Burden Cast upon Department to show that Assessee Recovered Cost of Service Rendered: CESTAT quashes Service Tax Demand [Read Order]

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed service tax demand and ruled that the burden is cast upon the Department to show that assessee recovered cost of service rendered.

The department noted during audit of the appellant’s record for the period 4/2010 to 3/2015 from the scrutiny of profit and loss account that under the head of Sundry Debtors E-55, an amount pending against Government Debtors for canteen stall is Rs.11,12,48,118/- and Rs.2,20,73,890/- is in head of Private Debtors for casual contracts.

Had the audit not been conducted by the AG Audit, Jaipur, the fact of providing the taxable services and non-payment of service tax thereupon would not have come to the notice of the department and the liability of service tax would remain unearthed. Resultantly vide show cause notice service tax amounting to Rs.1,64,78,600/- was proposed to be recovered along with proportionate interest and the appropriate penalties.

The Counsel for the appellant has submitted that the appellant has been established by Government of Rajasthan on 1.10.1964 under the Road Transport Act 1950. It has 5000 buses in its fleet and 56 depots across the State and 3 depots outside the State, i.e. Indore, Ahmadabad and Delhi. The State Transport Corporation is defined under clause 42 of section 2 of Motor Vehicle Act, 1988 ‘any service given to the State Transport Undertaking by way of giving on hire of the Motor Vehicle amount to carry passengers or exempted from service tax merely for the reason the appellant is not a merely business entity.

The Departmental Representative mentioned that there is no infirmity in the Order under challenge. The appellant is a commercially interest driven authority irrespective it is State Transport Corporation. The activity of taking vehicles on hire is for commerce and industry use. The appellants are rightly held liable to pay the service tax under reverse charge mechanism. The appeal is prayed to be dismissed.

A Two-Member Bench comprising Dr Rachna Gupta, Judicial Member and Hemambika R Priya, Technical Member relied on the judgment in Indian Oil Sky Tanking Ltd. vs CST, Bangalore, wherein it was held that “Burden cast upon the department to show that the assessee has recovered the cost of service rendered. In the absence of such recovery, the question of levy of service tax does not at all arise. The book adjustment cannot be the ground to fix the liability.”

“In the present case, we observe that the Show Cause Notice as well as orders of the adjudicating authority have just appreciated the difference noticed between the amount mentioned in the profit and loss account and are mentioned in ST 3 returns of the appellant. Without appreciating the amount out of the impugned invoices to have been actually received by the appellant and without verifying as to whether the requisite services were finally being provided. Resultantly, we hold that order confirming such a demand is not sustainable” the Bench noted.

To Read the full text of the Order CLICK HERE

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