Works contractor gets relief on service tax disallowance under section 43B due to non-receipt from BSNL contractee

ITAT Pune remanded the case back to Addl. JCIT(A)-3, Bengaluru regarding disallowance under section 43B for non-payment of service tax. The assessee, a works contractor primarily working for BSNL, contended it never received service tax and GST amounts from the contractee due to BSNL's cash crunch and non-payment for three years. The tribunal distinguished this case from precedents where parties had received tax amounts but failed to pay the government. Following the Bombay HC decision in Ovira Logistics case, ITAT directed the lower authority to verify whether the assessee actually received the disputed tax amounts before deciding the issue. The appeal was allowed for statistical purposes.

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Issues:
1. Disallowance u/s 43B for non-payment of Service Tax
2. Disallowance u/s 43B for non-payment of Goods and Service Tax
3. Appeal against the order of LD. Addl./JCIT(A)-3, Bengaluru

Analysis:

1. The appellant contested the disallowance of Rs. 30,46,456 for non-payment of Service Tax and Rs. 1,77,17,182 for Goods and Service Tax by the Centralized Processing Centre (CPC) under section 43B. The appellant argued that as the taxes were not received from the customer nor debited to the profit and loss account, the additions should be deleted. The appellant's business involved construction activities for BSNL, with pending dues of approximately Rs. 12 crores. The appellant claimed that BSNL's non-payment caused the tax defaults. The appellant cited various judgments to support their case.

2. The first appeal before the LD. Addl./JCIT(A)-3, Bengaluru upheld the disallowances made by the CPC, leading to the appellant's appeal to the Tribunal. The appellant accepted the disallowance of Rs. 27,216 but challenged the larger tax disallowances. The appellant argued that since the taxes were not received, no disallowance under section 43B should apply. The appellant highlighted the difference in facts between their case and the cases relied upon by the LD. Addl./JCIT(A)-3, Bengaluru.

3. The Tribunal noted the appellant's claims that they had not received the service tax and Goods & Service Tax amounts due to cash flow issues with BSNL. The Tribunal found that the judgments cited by the LD. Addl./JCIT(A)-3, Bengaluru were not applicable as they involved cases where the taxes were received but not deposited. The Tribunal referred to the Bombay High Court judgments emphasizing that liability to pay the taxes arises only upon actual receipt of funds. Consequently, the Tribunal directed the matter back to the LD. Addl./JCIT(A)-3, Bengaluru to verify if the appellant had indeed received the taxes and to decide based on the High Court judgments. The appellant was instructed to provide necessary documents and respond to notices. The Tribunal allowed the appellant's grounds of appeal for statistical purposes, ultimately allowing the appeal.

In conclusion, the Tribunal allowed the appeal filed by the assessee for statistical purposes, directing a review based on the non-receipt of taxes as per the High Court judgments cited.

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