Mere booking of income as service charge in their balance sheet would not Transfer entire amount to a single activity under ‘Business Auxiliary Services’: CESTAT

M/s Madhya Pradesh Laghu Udyog Nigam Limited to assail the Order-in-Original wherein the Commissioner confirmed the demand of Rs. 28,53,129/- along with interest and imposed penalties. The appellant was engaged in providing "Business Auxiliary Service", "Renting of Immovable Service" and "Testing & Inspection Services" as defined under Section 65(19), Section 65(90a) and Section 105(zzi) of Finance Act, 1994. During audit of the records of the appellant for the financial years 2012-13 & 2013-14 by AGMP, Gwalior, the audit party noticed that the appellant in their ST-3 returns had shown receipts that were less as compared to their receipts shown in their ledger accounts in respect of 'Business Auxiliary Service', 'Renting of Immovable Property Service,' and 'Technical Inspection and Certification Services.'

Accordingly, a Show Cause Notice was issued to the appellant towards demand of service tax of Rs. 3,02,97,440/- under the proviso to Section 73(1) along with interest under Section 75 and alleging imposition of penalty under section 78 of the Finance Act, 1994. The said notice was adjudicated vide the impugned Order-in-Original dated 14.03.2019 wherein the demand of service tax of Rs. 28,53,129/- (out of total demand of Rs 3,02,97,440/- proposed in the SCN) was confirmed under proviso to Section 73(1) along with interest under Section 75 and imposed equal penalty under section 78 of the Finance Act, 1944. Aggrieved by the said order, the appellant has filed the present appeal before this Tribunal.

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The appellant submitted that similar issue had been raised by the Revenue and these have been adjudicated/decided by the Tribunal. Vide SCN dated 28.09.2007, service tax demand was proposed for the period 01.04.2002 to 31.03.2006 on difference between receipt shown in ST-3 as compare to ledger account.

In the absence of 'intent to evade payment of tax, is not tenable and demand is liable to be set aside being entirely barred by limitation. He contended that the show cause notice had relied on difference in values of receipts shown in ST-3 vis-a vis ledger accounts and had suppressed the actual receipts from the Department thus, invoking extended period against the appellant. However, there is no whisper in the SCN as regards 'malafide intent of the appellant to evade the payment of tax. Counsel further submitted that in the absence of establishment of 'malafide intent' to evade payment of tax, invocation of extended period against the appellant is not sustainable and liable to be set aside.

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A two-member bench of Dr. Rachna Gupta, Member (Judicial) and Hemambika R. Priya, Member (Technical) viewed that the non-payment of tax was detected during the audit of the records of the appellant. This evidences the fact that the appellant was registered and was filing his returns with the department. We note that the impugned order has held that as the appellant did not inform the department regarding the correct amount of consideration received in their ST-3 returns, as compared to the amount reflected in their Books of Accounts, and had suppressed the correct value of the taxable service provided by them with an intent to evade payment of service tax.

The Tribunal in identical set of facts had set aside the demand holding that mere booking of income by the appellant as service charge in their balance sheet would not render any meaning that the entire amount can be ascribed to a single activity under ‘Business Auxiliary Services’. The adjudicating authority has dropped a part of the demand holding that the income recorded as service charges in the balance sheet comprises income from other activities, which were not taxable under BAS.Madhya Pradesh Laghu Udyog NigamLimited vs Commissioner of Central Goods, And Service Tax, Excise and Customs, Bhopal

The Tribunal observed that principles of natural justice requires that a show cause notice must analyze the transactional documents in the light of the relevant statutory provisions and frame allegations against an assessee. Until and unless the show cause notice explains as to how the activity of an assessee falls within the scope of the relevant service tax provisions, allegations in the notice become futile. Mere bald allegations in a notice are not enough to sustain the demand against the appellant.

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