2019 (1) TMI 1820 - AT - Service Tax

Refund of service tax paid - exempt services as per N/N. 25/2012-S.T. (at Sl. No. 6) or not - appellant received legal consultancy services - reverse charge mechanism - applicability of Section 43A of Companies Act, 1956 - appellant seeks to submit that the authorities below have erred in relying upon the definition provided in Companies Act, 1956, without any justification whatsoever - appellant submits that changes in inventory of work in progress as appearing in the Financial Statement cannot be included in the turnover, as the amount reflects purchases and not sales. HELD THAT - The expression turnover is not defined in the Notification No. 25/2012-S.T. or in the Finance Act, 1994, and hence in order to interpret the meaning of the said term, in Serial No. 6 of Notification No. 25/2012-S.T., the common parlance meaning of the said term as understood by those dealing in accounts and taxation would have to be taken. The amount of increase in inventory, which the lower authorities have treated as turnover, is not a sale by the appellant. To the contrary it is only purchase of inventory by the appellant and by no stretch of imagination the same can be construed as turnover - Once the amount pertaining to Changes in Inventory of work in progress is excluded from turnover, admittedly the amount remaining is less than Rs. Ten lakhs, and hence the benefit of the exemption is available to the appellant. Refund allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Exemption eligibility under Notification No. 25/2012-S.T. for service tax paid on legal consultancy services; Interpretation of the term "turnover" for exemption calculation.

Exemption Eligibility Analysis:
The appellant, a property developer, paid service tax on reverse charge basis for legal consultancy services despite being eligible for exemption under Notification No. 25/2012-S.T. The appellant's turnover for the relevant financial years was below the threshold for exemption. However, lower authorities denied exemption, stating it applies only to service providers, not receivers under reverse charge.

Turnover Interpretation Analysis:
The Adjudicating Authority calculated turnover using figures from the Profit and Loss account, including changes in inventory. The appellant contested this, arguing that inventory changes represent purchases, not sales, and should not be included in turnover. Citing judgments and accounting standards, the appellant emphasized that turnover should reflect sales or services rendered, excluding purchases.

Legal Interpretation and Decision:
The Tribunal analyzed the meaning of "turnover" under Notification No. 25/2012-S.T. and legal precedents. Referring to the Supreme Court's definition of turnover as sales or services rendered, the Tribunal concluded that inventory changes do not constitute turnover. Excluding inventory changes, the appellant's turnover fell below the exemption threshold. Therefore, the Tribunal allowed the appeal, directing the refund of service tax with interest.

This detailed analysis of the legal judgment highlights the issues, arguments, and the Tribunal's decision regarding exemption eligibility and the interpretation of turnover for service tax calculation under Notification No. 25/2012-S.T.