CESTAT sets asides Demand of Service Tax based on Expected Revenue and Expenses and not on Actual amounts realized [Read Order]

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata has set-asides demand of service tax based on expected revenue and expenses and not on actual amounts realized.

The appellant, M/s SPML Infra Limitedis providing services under the taxable category of Maintenance and Repair Services, Erection, Commissioning or Installation Services, Construction of Residential Complex Services, Work Contract Services, etc.During the audit of the records of the appellant, it was observed that the appellants had not paid the service tax dues and the adjudicating authority issued a show cause notice and demanded the amount.

The counsel for the appellant submitted that the entire demand has been based on the entries recorded in the book of accounts toward the expected revenue and expense recognition and not based on the actual amounts realized against the contracts undertaken by the appellant.The Service tax is paid based on the revenue realized towards the provision of the taxable services and not based on the revenue recognition.

The Tribunal observed that the impugned order does not point out a single case whereby the amounts realized by the appellant against any of the projects undertaken by the appellant were not reflected in their ST-3 return.In case the revenue realized against the project is not reflected in the service tax returns filed over the period, then only revenue demand can be sustained otherwise the demand needs to be set aside.

The Coram of Mr. Sanjiv Srivastava, Technical Member, and Mr. P. Dinesha, Judicial Member has held that “in our view, the entire demand is for the period of the running contracts during the period 2008 to 2012 and would have been completed by now. Revenue should reconcile the revenue realized contract wise, with the service tax return, and if they’re all the revenues realized either as advance or on the completion of the contract can be reconciled with the ST-3 returns then demands need to be set aside or restricted to the unexplained amounts realized and not reflected in the ST-3 return. With the above observation, we remand the matter to the original authority for reconciliation”.

Mr. Bhaskar Thakkar, Chartered Accountant appeared for the appellant and Mr. J Chattopadhyay appeared for the revenue.

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