2006 (9) TMI 31 - AT - Service Tax

Tribunal Upholds Asst. Commissioner's Order on Service Tax Calculation

The Tribunal allowed the appeal, upholding the Asst. Commissioner's order and providing consequential relief. It clarified that Service Tax should be ... Payment of service tax on receipt of payment - Taxability measured by total receipts actually received (not gross receipts shown in Profit & Loss Account) - Section 68 and Rule 6(1) - payment of service tax contingent on receipt of payments - Time-bar for issuance of show cause notice where non-receipt of payments notified in returns - Reliance on certified verification of books and sundry debtors treatmentPayment of service tax on receipt of payment - Taxability measured by total receipts actually received (not gross receipts shown in Profit & Loss Account) - Section 68 and Rule 6(1) - payment of service tax contingent on receipt of payments - Reliance on certified verification of books and sundry debtors treatment - Time-bar for issuance of show cause notice where non-receipt of payments notified in returns - Whether service tax could be demanded on gross receipts shown in the Profit & Loss Account or only on amounts actually received by the assessee, and whether demands issued beyond time are barred where non-receipt was disclosed in returns. - HELD THAT: - The Tribunal accepted the assessee's case that service tax liability arises only when payment for taxable services is received. The Assistant Commissioner had verified the books and found that amounts shown in the Income-tax returns remained unrealised and were reflected as sundry debtors; a chartered accountant's certificate corroborated non-receipt. Section 68 and Rule 6(1) of the Service Tax Rules require payment of service tax to be made in respect of payments received, and do not permit recovery of tax in respect of amounts not actually realised. The Revenue's reliance on gross receipts as per the Profit & Loss Account and Income-tax returns to compute service tax was therefore unsustainable. Because the assessee had been filing returns and informing the department about outstanding debit notes, the department was aware of non-receipt; on that basis the Tribunal found the issue of show cause beyond the prescribed period to be time-barred. The Assistant Commissioner's order dropping the proceedings was thus held to be correct and the Commissioner's review order demanding short levy was set aside. [Paras 2, 5]The appeal is allowed; the Assistant Commissioner's order dropping the demand is upheld and the Commissioner's review order is set aside, with consequential relief if any.Final Conclusion: The Tribunal allowed the appeal, holding that service tax is payable only on payments actually received (per Section 68 and Rule 6(1)), not on gross receipts shown in accounts, and that demands were unsustainable and time-barred where non-receipt had been disclosed in returns. Issues:1. Review of Order-in-Original dropping demands by Asst. Commissioner2. Discrepancy in taxable amounts shown in Profit and Loss Account and Income-tax Returns3. Applicability of Service Tax on gross receipts4. Commissioner's error in levying tax on gross receipts5. Interpretation of Section 68 of the Finance Act, 1994 and Rule 6 of the Service Tax RulesAnalysis:1. The appeal arose from a Review Order where the Commissioner reviewed the Order-in-Original dropping demands by the Asst. Commissioner. The Revenue demanded Service tax based on the Profit and Loss Account and Income-tax Returns, leading to a discrepancy in taxable amounts.2. The Asst. Commissioner found that the amounts in Income-tax returns were not received by the assessee, hence dropping the proceedings. However, the Commissioner, citing a Board's Circular, proceeded to levy tax on gross receipts as per the Profit and Loss Account, demanding short levy.3. The appellants argued that they paid Service Tax on amounts received, complying with the Board's Circular. They contended that Service Tax should not be paid in advance on gross receipts. They referenced a previous case to support their stance.4. The Tribunal clarified that Service Tax should be calculated on total receipts, not on amounts due from customers. Citing Section 68 of the Finance Act, 1994 and Rule 6 of the Service Tax Rules, it highlighted that tax payment is only required upon actual receipt of payments for taxable services.5. Granting full stay, the Tribunal emphasized that Service Tax is not liable to be paid if the assessee has not received payments for taxable services. The issue of show cause notice beyond one year was deemed time-barred. The appeal was allowed, upholding the Asst. Commissioner's order and providing consequential relief.