Confirmation of Service Tax Higher than Proposed Demand in SCN is Not Valid: CESTAT [Read Order]

The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that confirmation of service tax is higher than the proposed demand in the Show cause notice (SCN) is not valid.

Anil Mittal, the appellant, is an advocate and is providing legal sevices and has been earning income from renting of residential property as well as renting of commercial property. The appellant has been discharging the service tax liability on the rent received from commercial property.

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Department entertained the view that the appellant is liable to pay service tax on professional fee received as an advocate as well as rental income received from the residential property rented to a business entity. On these allegations, two show cause notices were issued to the appellant, wherein the following demands were proposed to be demanded for the financial year 2014-15 and 2015-16:

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The appellant filed detailed reply to the show cause notices and after following the due process, the adjudicating authority accepted the contention that the services of an advocate are liable for payment of service tax on reverse charge basis. The adjudicating authority dropped the demand in relation to professional services provided as an advocate, but confirmed the demand in relation to renting of residential property on the ground that the same was rented to a business entity. Though, the adjudicating authority dropped the certain demands, but confirmed the balance amount of demand.

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The Commissioner (Appeals) held that no service tax is leviable on rental income received from residential property, but still confirmed the demand on the ground that the figures shown in the C.A. certificate are more than those shown in the show cause notices. Hence, the present appeal.

He also submitted  that the appellant has given correct figures as per the income tax returns and it is not understood from where, those figures were taken by the department while issuing the show cause notices. He further submitted that the Commissioner (Appeals) on the one hand had not accepted C.A. certificate but on the other hand, had still relied upon the figures shown in the C.A. certificate. 

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He further submitted  that when it is admitted in the Order-in-Original and Order-in-Appeal that no tax is demandable in respect of professional fee received as an advocate and the rent received from residential property, then how the demand still be confirmed by saying that the appellant has provided higher figures in the C.A. certificate.

He further submitted that the Commissioner (Appeals) has gone beyond the show cause notices because the show cause notices demanded tax on lower amount whereas the demand has been confirmed on higher amount, which is not permissible under law. He also submits that it is not clear in the impugned order as to how and why the C.A. certificate was ignored when the said certificate had given bifurcation of all the incomes. On the other hand, the  Authorized Representative for the department reiterated the findings of the impugned order.

A single bench of  S. S. Garg, Member (Judicial) found that the adjudicating authority has dropped the demand on profession income but confirmed the demand on rental income received from the residential property. It was viewed that once both the demands have been dropped, one by the adjudicating authority and another by the appellate authority, then confirming the demand on the basis of figures shown in the C.A. certificate, is not sustainable in law. 

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Further observed that the Commissioner (Appeals) has gone beyond the show cause notices because in the show cause notices, demand was raised on lower amount, whereas in the impugned order, demand has been confirmed on higher amount, which is not permissible in law.

It was also evident that the department has not produced any evidence to establish the invocation of extended period of limitation as the appellant has not suppressed any facts from the department and has been filing the returns regularly. 

The tribunal held that the impugned order is not sustainable in law and set aside the same by allowing the appeal of the appellant with consequential relief.

To Read the full text of the Order CLICK HERE

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