Service tax on premature invoices rejected where works contract service never materialised and no suppression was proved

Service tax was held not leviable merely because invoices were raised before completion of a works contract service where the project had not materialised, the recipient had not accepted the service, and no payment had been received. Rule 4A of the Service Tax Rules requires invoicing after completion of taxable service or receipt of payment, and the charging provisions were treated as inapplicable on these facts. The extended period under the proviso to Section 73(1) was also found unsustainable because the amounts were recorded in the books and no suppression or intent to evade tax was established; the related penalties under Sections 77 and 78 likewise could not survive.

---

---

Issues: (i) Whether service tax was chargeable on invoices issued before completion of works contract services when the service recipient's project had not materialised and no payment was received; (ii) Whether invocation of the extended period and penalties was sustainable in the absence of suppression or intent to evade tax.

Issue (i): Whether service tax was chargeable on invoices issued before completion of works contract services when the service recipient's project had not materialised and no payment was received.

Analysis: Rule 4A of the Service Tax Rules, 1994 requires an invoice to be issued after completion of taxable service or receipt of payment, whichever is earlier. The invoices in question were treated as not representing completed services because the project had stalled and the recipient had not accepted the services or made payment. In the absence of completed service, the charging provisions under Section 66B of the Finance Act, 1994 and the statutory definition of service under Section 65(44) of the Finance Act, 1994 were held not to support levy merely on the basis of invoices raised.

Conclusion: Service tax was not chargeable on the invoices issued in these circumstances, and the demand was unsustainable.

Issue (ii): Whether invocation of the extended period and penalties was sustainable in the absence of suppression or intent to evade tax.

Analysis: The records showed that the amounts were reflected in the books of account and balance sheet, the recipient had not paid, and the dispute was already visible from the surrounding facts. On that basis, the ingredients of suppression of facts and intent to evade tax required for the proviso to Section 73(1) of the Finance Act, 1994 were not established. Once the demand itself could not survive, the consequential penalties under Sections 77(1), 77(2) and 78 of the Finance Act, 1994 also could not be sustained.

Conclusion: The extended period and penalties were not sustainable.

Final Conclusion: The demand of service tax was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Service tax cannot be levied merely on invoices raised before completion of service where the service itself has not materialised, and the extended period and penalty provisions cannot be invoked without proved suppression or intent to evade tax.

---