2018 (12) TMI 255 - AT - Service Tax

Service tax demand order set aside due to lack of scrutiny of agreements and invoices

The Tribunal set aside the Order-in-Original confirming a service tax demand for the period 2009-10 to 2012-13, amounting to Rs. 55,40,698, imposed on a ... Validity and scope of of SCN - Service Rendered to RBI - Cleaning Service - demand raised by invoking extended period of limitation - the examination of points raised in SCN not carried out - principles of natural justice - Held that:- It is stated in the said SCN that the appellant were paying service tax in respect of Manpower and Recruitment and Supply Agency Service whereas it was also stated in the said show cause notice that the service rendered by appellant as Para Medical Services were nothing but Manpower Supply Services and appellant did not pay service tax - there is contradiction in the said show cause notice. Various agreements that must have been entered into by the appellant with the service recipient were not examined by Revenue. Further the invoices raised by the appellant were not examined by Revenue. It was essential to scrutinize the agreements and the invoices to come to a conclusion about exact nature of activity by the appellant so as to examine whether such activity was covered by definition of any service and whether any abatement from assessable value was available - without undertaking any examination of the activity rendered by the appellant, on the basis of income statement demand was raised. Since there was no scrutiny of the receipt by the appellant for issue of said SCN, the impugned SCN is not sustainable law - appeal allowed - decided in favor of appellant. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand for service tax based solely on aggregate receipts shown in balance sheets, without examination of underlying agreements and invoices to determine the nature of services and applicability of any abatement or exemption, is sustainable. 2. Whether services rendered to the Reserve Bank of India were taxable despite a notification exempting taxable services provided to the Reserve Bank. 3. Whether cleaning services rendered to a State-established medical institute (functioning as a university / government hospital) and to factory-maintained hospitals (maintained under statutory mandate) fall outside the scope of taxable 'Cleaning Service' because the premises are non-commercial. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of demand based on balance-sheet aggregation without examining agreements/invoices Legal framework: Liability for service tax depends on whether the activity falls within the defined taxable services, the value assessable, applicability of abatements/exemptions, and proper compliance with registration and payment provisions (Section 68 of the Finance Act, 1994 and Service Tax Rules, 1994 were invoked by Revenue). Precedent Treatment: No specific precedent was cited or applied by the Tribunal in the impugned order or in the decision; the Tribunal proceeded on principles of admissible material and requisite adjudicatory scrutiny. Interpretation and reasoning: The Tribunal found the show cause notice and consequent adjudication relied on a mechanical addition of receipts from various balance-sheet heads to compute alleged service-taxable receipts. There was no examination of the underlying agreements or invoices to ascertain the exact nature of the services rendered (i.e., whether particular receipts were for activities captured by any taxable service definition), nor any inquiry into possible abatements or proper classification. The show cause notice itself contained contradictions (e.g., stating that certain activities were treated as manpower supply in returns yet suggesting other classifications), undermining the reliability of Revenue's factual foundation. The Tribunal emphasized that it was essential for Revenue to scrutinize contractual terms and invoices before concluding taxability and quantifying demand; absence of such scrutiny vitiated the proceedings. Ratio vs. Obiter: Ratio - A demand premised only on balance-sheet totals without examination of agreements, invoices, and the precise nature of services is unsustainable and vitiates the proceedings. Obiter - The Tribunal's remarks stressing the necessity to examine abatements and classification particulars are instructive procedural guidance for adjudicating authorities. Conclusions: The demand was set aside because the adjudicatory process failed to examine primary documents necessary to establish classification and taxable value; consequently the impugned order was unsustainable. Issue 2 - Taxability of services rendered to the Reserve Bank of India (RBI) Legal framework: Central notification exempting taxable services provided to RBI (Notification No.22/2006-ST) creates a statutory exemption to be applied where services fall within its terms. Precedent Treatment: The Tribunal did not rely on cited case law; it applied the notification's exemption as a matter of law on the record. Interpretation and reasoning: The appellant asserted that services rendered to RBI were exempt by the notification. The Original Authority nonetheless treated RBI as a 'commercial concern' and confirmed demand. The Tribunal observed that Revenue had not scrutinized receipts to identify services provided to RBI and therefore could not validly sustain a demand on such receipts in the face of a specific exemption. The absence of examination of the records relating to services supplied to RBI rendered the confirmation of demand unsustainable. Ratio vs. Obiter: Ratio - Where a statutory exemption applies (here, to services provided to RBI), Revenue must examine and distinguish the receipts attributable to exempted services before raising a demand; failure to do so invalidates the demand. Obiter - Determining whether an entity is 'commercial' for exemption purposes requires fact-specific inquiry; a mere classification in the show-cause without documentary scrutiny is inadequate. Conclusions: The demand as to services said to be provided to RBI could not be sustained on the record; the adjudication was vitiated for lack of scrutiny of exempted receipts. Issue 3 - Taxability of cleaning services to a State-established medical institute and factory hospitals (non-commercial premises) Legal framework: Cleaning Service is a taxable service unless excluded by statutory provisions, notifications, or settled administrative instructions/circulars; Board instructions and circulars (e.g., CBEC Instruction and earlier circulars distinguishing 'commercial' premises) bear on whether cleaning of non-commercial premises attracts service tax. Precedent Treatment: The Original Authority appears to have rejected the reliance on Board circulars and the appellant's submissions; the Tribunal recited the appellant's contention and assessed the record, but did not cite or overrule any judicial precedent. Interpretation and reasoning: The appellant contended that the State-established medical institute (functioning as a university / government hospital) is non-commercial and that Board circulars indicate cleaning services for non-commercial premises are not leviable. Similarly, cleaning services to factory hospitals maintained under a statutory obligation were said to be non-commercial. The Tribunal found that Revenue had not examined the agreements/invoices or the factual nature of the recipient institutions to decide whether the premises qualified as non-commercial. Because the adjudicatory process failed to probe these facts, Revenue could not validly aggregate receipts and treat all cleaning-related receipts as taxable. Ratio vs. Obiter: Ratio - Determination of taxability for cleaning services to potentially non-commercial premises requires fact-specific scrutiny (agreements/invoices and the nature of the recipient) and cannot be based on balance-sheet aggregation alone. Obiter - References to Board circulars and the statutory nature of institutions are relevant considerations that adjudicating authorities must address when classifying premises as commercial or non-commercial. Conclusions: The demand in respect of cleaning services to the State medical institute and factory hospitals could not be sustained on the record due to lack of necessary documentary and factual scrutiny; the order confirming demand therefore failed. Final Disposition (Consequential Conclusion) The Tribunal concluded that the show cause notice and the impugned adjudication were vitiated by defective fact-finding and lack of examination of primary documents (agreements, invoices, and allocation of receipts, including those falling under exemption notifications). On that basis, the Tribunal set aside the impugned order and allowed the appeal.