Service tax base excludes diesel supply receipts taxed under VAT, while admitted renting short payment was confirmed without penalty.

Amounts recovered for diesel supplied under work orders, on which VAT had been paid, could not be added to the taxable value for service tax merely because they appeared in the balance sheet; only the service component was liable to tax, and the demand based on alleged differential turnover was not sustainable. The admitted short payment relating to renting of immovable property was confirmed, but on the facts no penalty was imposable.

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Issues: (i) Whether amounts recovered towards supply of diesel and reflected in the balance sheet could be included in the taxable value for service tax on the alleged difference between the balance sheet and ST-3 returns. (ii) Whether the admitted short payment of service tax of Rs. 85,674 on renting of immovable property survived, and whether penalty was imposable.

Issue (i): Whether amounts recovered towards supply of diesel and reflected in the balance sheet could be included in the taxable value for service tax on the alleged difference between the balance sheet and ST-3 returns.

Analysis: The differential figures were explained as receipts towards diesel supplied under work orders for telecommunication tower activities. The diesel was purchased from petrol pumps and VAT had been paid on such supply. On these facts, the amount recovered towards diesel could not be treated as consideration for taxable services or brought within the service tax base merely because it appeared in the balance sheet.

Conclusion: The demand raised on the alleged differential turnover, to the extent referable to diesel supply, was not sustainable and was set aside.

Issue (ii): Whether the admitted short payment of service tax of Rs. 85,674 on renting of immovable property survived, and whether penalty was imposable.

Analysis: The appellant had admitted the short payment relating to renting of immovable property and had already paid the tax. The remaining demand connected with composite work orders and maintenance activity was not found sustainable on the record, and the facts did not warrant imposition of penalty.

Conclusion: The demand of Rs. 85,674 was confirmed, while penalty was held not imposable.

Final Conclusion: The impugned order was set aside in the main, the appeal succeeded on the substantial demand, but the admitted demand of Rs. 85,674 was sustained and no penalty was upheld.

Ratio Decidendi: Amounts recovered towards supply of goods on which VAT has been paid cannot be added to the taxable value of services merely because they are reflected in the balance sheet; only the service component is liable to service tax.

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