2026 (3) TMI 198 - AT - Service Tax

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; ... Eligibility 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 - extended period of limitation - suppression of facts - Imposition of penalty - invoice showing tax separately - payment with interest prior to show cause. Cum-tax valuation under Section 67(2) - Whether the appellant could claim cum-tax benefit when invoices separately showed service tax but the tenant did not pay the tax. - HELD THAT: - The Tribunal found that the invoices issued by the appellant expressly showed service tax separately and, therefore, non-payment of the tax by the tenant did not absolve the appellant of liability to discharge service tax. The appellant could have resorted to debit/credit note or other lawful recovery mechanisms but could not treat the separately shown tax as not payable. The Tribunal distinguished the precedents relied upon by the appellant on facts, noting those cases did not involve invoices showing separate tax components. Consequently the demand for tax on the gross amount as reflected in the invoices was held to be sustainable and the duty along with interest was upheld. [Paras 2, 3, 8] Demand of service tax on the gross amount shown in the invoices is upheld. Penalty under Section 78 and relief under Section 80 - HELD THAT: - The Tribunal recorded that the appellant had paid the differential duty with interest before issuance of the show-cause notice and that the appellant's conduct, including payment before adjudication and financial difficulties arising from non-receipt from service recipients, established bonafide. Taking these facts into account and the appellant's plea under the relevant provisions, the Tribunal exercised its discretion under the statutory scheme to grant relief: the adjudicated demand of duty with interest was maintained, but the balance penalty under the relevant provision was set aside by applying the benefit envisaged by Section 80. [Paras 9, 10] Duty and interest upheld; balance of penalty set aside and relief granted under Section 80. Final Conclusion: The appeal is partly allowed: the demand of service tax for the period 01.10.2012 to 31.03.2014 is sustained (tax and interest payable), but having regard to payment of duty and interest prior to the show-cause notice and the appellant's bonafide, the balance penalty is set aside under the statutory provision; consequential relief, if any, to follow in accordance with law. 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.