2009 (9) TMI 529 - AT - Service Tax

CESTAT overturns Appeals Commissioner decision, remands case for re-determination of Service tax amount.

The Appellate Tribunal CESTAT, New Delhi, set aside the Commissioner (Appeals) order and remanded the case for re-determination of the Service tax amount. ... Taxing event for service tax is provision of the taxable service - rate of service tax is determined by the rate in force on the date the taxable event occurs - Rule 6(1) of the Service Tax Rules, 1994 - tax liability payable on receipt of payment - exclusion of amounts relating to services provided prior to an exemption effective date - small service provider exemption under Notification No. 6/05-S.T. - exemption under Notification No. 13/2003-STTaxing event for service tax is provision of the taxable service - exclusion of amounts relating to services provided prior to an exemption effective date - exemption under Notification No. 13/2003-ST - Whether payments outstanding as on 9-7-04 for services provided prior to 9-7-04 could be included in the assessable value for service tax - HELD THAT: - The Tribunal held that the liability to pay service tax arises on the date the taxable service is provided and not on the date of raising invoice or receipt of payment. Applying the principle recognised by the Gujarat High Court in Schott Glass India Pvt. Ltd., where a service was provided while it was exempt, no service tax can be levied merely because invoice issuance or payment occurred after the exemption ceased to operate. The court distinguished the timing of liability from the mechanics of payment under Rule 6(1) of the Service Tax Rules, 1994, explaining that although Rule 6(1) prescribes the time for payment (by the 5th of the month following the month in which payment is received), the applicable rate and exemption status are determined by the date the taxable event occurred. Consequently, amounts outstanding as on 9-7-04 in respect of services rendered prior to 9-7-04 (when the service was exempt under Notification No.13/2003-ST) cannot be included in the assessable value for service tax. [Paras 3]Payments outstanding as on 9-7-04 for services provided prior to that date are not taxable and must be excluded from the assessable value.Rule 6(1) of the Service Tax Rules, 1994 - tax liability payable on receipt of payment - small service provider exemption under Notification No. 6/05-S.T. - Whether the demand should be requantified and whether the appellant can have the claim of small service provider exemption considered afresh - HELD THAT: - The Tribunal accepted that, while liability arises on provision of service, Rule 6(1) governs the timing of payment which affects quantification. Given the appellant's contentions that the department's computation included amounts not taxable and that the appellant may be entitled to the small service provider exemption under Notification No.6/05-S.T.-a legal point not earlier examined by the adjudicating authority-the matter requires de novo consideration. Accordingly, the Tribunal set aside the impugned order and remanded the matter to the original adjudicating authority for re-determination of the service tax quantum, directing that the authority exclude amounts attributable to services provided prior to 9-7-04 and consider any legitimate claim to the small service provider exemption during the fresh adjudication. [Paras 3, 4]The demand is to be requantified and the matter remanded to the original adjudicating authority for de novo proceedings, including consideration of the small service provider exemption.Final Conclusion: The impugned order is set aside; the matter is remanded to the original adjudicating authority for re-quantification of service tax excluding amounts for services provided prior to 9-7-04 and for fresh consideration of any claim under Notification No.6/05-S.T., with payment timing to be governed by Rule 6(1) for computation purposes. The Appellate Tribunal CESTAT, New Delhi, under the representation of Shri Sudhir Malhotra Advocate, considered a case where the appellant provided taxable service of Business Auxiliary Service as a commission agent. The service provided was exempt from Service tax under Notification No. 13/2003-ST until 9-7-04. An SCN was issued on 19-6-07 for recovery of Service tax on non-paid tax amounting to Rs. 2,13,7861, along with interest and penalties. The appellant argued that the assessable value for charging Service tax should exclude amounts billed but not received and outstanding amounts prior to 9-7-04. The appellant also claimed eligibility for small service provider exemption under Notification No. 6/05-ST. The Commissioner (Appeals) upheld the original order, but the Tribunal set it aside, remanding the matter for re-determination of the Service tax amount, considering the appellant's arguments and eligibility for exemption. The Tribunal emphasized that Service tax liability arises when the taxable service is provided, not when the payment is received, and that the rate applicable is that in force when the taxable event occurs. The appellant was given the opportunity to raise any legal points during the new proceedings.