Section 74(1) of Finance Act Cannot be Invoked in absence of Deliberate or Intentional Non-payment of Service Tax: CESTAT [Read Order]

The Hyderabad bench of the Customs, Excise And Service Tax Appellate Tribunal ( CESTAT ) has held that Section 74(1) of the Finance Act, 1994 cannot be invoked in absence of deliberate or intentional non-payment of service tax.

M/s Shri Shakti Resorts & Hotels Limited (Appellant) has filed an appeal against the Order. The impugned order, Commissioner (Appeals) has, interalia, dropped the demand confirmed by the Original Adjudicating Authority vide Order except for demand on account of rental income.

The appellants were providing various services like mandap keeper services, restaurant services, hotel, renting of immovable property services, club or association services, beauty parlour services, dry cleaning services etc.  In the course of the audit and verification of Service Tax returns with the Profit & Loss Account, it appeared to the Department that there was a difference between the total revenue declared in the Service Tax returns and the figures appearing in the Profit & Loss account. 

Based on the difference, the Department worked out a short payment of service tax to the tune of Rs. 1,14,38,874/-.  Further, despite the appellants providing a reconciliation statement vide their letter and the assessee explaining that a large difference is on account of various taxes collected and paid, which also figured both in the income and expense side of the balance sheet, the Department did not accept the explanation since assessee could not give details of exemption claimed and the fact that they were not mentioned in the returns filed nor any invoice/documents were provided to the audit team. 

The Department also felt that during certain period, the exemption for rental income from educational institution was not available and since they had raised certain invoices towards such rent, that they had charged and collected service tax from the educational institution but have not paid any service tax on that income.

The Original Authority confirmed the entire amount demanded primarily because the explanations given by the appellants are not acceptable, especially in view of the non-submission of material proof like invoices, bills etc.

Commissioner (Appeals) has examined the reasons given for the difference, item-wise, during 2014-15, 2015-16 and 2016-17 and concluded that since the Department failed to consider that certain incomes were on account of payment of taxes such as Service Tax, VAT and Luxury Tax etc., and therefore he set aside the demand on account of income of Rs. 5,87,30,219/- out of Rs. 8,11,36,070/- on this count alone.  He further analysed the income received on account of various heads like interest, discount, profit on sale of assets, contribution towards cess, cafeteria sale, sale of scrap etc., and after examining the entire books of accounts and explanations, he did not find them chargeable to service tax.

As regards income from renting of immovable property to educational institution, after considering the explanation given by the appellants, he came to the conclusion that the exemption for such services was withdrawn vide Notification No. 06/2014-ST dated 11.07.2014 and therefore to the extent of such rental income of Rs. 20,69,960/-, it was clearly not exempted during material time and ordered for re-computation of their service tax liability for the impugned period.

It was argued that the Commissioner (Appeals) has already allowed substantial appeal after going through explanations and gave findings that there was no requirement for them to pay any service tax and further since there was no liability, he has also not confirmed the levy of penalty under Section 78. 

As regards the amount of service tax liability on account of revenue earned as rental income, for which admittedly no exemptions were available during certain period, he is not disputing it on merit.  It was stated that there is no sufficient ground in show cause notice for invoking extended period in the present case as the elements required for Section 78 are not present in his case. 

On the other hand, the department reiterated the findings of the impugned order.  He also concedes that no appeal had been filed by the Revenue against the order of the Commissioner (Appeals).  However, he argued that in respect of demand on account of rental income during 201415 when the exemption was not available, the demand has to be sustained and the appellant is required to pay the same along with interest and they are also liable to penalty under Section 78. 

It was evident that merely because they were raising the invoices in the same old fashion it does not make them defaulter who deliberately and intentionally, despite knowing the fact that they were liable to pay service tax, chose not to pay service tax. No such details or grounds to the contrary have been brought in the show cause notice for invoking proviso to Section 73. 

It was observed that proviso to Section 73 provides that the demand can be raised even beyond the normal period of 30 months, but within 5 years, where the service tax has not been levied or paid etc., by fraud, willful misstatement, suppression of facts, contravention of any provision of the chapter or the rules made therein with intent to evade payment of service tax. 

A single bench of Mr A K Jyotishi, Member (Technical) has held that there was no deliberate or intentional non-payment of service tax and therefore invoking proviso to Section 73(1) is clearly bad in Law.  

The bench held that the proviso to Section 73 is not applicable and therefore extended period cannot be invoked for demanding service tax on the rental income during the material period in 2014-15 as the show cause notice has clearly been issued after 30 months from the given date.  Therefore, the demand is clearly time barred. 

The Tribunal allowed the appeal. Shri Lalit Mohan Chandna appeared for the Appellant and Shri B. Sangameshwar Rao, Authorised Representative appeared for the Respondent.

To Read the full text of the Order CLICK HERE

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