The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed service tax demand on the ground that demand based on audit without further investigation is invalid.
The appellant, M/s. Innovative and Technological Learning Appellant Services Pvt Ltd is a service provider. It provides services to an educational trust. It paid service tax. It suffered huge losses. As a result of which, the appellant company got merged with the trust (service recipient). The CERA conducted audit. Show cause notice was based on audit. Order came to be passed on the same basis. Hence, the present appeal has been filed before the Tribunal.
The Counsel for the appellant argued that the Commissioner has not considered the submissions made by the Appellant and proceeded on the basis of the audit report, extracted the same and concluded that the Appellant is liable to pay service tax.
The Counsel further contended that the demand is based on CERA audit. The audit has not been conducted by a Chartered Accountant. Hence, demand based on such audit is bad in law It is settled legal position that Show Cause Notice issued solely based on the audit report is not maintainable and that service tax is to be levied only on the value of services provided by the service provider.
The Counsel also submitted that the valuation for service tax under Section 67 of the Finance Act could not be anything more or less than the consideration paid as quid pro quo for rendering such a service and expenses and costs incurred for providing such service could not be included in the consideration for valuation of service tax.
The Bench comprising Sanjiv Srivastava, Technical Member and Dr Suvendu Kumar Pati, Judicial Member observed that (i) demand based on audit without any further investigation it liable to be set aside on this count alone; (ii) independently on merits, it is held that service tax cannot be demanded on expenses incurred by the service provider. Service provider can suffer losses; (iii) there is no allegation, let alone evidence, of suppression of value or undervaluation of services; (iv) Services provided in terms of the agreement have to looked at as such only and subsequent turn of events is not relevant in deciding the issue under the agreement; (v) service tax can be demanded on “value” under section 67 which is the gross amount charged for the service and no addition thereto can be made.
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