2025 (3) TMI 1400 - AT - Service Tax

Service tax demand based on Balance Sheet turnover unsustainable without proper investigation, all penalties set aside

M/s Prithvee Propmart Pvt. Ltd. Versus Commissioner of Central Goods & Services Tax, Gautam Budh Nagar

M/s Prithvee Propmart Pvt. Ltd. Versus Commissioner of Central Goods & Services Tax, Gautam Budh Nagar - TMI ISSUES PRESENTED and CONSIDEREDThe Tribunal considered six principal issues:(i) Whether the demand notice is justified under the proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns.(ii) Whether the demand of Service Tax based on figures of turnover in Balance Sheets is legally correct.(iii) Whether the demand of Service Tax on services covered under Reverse Charge Mechanism (RCM) is justified when the same is claimed as CENVAT credit by the Appellant.(iv) Whether the demand of inadmissible credit in respect of services, said not to be input services, is justified.(v) Whether penalty under Section 78 is imposable.(vi) Whether personal penalty on Shri Shailendra Sharma, Assistant Vice President, is justified.ISSUE-WISE DETAILED ANALYSISIssue No. (i): Demand Notice JustificationThe Court examined the applicability of Section 73(1B) of the Finance Act, 1994, which states that no notice of demand is required if the tax is self-assessed and declared in returns. The Tribunal found that the Appellant had self-assessed and declared the tax liabilities in the ST-3 returns before the issuance of the Show Cause Notice (SCN). The issuance of the SCN for recovery of self-assessed tax was deemed unwarranted and legally incorrect. Consequently, no demand of interest under Section 75 was justified.Issue No. (ii): Demand Based on Balance SheetsThe Tribunal noted that the turnover in the Balance Sheets included the sale value of flats sold by the Appellant in its own account, which is not subject to service tax under Section 66B of the Finance Act, 1994. The service tax was only applicable to the commission earned on sales for other builders. The demand based on the turnover in Balance Sheets was found to be incorrect and unsustainable, as it did not account for the nature of the transactions.Issue No. (iii): Demand on Services under RCMThe Tribunal highlighted that the services in question were input services eligible for CENVAT credit. It was a case of revenue neutrality, as any service tax paid could be claimed back as credit. The demand was not sustainable due to the principle of revenue neutrality, supported by precedents from the Supreme Court.Issue No. (iv): Inadmissible Credit for Input ServicesThe Tribunal analyzed the definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, which includes services used for providing output services and activities related to business. The services in question, such as hotel rent, building rent, air ticket booking, and catering, were found to be related to the Appellant's business activities and thus qualified as input services. The credit availed was deemed admissible.Issue No. (v): Imposition of Penalty under Section 78The Tribunal found that since there was no requirement to issue a notice under Section 73, the imposition of penalty under Section 78 was not warranted. The Tribunal referenced previous decisions where penalties were not imposed if the service tax was deposited before the issuance of the SCN.Issue No. (vi): Personal Penalty on Shri Shailendra SharmaThe Tribunal referred to Section 78A of the Finance Act, 1994, which penalizes directors or officers of a company for certain contraventions. In this case, no evasion of service tax, issuance of fake invoices, or wrong availment of credit was established. Therefore, no personal penalty was justified.SIGNIFICANT HOLDINGSThe Tribunal set aside the impugned Order-in-Original, allowing the appeal with consequential relief. The key principles established include:- Self-assessed tax liabilities declared in returns do not warrant an SCN under Section 73.- Service tax demands based on Balance Sheet figures require thorough investigation to establish liability.- Revenue neutrality precludes sustainable demands for differential duty.- Services related to business promotion and operations qualify as input services for CENVAT credit purposes.- Penalties under Section 78 are not applicable if tax is paid before SCN issuance, and personal penalties require clear contraventions.