2014 (8) TMI 456 - AT - Service Tax

Consulting engineer service - Service tax rate - chargeable @ 5% or @8% - services provided prior to 14.05.2003 in respect of which payments were received on or after 14.05.2003 - Held that - The appellate Commissioner considered copies of the relevant invoices, payment advices and copies of cheques evidencing receipt of payments by the assessee and concluded that the assessee had provided month wise and return wise details of invoices disclosing that rendition of the taxable service was prior to 13.5.2003 i.e. prior to the date the rate of service tax was increased from 5% to 8%; and therefore liability to service tax was at 5% and not 8%. Neither the CBEC letter nor Rule 5B of Service Tax Rules, 1994 authorise levy of service tax, at a rate not in force on the date of rendition of the taxable service, which is the taxable event. However, the Review Commissioners appear to have fundamentally misguided themselves as to what is clearly a basic principle, that only the rate of tax prevailing at the time of rendition of the taxable service could be levied and collected - Following decision of CST Vs. Consulting Engineering Services (I) Pvt. Ltd. - 2013 (1) TMI 434 - DELHI HIGH COURT - Decided against Revenue.

Summary

Issues:
1. Stay application consideration.
2. Appeal against Commissioner (Appeals) order.
3. Interpretation of service tax rate applicability.
4. CBEC letter and Service Tax Rules interpretation.
5. Principle of tax rate application.
6. Appellate Commissioner's order review.

Issue 1: Stay Application Consideration
At the stage of considering the stay application, the appeal was disposed of after hearing the counsel for the appellant and the D.R. for the respondent, and pre-deposit was dispensed with.

Issue 2: Appeal Against Commissioner (Appeals) Order
The Revenue appealed against the Commissioner (Appeals) order, which reversed the Order-in-Original passed by the Assistant Commissioner, leading to a demand for tax, interest, and penalty.

Issue 3: Interpretation of Service Tax Rate Applicability
The dispute arose from bills raised by the assessee before a service tax rate increase, but payment received post the rate change. The appellate Commissioner concluded that the taxable service was provided before the rate increase, hence liable at the lower rate.

Issue 4: CBEC Letter and Service Tax Rules Interpretation
The Revenue relied on a CBEC letter stating the rate applicable is at the time of service tax becoming chargeable, i.e., payment receipt date. Rule 5B of the Service Tax Rules was also cited, emphasizing the prevailing rate at service provision time.

Issue 5: Principle of Tax Rate Application
The judgment highlighted that the tax rate applicable is the one in force at the time of service provision, not payment receipt, as confirmed by a Delhi High Court case and the fundamental tax principle.

Issue 6: Appellate Commissioner's Order Review
The judgment upheld the appellate Commissioner's order, dismissing the appeal as misconceived, emphasizing the correct application of the tax rate principle, and stating that only the prevailing rate at the service provision time can be levied and collected. The appeal was rejected with no costs.