2019 (9) TMI 1516 - AT - Service Tax

Renting of Immovable Property Services - short payment of Service Tax - POT Rules - N/N. 18/2011-ST dated 1.3.2011 - period 2009-10 to 2012-13 - HELD THAT - None of the submissions as made by the Appellant has been considered by the learned Assistant Commissioner who has failed to observe and refer to the relevant provisions of Rule 6(1) of the Service Tax Rules as existing upto 31.03.2011 and has simply referred to the provisions which are effective from 01.04.2011 and which cannot be applied in the instant case since the amounts which have been written off as bad-debts pertained to the period prior to 01.04.2011. The learned Assistant Commissioner should have appreciated the fact that the liability under the Act upto 31.03.2011 was on cash basis i.e. Service Tax was payable only on receipt of consideration for services rendered since the language employed in the said Rule 6(1) clearly provides that Service Tax shall be paid by the 6 th day/5th day of the month following the calendar month in which payments are received towards the value of taxable services. The actual amount written off as bad-debts during the period 2011-12 is 28, 07, 404/- out of which 25, 69, 660/- pertains to the unrealized consideration for rendition of taxable services during the period falling before 01.04.2011 and the balance amount of 2, 37, 744/- pertained to the services rendered during the Financial Year 2011-12 in view of which the same has not been claimed for reduction from the balance of opening debtors since the liability on the said amount of 2, 37, 744/- was payable on accrual basis unlike in case of 25, 69, 660/- which was required to be paid only on receipt of the said amount. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Short payment of Service Tax during 2009-10 to 2012-13, method of discharging Service Tax liability, discrepancy between audited balance sheet and Service Tax returns, bad debts, non-realization of debtors, liability under Point of Taxation Rules, 2011, relevance of accrual basis, appeal against adjudication order.

Analysis:
The case involved a private limited company facing a show cause notice for alleged short payment of Service Tax during 2009-10 to 2012-13. The company derived income from 'Renting of Immovable Property Services' and other services under the Finance Act, 1994. The adjudicating authority confirmed a demand of &8377; 7,76,134/- along with interest and penalty under section 78 of the Finance Act, 1994. The authority also ordered the appropriation of a certain amount paid by the company. However, the demand of Service Tax amounting to &8377; 13,32,820/- was dropped. On appeal, the lower appellate authority upheld the adjudication order, leading to the present appeal before the Tribunal.

The appellant argued that the method of discharging Service Tax liability shifted from cash basis to accrual basis from 1.04.2011 due to Point of Taxation Rules, 2011. The company maintained its books under the accrual method as per the Companies Act, 1956. The appellant highlighted discrepancies in the audit observation regarding the Service Tax liability, citing issues such as bad debts, non-realization of debtors, and disputes regarding levy. The appellant reconciled figures and paid a certain amount to avoid disputes and litigation.

Regarding the alleged Service Tax liability for 2011-12 and 2012-13, the appellant clarified that bad debts written off pertained to amounts receivable for services rendered before 01.04.2011 when the liability shifted to accrual basis. The company submitted revised reconciliations and evidence to support its claims. The appellant argued against imposing Service Tax on amounts not received and written off as bad debts due to non-realization.

The Tribunal observed that the Assistant Commissioner failed to consider relevant provisions existing before 01.04.2011. The liability under the Act until 31.03.2011 was on a cash basis, with Service Tax payable only on receipt of consideration for services rendered. The Tribunal noted the amount written off as bad debts, distinguishing between amounts related to services rendered before and after 01.04.2011. The Tribunal set aside the impugned orders, allowing the appeal with consequential benefits.

In conclusion, the Tribunal's decision favored the appellant, emphasizing the importance of considering the method of discharging Service Tax liability and relevant provisions pre and post 01.04.2011. The Tribunal highlighted the distinction between cash and accrual basis for Service Tax liability, ultimately setting aside the lower authorities' orders.