Allegation of Wrong Availment of Exemption by Abatement under Exemption Notification: CESTAT sets aside Demand of Service Tax in Absence of  Misdeclaration [Read Order]

The Chennai bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) sets aside the demand of Service Tax in the absence of misdeclaration on the allegation of wrong availment of exemption by abatement under exemption notification.

The Revenue entertained a doubt that the appellant, M/s. Sundharams Private Limited for the period from July 2012 to June 2017, had paid Service Tax on “renting of motor vehicle” @ 40% of the taxable value after availing abatement of 60% under Sl. No. 9 of Notification No. 26/2012-ST dated 20.06.2012 formed an opinion that the said abatement availed by the appellant was not as per the requirement of the said Notification.

Since the abatement was available to a person - availing full CENVAT Credit of such input services received from a person who is paying tax on 40% of the value - or up to 40% CENVAT Credit of such input service received from a person who is paying Service Tax on the full value, and no CENVAT Credit on input services other than those specified above is taken under the provisions of the CENVAT Credit Rules, 2004.

In the Show Cause Notice, it was alleged that the appellant was availing CENVAT Credit on the input services, though it had not fulfilled the conditions prescribed under the said Notification and therefore, the assessee was ineligible to avail the abatement provided under the said Notification for the period from July 2012 to June 2017, and that the assessee was consequently liable for payment of Service Tax on the entire taxable value without abatement in terms of Section 67 of the Finance Act, 1994.

The demand was quantified at Rs.36,16,412/- for the wrong availment of the exemption, using abatement under the above Notification. It was thus pointed out in the Notice that but for the audit team finding out the wrong availment of abatement and consequent short payment of Service Tax, the same would have gone unnoticed and therefore the assessee had deliberately mis-declared material facts with an intent to evade payment of correct Service Tax.

The appellant submitted that it did not avail any CENVAT Credit either on inputs or input services or even capital goods about renting of motor vehicle services rendered by it. Hence, there is a clear violation of the principles of natural justice in not putting the appellant to notice as to what amount of CENVAT Credit it had availed of while providing the services of renting motor vehicles.

The issue of abatement is an indirect way of granting exemption to the extent prescribed in the statute and abatement is not normally denied on mere surmises or any allegation of insufficient credit, considering the scheme of CENVAT Credit. But in any case, the Notification granting the benefit of abatement does not exempt wholly or partially the rate of tax and therefore, no such rigorous exercises are required to be employed, unlike in cases of exemption notifications. That is to say, the abatement Notification merely sanctifies the deduction in the assessable value of taxable services, the availment of CENVAT Credit is a caveat for eligibility to claim abatement. 

A perusal of the Show Cause Notice reveals that “the assessee has not furnished the correct taxable value in the statutory ST-3 returns filed with the Department and the wrong availment of abatement under Notification No. 26/2012-ST dated 20.06.2012 came to light only upon audit of accounts ….. But for the audit team finding out the wrong availment of abatement and short payment of Service Tax the same would have gone unnoticed…”

A two-member bench comprising Mr P Dinesha, Member (Judicial) and Mr Vasa Seshagiri Rao, Member (Technical) has observed that the claim of abatement available in the S.T.-3 returns which were only sought to be denied and that per se would not amount to misdeclaration because the appellant claimed the abatement based on its understanding of the law and the authority chose to deny the same perhaps giving a different interpretation of the Notification.

While allowing the appeal, the CESTAT set aside the impugned order and allow the appeal with consequential benefits, if any, as per law.

To Read the full text of the Order CLICK HERE

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