a part of the commercial space owned by it and that the services covered by the disputed invoices had actually been received and used by assessee.
The Tribunal did not accept this argument. It held that documents issued in the names of other entities could not be treated as valid input-service documents for the appellant in the absence of evidence establishing that the services had actually been received by assessee.
The bench observed that the documents relied upon to show that Safina Technology Park formed part of the commercial premises were insufficient to justify the availment of credit, particularly when the invoices were not issued in the appellant’s name and no adequate evidence of receipt of the services had been produced.
It consequently upheld the adjudicating authority’s decision to deny CENVAT credit on such invoices.
The dispute also involved CENVAT credit on services used for the maintenance and repair of diesel generator sets.
The adjudicating authority had denied the credit on the ground that electricity generation and supply constituted the sale of goods rather than a taxable service. It reasoned that credit could not be availed on inputs, capital goods or input services attributable to an activity that did not attract service tax.
The Tribunal noted that the company had already paid service tax amounting to ₹2,16,349 for the period from October 2009 to June 2012.
It held that the company would be entitled to CENVAT credit on the DG set maintenance services, provided service tax had been discharged on the corresponding activity.
The Tribunal also rejected the department’s invocation of the extended limitation period.
It noted that assessee had regularly filed its ST-3 returns and that the demand arose principally from a comparison of the returns with the figures appearing in the company’s financial statements.
In these circumstances, the bench found no basis to allege suppression of facts with an intention to evade payment of service tax.
The Tribunal therefore restricted any surviving demand to the normal limitation period. It set aside the demand raised for the extended period as well as the penalties imposed on the company.
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