2008 (2) TMI 78 - AT - Service Tax

Service tax liability clarified: Tax due on received amount, not outstanding balance. Penalty overturned, interest payable.

KANPUR SECURITY SERVICES Versus COMMISSIONER OF C. EX., KANPUR

The judgment clarified that service tax liability is only on the amount received by the service provider, not the outstanding balance due from the client. ... Security Agency – service tax demand challenged as pertinent amount, although billed, by assessee, has not yet been received - service tax is leviable only on the amount received by the service provider and not on the amount still due from the parties(clients) – demand raised on the amount which has not yet been received by assessee is not justified – penalty not justified – interest payable for the delayed period (i.e. from the due date of payment and upto the date on which is was paid). Issues:Service tax liability on the amount received by the service provider, imposition of penalty, liability to pay interest.Analysis:The case involved the appellants, registered as a Security Agency for service tax purposes, who billed a client for services rendered but had only received a partial payment. The appellants argued that service tax should only be levied on the amount actually received, not on the outstanding balance. They cited relevant case laws to support their contention, including decisions from the Tribunal. The Member (T) examined the case laws referred to and agreed with the appellants' argument. The judgment held that service tax is payable only on the amount received by the service provider, not on the outstanding balance due from the client. Consequently, the service tax on the balance amount, totaling Rs. 15,907/-, was deemed not payable by the appellants. The judgment also addressed the imposition of a penalty, concluding that it was not justified in the circumstances and thus set it aside. However, the appellants were found liable to pay interest on the amount of Rs. 12,046/-, in accordance with the applicable rate under Section 75 of the Finance Act, 1994, for the delayed period. The appeal was disposed of with these determinations.This judgment clarifies the principle that service tax liability arises only on the amount actually received by the service provider, not on the outstanding balance due from the client. It underscores the importance of distinguishing between billed amounts and actual receipts when calculating service tax obligations. Additionally, the judgment highlights the discretion of the tribunal to set aside penalties if deemed unjustified based on the facts and circumstances of the case. The ruling also emphasizes the obligation of the appellants to pay interest on delayed payments in accordance with the relevant provisions of the Finance Act, 1994. Overall, the judgment provides a nuanced interpretation of service tax liability in the context of payments received by service providers, offering clarity on the tax treatment of outstanding balances and the consequences of delayed payments.