Actual recovery-based service tax quantification led to interim protection, subject to immediate partial payment and fresh recalculation.

Service tax liability was required to be re-quantified on the basis of actual recovery where the taxable value depended on amounts collected from clients, and the assessee's claim of non-recovery had to be verified before final adjustment of tax and penalty. Because the materials showed that liability was not extinguished and a substantial undisputed amount remained, recovery was kept in abeyance only on immediate payment of a substantial portion. The original authority was directed to complete the recalculation expeditiously after hearing the assessee.

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Issues: Whether the service tax demand required fresh quantification on the basis of actual recovery and whether recovery could proceed pending completion of the recalculation directed in appeal.

Analysis: The appellate authority had directed verification of the assessee's claim that the taxable value depended on actual recovery and had indicated that, if non-recovery from clients was established, the tax liability and consequential penalty would have to be suitably reduced. The original authority had not completed the recalculation, but the materials before the Court showed that the assessee's liability was not wiped out and that a substantial amount remained undisputed. In these circumstances, the Court balanced the remand direction with the admitted liability and permitted recovery to be kept in abeyance only on immediate payment of a substantial portion, while directing the original authority to complete the quantification after hearing the assessee.

Conclusion: The demand was not set aside; the assessee was directed to pay Rs. 31 lakhs forthwith, recovery was kept in abeyance for the time being, and the authority was directed to complete the recalculation expeditiously.

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