2024 (11) TMI 1228 - AT - Service Tax

Service tax demand on rental income reduced after Revenue fails to prove excess rent collection with documentary evidence

Krish Corporation Versus Commissioner of C.E. & S.T. -Surat-i

CESTAT Ahmedabad allowed the appeal partially in a service tax matter involving rental income. Revenue demanded service tax on alleged excess rent ... Method of calculation of taxable value - Differential value and service tax demand - Appellant has received the rent in excess of the rent booked in the books of accounts on the basis of four tenants' statements out of total tenants of 238 - revenue calculated the rent value on the basis of statements of persons - HELD THAT:- We find that, it is settled law that though the admission is an important piece of evidence but it cannot be said to be conclusive and it is open to the person who has made the admission to show that this is incorrect. Admission of persons, cannot be considered to be conclusive evidence to establish the guilt of the assessee. Burden of proof is on the Revenue and same is required to be discharged effectively. In the present matter tenant nowhere produced any records/piece of paper in support of their statement. The only oral statements of service recipient cannot be accepted as admissible piece of evidence. No cash receipts has been relied upon by the department, no financial flow back has been relied upon by the department for the collection of rent in cash, no rent agreement has been found by the department for the support of excess rent , no ledger entry in the books of accounts of the appellant found for so called excess collected rent. Moreover, none of the persons on whose statement reliance was placed by the department were cross-examined by the Ld. Commissioner in the present matter. Clearly, the Adjudicating Authority had failed to follow the requirement of Section 9D of the Central Excise Act 1944, which is applicable in Service Tax matters, regarding examination in chief of witness, therefore quantification of demand of service tax on the basis of statement of persons not sustainable. Before fastening the service tax demand, it was incumbent on the revenue to come up with tangible evidence to prove the suppression of taxable value and quantify the demand on the basis of documentary evidences. We also find that in the present matter appellant also produced the details of rent received from each tenant and shops during the disputed period before revenue and Ld. Commissioner. Department has calculated the demand of service tax on all the shops for whole periods without verifying the details that whether the said shops have been given on rent during the whole disputed period or not; whether shops have been given on rent or sale basis; what is the actual rent recoverable or received by the appellant; how many month occupant’s have been holding the shops as a tenant. We noticed that in the present matter revenue has not considered the proper facts while calculating the liabilities against the department. As per details of quantification of rent produced by the appellant before us, we, therefore, reduce the demand of Service tax from Rs. 72,61,747 to Rs. 17,82,992/- together with interest. Penalty imposed - As we find that the appellant in the present matter not disputed the liability of services tax and has admittedly paid the service tax well before the issuance of show cause notice. In these circumstances, we do not find that there was any mala fide on the part of the appellant. Therefore, benefit of Section 80 should be extended for the appellant and penalties imposed by the Ld. Commissioner are set aside. Penalty imposed under Section 76 and 78 - We are of the view that simultaneous penalty under Section 76 and 78 cannot be imposed as held in the case of Rawal Trading Company [2016 (2) TMI 172 - GUJARAT HIGH COURT] Issues:Service tax demand calculation based on tenant statements and lack of documentary evidence, Burden of proof on Revenue, Admissibility of oral statements as evidence, Failure to follow examination requirements of witnesses, Quantification of demand based on documentary evidence, Appellant's submission of rent details, Appellant's liability for penalties, Applicability of Section 80 for penalties, Simultaneous imposition of penalties under Section 76 and 78.Analysis:The appeal was filed against an Order-in-Original concerning the taxation of renting immovable property. The appellant, M/s. Krish Corporation, was accused of renting out shops and collecting rent in cash, leading to a service tax demand of Rs. 72,61,747. The appellant contested the method of calculation and the imposition of penalties. The revenue relied on oral statements of tenants and failed to provide substantial documentary evidence to support the tax demand.The Tribunal emphasized that while admissions are important, they are not conclusive evidence, and the burden of proof lies with the Revenue. The Tribunal noted that the Revenue failed to corroborate the oral statements with tangible evidence, such as cash receipts or financial records. The Adjudicating Authority did not follow the examination requirements of witnesses, rendering the quantification of the tax demand unsustainable.The Tribunal found that the Revenue did not consider crucial facts while calculating the tax liabilities, such as verifying the details of rent received, occupancy periods, and rental agreements. Consequently, the Tribunal reduced the service tax demand to Rs. 17,82,992 based on the appellant's rent details and the lack of concrete evidence provided by the Revenue.Regarding penalties, the Tribunal acknowledged that the appellant had paid the service tax before the show cause notice was issued, indicating no mala fide intent. Thus, the penalties imposed by the Adjudicating Authority were set aside, and the appellant was granted the benefit of Section 80. Additionally, the Tribunal cited a judgment prohibiting the simultaneous imposition of penalties under Section 76 and 78, further impacting the penalty aspect of the case.In conclusion, the Tribunal partially allowed the appeal, modifying the impugned order to reduce the service tax demand and set aside the penalties imposed by the Adjudicating Authority. The judgment highlighted the importance of substantiating tax demands with documentary evidence and following proper examination procedures in tax matters.