CESTAT quashes SCN on Absence of Gist of Allegations for Raising Service Tax Demand on RCM basis [Read Order]

The New Delhi Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT), quashed a show cause notice (SCN) on absence of gist of allegations for raising service tax demand on Reverse Charge Mechanism (RCM) basis.

The appellant, M/s. M.P. Audyogik Kendra Vikas Nigam, is having service tax registration and is engaged in providing taxable services under the category of renting of immovable properties, manpower supply services, legal professional, consultancy and rent-a-cab services etc.

Without considering the clarifications given by the appellant, a show cause notice was issued invoking the extended period of limitation alleging that the appellant has not paid service tax under the reverse charge mechanism, as there is apparent difference between the balance sheet figure of expenses and the amounts shown in the ST-3 Returns. A second show cause notice was also issued.

Counsel appearing for the appellant, stated that the impugned order is non-speaking and unreasoned. The whole demand is bad as the same has been confirmed without making a proper verification with respect to the facts on record.

The counsel further argued that the show cause notice has been evidently issued by looking at the apparent difference of the expenses under the security and manpower head and professional services head, as compared to the amount offered for tax in the ST 3 returns (on RCM basis). Such approach is totally illegal and unknown to the process of assessment.

The Counsel further urged that admittedly the appellant have maintained proper records of the transactions, books of accounts in the ordinary course of business. Further, admittedly, the appellant has filed their periodical ST-3 returns regularly.

A Single Bench of the Tribunal comprising Anil Choudhary, Member (Judicial) “I find that the show cause notice does not contain the gist of allegations for raising the demand on RCM basis. The provisions of service tax read with the rules thereunder do not provide for raising of demand on the basis of apparent difference in the figure of expenses in the balance sheet and the amount offered for service tax in the ST-3 Returns.”

“This court takes judicial notice that the demand under service tax on reverse charge mechanism, has to be worked out and calculated transaction wise-wise and invoice-wise. In absence of such exercise, I find that the show cause notice is vague and fit to be held misconceived and mis-directed” the Bench noted.

To Read the full text of the Order CLICK HERE

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