Cum-Tax Benefit Must Be Granted When Service Tax is Not Separately Recovered from Customers: CESTAT [Read Order]

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that cum-tax benefit must be granted when service tax is not separately recovered from customers.

Team One India Pvt. Ltd. was engaged in providing architect services and was registered with the Service Tax Department. It regularly filed ST-3 returns and paid service tax on amounts received from clients.

During audit in September 2011, the department found that service tax had allegedly not been paid on certain amounts representing TDS deducted by customers. A show cause notice dated 24 October 2011 proposed recovery of service tax of Rs. 1,05,44,311 with interest and penalties.

The adjudicating authority confirmed the demand and imposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994.

The appellant’s counsel argued that the demand was wrongly calculated by treating gross receipts as taxable value exclusive of service tax. They argued that invoices showed that amounts received from customers were inclusive of service tax.

The appellant’s counsel further argued that the department ignored the TDS component deducted by customers. They argued that after considering TDS and granting cum-tax benefit, the actual liability would be much lower.

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The appellant’s counsel also argued that Rs. 74,23,440 had been paid before audit and Rs. 20,50,142 with interest was paid before adjudication. They argued that there was no suppression because all transactions were recorded in books and ST-3 returns.

The revenue counsel argued that service tax was not paid on the full amount receivable. They argued that non-payment for a long period justified extended limitation and penalties.

The bench comprising A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) observed that the main dispute was valuation. It found that in several transactions, service tax was not separately recovered from customers and the receipts represented gross receipts.

The tribunal held that when consideration is inclusive of tax, it must be treated as cum-tax value. Service tax must be recomputed on that basis. The tribunal observed that the adjudicating authority had not granted full cum-tax benefit. It also observed that the department had not produced evidence to show that the consideration received by the appellant was exclusive of service tax.

The tribunal set aside penalties under Sections 76, 77 and 78. It remanded the matter only for re-quantification after granting cum-tax benefit and considering the TDS component.

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