No Service Tax Demand can be raised and confirmed based on Notional Income: CESTAT [Read Order]

The Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal  (CESTAT) noted that service ac demand cannot be raised and confirmed based on notional income.

In this case, the appellant,  M/s. Indore Composite Pvt. Ltd. is engaged in the manufacturing of FRP rods for optical fibre cable and was availing the benefit of Cenvat Credit on inputs, input services and capital goods under Cenvat Credit Rules, 2004.

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During the scrutiny, it was found that the appellant removed miscellaneous scrap (exempted commodities) from their premises, as evidenced by their balance statement, but did not follow the provisions of Rule 6(3) of the Cenvat Credit Rules, 2004.

The department found a discrepancy between the sale value of scrap stated in the balance sheet and the appellant's ER-1 for fiscal year (FY) 2016-17. A central excise duty of Rs. 7.68 lakhs was payable on the difference, and a penalty was imposed under Section 11AC of the Central Excise Act, 1944, through a show cause notice (SCN), and the SCN also proposed the demand of a service tax of Rs. 82,313 not paid on clearance of exempted goods and a service tax of Rs. 15,206 not paid on the difference of scrap sale.

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So, one of the issues in this case was whether the appellant was liable to pay duty on the differential amount.

The assessee’s counsel relied on the decision of Bangalore CESTAT in the case of  Synergy Audio Visual Workshop Pvt Ltd. Vs. Commissioner of S.T., Bangalore, reported as 2008 (10) STR 578 (Tri.-Bang.), in which teh bench held that the balance sheet or other statutory returns cannot become the basis for levy of tax.

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The bench noted that service tax can be levied only when there is a clear identification of the service provider, the service recipient, and consideration paid for the same.  It was observed by the CESTAT that no service tax demand can be raised and confirmed on the basis of notional income.

Dr. Rachna Gupta (Judicial Member) ruled in favour of the assessee and set aside the impugned order.

To Read the full text of the Order CLICK HERE

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