2025 (11) TMI 1275 - AT - Service Tax

Service Tax Demands Quashed for Lack of Proof of Security Services, Suppression; Reverse Charge Already Discharged by Assessee

CESTAT set aside the service tax demands raised on the appellant. It held that the department failed to discharge its burden to prove that the appellant ... Failure to pay service tax - security detective agency services or not - it is ignored that appellant was rather the service recipient of those services as have been wrongly alleged to be the services rendered by the appellant - appellant did not explain the nature of their income from magazines/ newspapers/ advertisement - burden on Revenue to prove - HELD THAT:- At the stage of search itself it was found that the appellant and its group companies are engaged in publishing newspapers and monthly journals and also in organising events and exhibitions. Voluminous documents with respect to balance sheets, accounts of sale newspapers and periodicals etc., accounts of advertisement with view sample bills and that of subscriptions/ contributions along with Profit & Loss account were duly submitted by the appellant for the disputed period - The burden was upon the department to prove the allegations but if stands undischarged. These facts were brought to the notice of the adjudicating authorities but have miserably being ignored. Confirmation of demand contrary to the statutory mandate amounts to illegality and, accordingly, is liable to be set aside. Finally, it is observed that the impugned demand is based on appellants’ own documents recovered at the time of search of their premises. Nothing, in addition, has been unearthed by the department. The appellant has been discharging service tax on business exhibition services and has also been discharging the liability of tax under Reverse Charge Mechanism in terms of Notification No.30/2012 dated 20.06.2012 for receiving Security Detective Agency services. It is held that there is nothing on record which may be called as the wilful suppression of facts on part of appellant that too with an intent to evade the payment of service tax - The demand confirmed based upon such show cause notices is definitely liable to be set aside. Both the impugned orders in both the appeals are, hereby, set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant rendered Security/Detective Agency services and Business Exhibition services for the periods in dispute such that service tax demand can be sustained. 2. Whether ST-3 returns filed under Reverse Charge Mechanism (RCM) establish that the appellant was a service recipient (not provider) for Security/Detective Agency services and thus negate the demand treating the appellant as service provider. 3. Whether the appellant's activities (publishing newspapers/periodicals, subscriptions, sale of advertising space, sale of data) are taxable services or fall within the negative list under section 66D of the Finance Act read with applicable notifications. 4. Whether the extended period of limitation could be invoked-i.e., whether there was wilful suppression or deliberate withholding of information by the appellant to justify invocation of extended limitation period. 5. Whether the department discharged its burden to prove that the appellants supplied the contested taxable services beyond what was reflected in the documents recovered at search. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of services rendered (Security/Detective Agency services and Business Exhibition services) Legal framework: Liability for service tax depends on characterization of activity as a taxable service under the Finance Act; determination rests on nature of activity and documentary/material evidence. Precedent Treatment: The Tribunal applied recognized principles that the burden to prove the nature of activity lies on the department when allegations are contrary to the documents on record (referencing controlling authorities invoked by the Court for limitation and burden principles). Interpretation and reasoning: The adjudicating authorities relied on ST-3 returns which allegedly categorized services as Security/Detective Agency and Business Exhibition services. The Tribunal examined the underlying documents recovered at search, statements, balance sheets, sample bills, subscription records, advertisement accounts and profit & loss accounts. The Tribunal found voluminous documentary evidence showing core business as publishing newspapers/periodicals, subscriptions, sale of advertising space, and sale of data; there was no independent material on record to prove that the appellant supplied Security/Detective Agency services. The ST-3 returns, on scrutiny, showed payment of service tax under RCM for Security/Detective Agency services, indicating receipt rather than provision of such services. Ratio vs. Obiter: Ratio - where documentary record contemporaneous with the period of dispute establishes nature of activity inconsistent with adjudicator's finding, the demand for that alleged service cannot be sustained. Obiter - none material beyond the applied reasoning. Conclusion: The Tribunal concluded the appellant was not proved to be the provider of Security/Detective Agency services; the adjudicated finding that the appellant rendered such services is falsified by the returns and contemporaneous records and therefore cannot sustain the demand. Issue 2 - Effect of ST-3 returns filed under Reverse Charge Mechanism Legal framework: Returns indicating tax payment under Reverse Charge Mechanism (section 68(2) of the Finance Act and relevant notifications) are prima facie evidence that the assessee is a service recipient for the specified service; such characterization is material to determine provider/recipient status for liability. Precedent Treatment: The Tribunal relied on established treatment that classification and entries in statutory returns, when indicating RCM payment, must be given effect to unless rebutted by cogent contrary material. Interpretation and reasoning: The Tribunal examined Column A10 of ST-3 returns and observed clear entries showing tax on Security/Detective Agency services paid under RCM. Thus, the appellant was the recipient of those services. The adjudicating authority's reliance on those returns as evidence of appellant being the service provider was a misreading of returns. No additional material was produced to rebut the returns' indication of recipient status. Ratio vs. Obiter: Ratio - ST-3 returns showing RCM payment are decisive evidence of recipient status and cannot be treated as proof of provider status without independent rebuttal. Conclusion: The returns established the appellant as service recipient for Security/Detective Agency services, undermining the departmental finding that the appellant rendered those services; therefore, the demand based on provider characterization is invalid. Issue 3 - Taxability of publishing, subscriptions, advertisement sales and data-supply activities (negative list) Legal framework: Services falling within the negative list under clause (e) and (g) of section 66D of the Finance Act read with Notification No.19/2012-ST are not taxable; classification of appellant's activities must be tested against statutory negative list. Precedent Treatment: The Tribunal applied the statutory negative list and relevant notification to classify the nature of services actually provided by the appellant as disclosed in its books and documents. Interpretation and reasoning: The Tribunal found from voluminous records that the appellant provided publishing of newspapers and periodicals, subscriptions, sale of advertising space and sale of data. These activities correspond to items covered by the negative list (clauses (e) and (g) of section 66D and the cited notification), rendering them non-taxable services for the periods in dispute. The adjudicating authorities were aware of these facts (including explicit recordation in the original order that the appellant was engaged in publishing) yet still confirmed the demand - a confirmation inconsistent with statutory mandate. Ratio vs. Obiter: Ratio - activities of publishing newspapers/periodicals, subscriptions, sale of advertising space and sale of data, as identified on the record, fall within the negative list and are not taxable; a demand contrary to that statutory classification is illegal. Conclusion: The Tribunal held that the appellant's core activities were non-taxable under the negative list; confirmation of demand contrary to that classification is illegal and liable to be set aside. Issue 4 - Applicability of extended period of limitation (wilful suppression) Legal framework: Extended limitation applies only where there is conscious or deliberate withholding/suppression of material facts amounting to evasion; mere inaction or absence of disclosure is insufficient. Department must demonstrate positive act of suppression beyond mere filing positions. Precedent Treatment: The Tribunal applied the principle that extended limitation requires something positive other than mere inaction; where the department had full knowledge or the assessee reasonably believed disclosure was not required, only the normal period applies. Interpretation and reasoning: The Tribunal found nothing on record beyond documents recovered at search and the appellant's own returns; the appellant had disclosed publishing activities repeatedly (in search records, statements and defence). The appellant also paid tax under RCM where applicable and discharged business exhibition tax liability where relevant. No material demonstrated conscious or deliberate withholding with intent to evade tax. The department unearthed no additional incriminating material beyond what was on record, so extended limitation was not justified. Ratio vs. Obiter: Ratio - extended period cannot be invoked absent proven positive suppression or concealment; where records disclose the activities and no evasion is shown, normal limitation applies. Conclusion: Extended limitation was not invokable; show cause notices issued invoking extended limitation were time barred and demand confirmed thereon had to be set aside. Issue 5 - Burden of proof and sufficiency of departmental case Legal framework: Department bears burden to prove allegations of taxable service provision and any evasion; mere commercial labels in returns do not suffice where contemporaneous records contradict departmental allegations. Precedent Treatment: The Tribunal reiterated that the department must discharge its burden by producing independent evidence beyond the assessee's returns, especially when returns indicate contrary positions (e.g., RCM) and when substantial documentary records show non-taxable activities. Interpretation and reasoning: The Tribunal noted that the demand was based solely on documents recovered at search and the appellant's ST-3 returns (which, on close reading, indicated recipient status and RCM payments). No independent evidence was produced to show that the appellant rendered the contested taxable services. The department failed to rebut the contemporaneous documentary record proving publishing and related non-taxable activities. Ratio vs. Obiter: Ratio - when the departmental case rests solely on the assessee's own documents that, properly construed, do not support the allegation, the department has not discharged its burden and the demand cannot stand. Conclusion: Department failed to discharge burden of proof to show that appellant supplied the contested taxable services or wilfully suppressed facts; demand could not be sustained. Overall Disposition On the combined analysis the Tribunal set aside the impugned orders and allowed the appeals: the appellant was found to be the recipient (not provider) for Security/Detective Agency services as per RCM entries; the appellant's core activities were non-taxable under the negative list; extended limitation could not be invoked for lack of wilful suppression; and the department failed to discharge its burden to show supply of the contested taxable services beyond the recovered records.