Invoice disclosure of tax bars claiming gross receipts as inclusive; pre notice payment with interest can avert penalty relief.

Where invoices expressly disclose service tax separately, a supplier cannot treat the gross receipt as inclusive of tax for claiming cum tax benefit; non-recovery from the recipient does not convert disclosed tax into part of the inclusive value, and demand for duty and interest on the gross amount is sustained. Conversely, payment of the differential duty with interest and filing of statutory returns before issuance of show cause notice, together with absence of deliberate suppression of facts, warrants relief from penalty and precludes invocation of the extended limitation for penalty purposes.

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Issues: (i) Whether the appellant is eligible for cum tax benefit under Section 67(2) of the Finance Act, 1994 when invoices show service tax separately but the tenant did not pay the service tax; (ii) Whether invocation of extended period of limitation and imposition of penalty is sustainable where duty along with interest was paid prior to issuance of show cause notice and there was no suppression of facts.

Issue (i): Whether the appellant can claim cum tax benefit under Section 67(2) of the Finance Act, 1994 though invoices issued by the appellant separately show service tax which the tenant did not pay.

Analysis: The Tribunal examined the invoices relied upon by the adjudicating authority which expressly showed service tax separately. It noted that where tax is shown separately in invoices, the service provider has the option to recover the tax component by debit note or other lawful recovery; mere non-receipt of the tax component from the recipient does not permit treating the gross amount as inclusive of tax. The Tribunal distinguished authorities relied upon by the appellant on facts where invoices did not separately disclose tax.

Conclusion: The appellant is not entitled to treat the gross amount as inclusive of service tax under Section 67(2) for the invoices that expressly showed service tax; demand of duty and interest on the gross amount is upheld (against the appellant).

Issue (ii): Whether the extended period of limitation and penalty are to be invoked where the appellant had paid duty with interest prior to issue of show cause notice and no suppression of facts is established.

Analysis: The Tribunal recorded that the appellant paid the differential duty along with interest before issuance of the show cause notice and had filed statutory returns; the conduct demonstrated bonafide, and there was no material to show deliberate suppression of facts. The adjudicating authority and Commissioner (Appeals) had noted prior payment and partial payment of penalty; taking these facts into account, the Tribunal considered provisions permitting mitigation of penalty.

Conclusion: Invocation of extended period of limitation and penalty is not sustained in the appellant's favour; the Tribunal set aside the penalty while upholding the duty and interest.

Final Conclusion: The appeal is partly allowed insofar as penalty is set aside; the demand of duty and interest as assessed is sustained. The decision confirms that where invoices expressly show service tax separately, non-receipt of the tax component from the recipient does not permit treating the gross amount as inclusive under Section 67(2), but payment of duty with interest prior to show cause may justify relief from penalty.

Ratio Decidendi: Where invoices expressly disclose service tax separately, the service provider cannot treat the gross amount as inclusive under Section 67(2) merely because the recipient did not pay the tax; however, payment of duty with interest prior to show cause notice and absence of deliberate suppression can justify setting aside penalty.

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