2025 (3) TMI 1348 - AT - Service Tax

Service tax cannot be charged on invoices issued before actual service completion under Rule 4A

M/s ATN Infratech Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Noida

The CESTAT Allahabad ruled that service tax cannot be charged merely on invoice issuance without actual service completion. The appellant provided real ... Recovery of service tax with interest and penalty - whether service tax would be charged simply on the basis of invoices issued or after completion of services? - HELD THAT:- The Appellant was providing “Real Estate Agent Service”. In the Service Tax Act which came into effect, after introduction of negative list concept, with effect from 01.07.2012, there was no definition of real estate agent. However, prior to negative list regime, real estate agent was defined under Section 65 (88) of the Finance Act, 1994 as a person who was engaged in rendering any service in relation to sale, purchase, leasing or renting of real estate. In common trade parlance also, real estate agent means a person who works with clients to help them buy, sale or rent real estate. It shows that service under the category of real estate agent service is completed when actual sale or purchase or rent of real estate had taken place. The invoice is required to be issued within 30 days after completion of the service or on receipt of payment towards value of taxable service. The important issue in this case is to ascertain whether the invoices were issued by the Appellant after completion of service or not. In this context, it is found that due to business closure of Amrapali Group of Companies, activities of sale, purchase could not take place. So, invoices issued by the Appellant cannot be treated proper invoice in terms of Rule 4(A) of the Service Tax Rules, 1994. For issuance of invoice, completion of service is an essential condition, which has visibly not taken place in this case. So, no service tax is chargeable on the basis of invoice which was issued before completion of work. When no demand is sustainable, imposition of any type of penalty is improper and unwarranted. Conclusion - Service tax is not chargeable on invoices issued without service completion, and demands cannot be based solely on ITR figures without verifying actual service provision. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment were:Whether service tax is chargeable on the basis of invoices issued by the Appellant, even if the services were not completed due to the bankruptcy of the service recipient.Whether the demand for service tax based on figures declared in the Income Tax Returns (ITR) without verification of the actual provision of services is valid.Whether penalties imposed under Sections 77(1)(c) and 78 of the Finance Act, 1994, are justified when the underlying service tax demand is disputed.ISSUE-WISE DETAILED ANALYSIS1. Chargeability of Service Tax on Invoices Issued Without Completion of ServicesRelevant Legal Framework and Precedents: The Finance Act, 1994, specifically under Section 65(44) and Section 66(B), defines service and the chargeability of service tax. Rule 4(A) of the Service Tax Rules, 1994, mandates the issuance of invoices after the completion of services.Court's Interpretation and Reasoning: The Tribunal noted that the definition and common understanding of a real estate agent involve the completion of a transaction, such as sale or purchase, which did not occur here due to the bankruptcy of the Amrapali Group.Key Evidence and Findings: The Appellant issued invoices for services that were not completed due to the service recipient's business closure, thus questioning the validity of these invoices under Rule 4(A).Application of Law to Facts: The Tribunal found that since the services were not completed, the invoices could not be considered proper under the Service Tax Rules, and hence, no service tax was chargeable.Treatment of Competing Arguments: The Department argued that service tax liability arises upon invoice issuance, but the Tribunal highlighted the necessity of service completion before such issuance.Conclusions: The Tribunal concluded that service tax is not chargeable on invoices issued without service completion.2. Validity of Service Tax Demand Based on ITR Figures Without Service VerificationRelevant Legal Framework and Precedents: The Tribunal referenced past decisions indicating that service tax demands cannot be based solely on ITR figures without verifying the actual provision of services.Court's Interpretation and Reasoning: The Tribunal emphasized that the mere declaration of figures in ITR does not constitute a valid basis for service tax demand without corroborating evidence of service provision.Key Evidence and Findings: The Appellant argued that the figures in the ITR represented potential income that was never realized due to the bankruptcy of the service recipient.Application of Law to Facts: The Tribunal applied the principle that service tax is chargeable on actual services rendered, not on anticipated income.Treatment of Competing Arguments: The Department's reliance on ITR figures was deemed insufficient without evidence of completed services.Conclusions: The Tribunal held that the demand based on ITR figures without service verification is unsustainable.3. Justification of Penalties Under Sections 77(1)(c) and 78Relevant Legal Framework and Precedents: Sections 77(1)(c) and 78 of the Finance Act, 1994, pertain to penalties for non-compliance and suppression of facts, respectively.Court's Interpretation and Reasoning: The Tribunal found that penalties are unwarranted when the foundational service tax demand is invalid.Key Evidence and Findings: Given the Tribunal's finding that no service tax was due, the basis for penalties was eliminated.Application of Law to Facts: The Tribunal noted that without a valid service tax demand, penalties under the cited sections could not be justified.Treatment of Competing Arguments: The Tribunal dismissed the Department's justification for penalties as the demand itself was invalid.Conclusions: The Tribunal concluded that penalties were improper and unwarranted.SIGNIFICANT HOLDINGSCore Principles Established: Service tax is not chargeable on invoices issued without service completion, and demands cannot be based solely on ITR figures without verifying actual service provision.Final Determinations on Each Issue: The Tribunal allowed the appeals, nullifying the service tax demands and associated penalties, providing consequential relief to the Appellant.