2025 (12) TMI 713 - AT - Service Tax

Service tax on commission under Business Auxiliary Service remanded for fresh review post Point of Taxation Rules, 2011

The CESTAT set aside the order confirming differential service tax under Business Auxiliary Service for the period October 2004 to March 2009 and remanded ... Recovery of differential service tax under Business Auxiliary Services - difference in actual commission received and the amount declared as taxable income in ST-3 returns pertaining to the period from October 2004 to March 2009 - HELD THAT:- The appellant has stated that as per the legal position, till the introduction of Point of Taxation Rules 2011 on 31.03.2011 and the resultant changes made in the Service Tax Rules, 1994, the taxpayer was only required to pay the tax on the actual value collected and not on the value billed or accrued. From the Order it is seen that while it was for the appellant to show that this was the factual position as entered in their accounts, they could not produce any material evidence showing the difference was on account of the different methods of accounting between the Service Tax and Income Tax laws. It appears that they have instead agreed to pay the duty and interest which led to the Original Authority recording the same and confirming the amount. It does not appear that the Original Authority has made a mistake in recording the acquiescence as the appellant has not filed an application for rectification of mistake before the said Authority or even resiled on that position before the Commissioner Appeals. Averments grounded on relevant facts and supported by appropriate case law, presented in a dignified and measured language, are without doubt more persuasive and credible than relying on rhetoric or attempting to obscure weak arguments or hide facts by immoderate language against the earlier authorities when litigating the matter up the appeal ladder. It is found that the appellant has now resiled from their earlier position of acquiescence. Hence issues of fact and law, which were not examined earlier due to the appellant accepting to pay duty and the perceived lack of supporting evidence, needs to be addressed. The matter hence needs to be examined afresh. The appellant too may take this opportunity to put forward evidence in support of their submissions including the Chartered Accountants Certificate. The matter is remanded back to the file of the Original Authority for fresh disposal in accordance with law - appeal disposed off by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the differential demand of service tax under 'Business Auxiliary Service' based on discrepancy between ST-3 returns and profit and loss account was sustainable when the assessee claimed difference in accounting methods (receipt basis vs accrual basis) supported by Chartered Accountant certificates. 1.2 Effect of the assessee's acceptance/acquiescence before the original authority to pay the differential tax and interest, and its subsequent attempt to resile from that position in appeal. 1.3 Appropriate appellate response when pleadings contain intemperate allegations of bias and non-application of mind against quasi-judicial authorities, and guidance on limits of professional advocacy. 1.4 Whether the matter required remand for de novo adjudication with opportunity to adduce evidence on accounting treatment and taxability for the disputed period. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Differential demand of service tax based on discrepancy between ST-3 returns and financial statements Legal framework (as discussed): 2.1.1 The assessee was registered under 'Business Auxiliary Service', including 'commission agent' as defined in section 65(19) of the Finance Act, 1994. The demand arose on commission received from the principal for the period October 2004 to March 2009. 2.1.2 The assessee contended that, till the introduction of the Point of Taxation Rules, 2011 and corresponding amendments in the Service Tax Rules, 1994, liability was on amounts actually collected (receipt basis) and not on amounts billed or accrued, whereas under the Income-tax Act, they followed mercantile (accrual) system, resulting in differences between financial statements and ST-3 returns. Interpretation and reasoning: 2.1.3 The original authority computed tax liability relying on the assessee's profit and loss account and ST-3 returns as 'reliable records', rejecting subsequent Chartered Accountant certificates on the ground that no material evidence was produced to explain the difference between those records and the certificates, other than a general claim regarding accrual basis. 2.1.4 The Tribunal noted that it was for the assessee to demonstrate, by evidence, that the discrepancy between the financial accounts and ST-3 returns was due to different methods of revenue recognition under Service Tax and Income Tax laws. The Tribunal found that, at the original stage, such material evidence was not produced, and instead the assessee had agreed to pay the duty and interest, leading to confirmation of demand. 2.1.5 In the appeal before the Tribunal, the assessee raised the accounting-method argument and relied upon Chartered Accountant certificates, contending that the authorities had failed to appreciate differences in statutory recognition of income and that suppression and extended period were not justified. The Tribunal observed that these issues of fact and law had not been examined earlier because of the assessee's recorded acceptance of liability and the perceived lack of supporting evidence at that stage. Conclusions: 2.1.6 The Tribunal did not affirm or negate the substantive tax demand on merits. It held that, as the assessee had now resiled from its earlier acquiescence and sought to substantiate the accounting-method difference with evidence, the factual and legal issues underlying the differential demand required fresh examination. 2.1.7 The impugned order was set aside and the matter remitted to the original authority for de novo adjudication, with specific liberty to the assessee to place evidence, including Chartered Accountant certificates, to explain the discrepancy and support its contentions on taxability. 2.2 Effect of prior acceptance of liability and principle of 'clean hands' in appellate proceedings Interpretation and reasoning: 2.2.1 The original authority recorded that the assessee 'accepted the contention in the notice and agreed to pay the difference in tax with interest'; this was also noted by the first appellate authority. The departmental representative highlighted this recorded acceptance; the assessee did not dispute that such a recording existed and had not sought rectification before the original authority or specifically challenged that finding before the first appellate authority. 2.2.2 The Tribunal found no indication that the original authority had erred in recording such acquiescence, particularly as no rectification application or explicit retraction had been made at earlier stages. 2.2.3 The Tribunal observed that the assessee had not disclosed this earlier acceptance upfront in the present appeal and that it was left to the departmental representative to bring it to notice. Referring to the principle that a litigant must approach the court with clean hands, as enunciated by the Supreme Court in S.P. Chengalvaraya Naidu v. Jagannath, the Tribunal criticised the lack of candour. Conclusions: 2.2.4 While expressing concern over the appellant's conduct and lack of frank disclosure, the Tribunal did not dismiss the appeal solely on this ground. Instead, it allowed the assessee to resile from its earlier acceptance and ordered de novo adjudication, but with a clear reminder that a party seeking equitable relief must be forthright and transparent. 2.3 Professional conduct, language in pleadings, and limits of advocacy Legal framework (as discussed): 2.3.1 The Tribunal referred to observations of the Supreme Court in D.P. Chadha v. Triyugi Narain Mishra, emphasising that while an advocate may act fearlessly and boldly to advance a client's cause, such advocacy must remain within the bounds of propriety, repute and justness, and need not involve appeasing the court by unwarranted concessions. Interpretation and reasoning: 2.3.2 The Tribunal examined specific paragraphs of the appeal memorandum and the synopsis, where the quasi-judicial authority was described as 'biased', 'unfair', having 'gross error and injustice', 'sheer revenue bias', and 'exposes the clear bias and prejudice', and where orders were characterised as 'unfair, unfounded, unjust, misconceived'. 2.3.3 The Tribunal considered such language as immoderate, disrespectful, and unbecoming, especially when directed at authorities holding significant quasi-judicial responsibility. It noted that use of such rhetoric cannot compensate for weak factual or legal positions and detracts from the persuasiveness and credibility of submissions. 2.3.4 The Tribunal recalled its earlier counsel for restraint in language in another final order, observing that this guidance had not been heeded. It reiterated that dignified, measured language, grounded in facts and supported by case law, is the correct approach in appellate advocacy. Conclusions: 2.3.5 The Tribunal issued a clear caution to the appellant and counsel, expressing hope that the Supreme Court's guidance in D.P. Chadha would be treated as educative and that prudence and restraint would prevail in future pleadings. 2.3.6 No punitive action was taken in the present appeal solely for the use of such language; the matter was addressed as a serious admonition and guidance on the proper limits of professional conduct before quasi-judicial forums. 2.4 Direction for remand and scope of de novo adjudication Interpretation and reasoning: 2.4.1 In view of the assessee's current stance disputing the differential demand and attributing discrepancies to differing accounting bases, coupled with its willingness to produce supporting evidence (including Chartered Accountant certificates), the Tribunal held that the issues of fact and law were not adequately examined earlier and therefore required reconsideration. Conclusions: 2.4.2 The impugned appellate order was set aside and the matter remitted to the original authority for fresh disposal in accordance with law. 2.4.3 The original authority was directed to: (a) Grant reasonable opportunity of personal hearing to the assessee. (b) Allow submission and examination of all evidence in favour of the assessee, including Chartered Accountant certificates and any materials explaining the accounting treatment and differences between tax returns and financial statements. (c) Pass a de novo order after such examination, within 90 days of receipt of the Tribunal's order, subject to the assessee's cooperation. 2.4.4 All contentions of both sides on facts and law were expressly kept open, and the assessee was held entitled to consequential relief, if any, as per law, depending on the outcome of the de novo adjudication.