2019 (1) TMI 2028 - AT - Service Tax

Levy of Service Tax - service rendered prior to 16.10.1998 i.e. prior to introduction of Service Tax on CA services - services rendered by the appellant in the capacity of sub contractor - denial of exemption of notification no. 59/98-ST for the period prior to 01/08/2002 - Interest and penalty. Demand of Service Tax of Rs. 12065/- on the service rendered prior to 16.10.1998 i.e. prior to introduction of Service Tax on CA services - HELD THAT - The Service Tax is leviable on the date of provision of service, the CA service was not taxable at the time of provision of service, even though the payment was received subsequent to the introduction of Service Tax. Accordingly, the demand of Rs. 12,065/- is set aside. Demand of Service Tax Rs. 17,485/- in respect of services rendered by the appellant in the capacity of sub contractor - HELD THAT - There was a circular dated 31.10.1996, according to which the sub contractor need not pay the Service Tax when the main contractor discharges the service tax on the gross value including the value of the service provided by the sub contractor. In view of the circular, the bonafide belief entertained by the appellant is correct. Therefore, the demand of Rs. 17,485/- is hit by limitation and the same is set aside only on time bar without going into the merit of the case. The demand of Service Tax of Rs. 88,625/- denying exemption of notification no. 59/98-ST for the period prior to 01/08/2002 - HELD THAT - Demand of Rs. 86,625/- was raised on the service of management consultancy service which was admittedly exempted under notification 59/98-ST and by amendment notification 15/2002-ST. Though the exemption was withdrawn by inserting the explanation but that cannot be applied retrospectively. Therefore, during the relevant period before amendment dated 01/08/2002, the service provided by CA in respect of management consultancy services was exempted. Accordingly, the demand of Rs. 88,625/- is also set aside. Interest and penalty - HELD THAT - Since, demand itself is not maintained, the penalty and interest are also not sustainable. Appeal allowed.

Summary

Issues involved:
1. Demand of Service Tax of Rs. 12,065/- on services rendered before the introduction of Service Tax on CA services.
2. Demand of Service Tax Rs. 17,485/- for services rendered as a sub-contractor.
3. Demand of Service Tax of Rs. 88,625/- denying exemption under notification no. 59/98-ST.

Analysis:

Issue 1:
The appellant argued that the services for which a demand of Rs. 12,065/- was made were provided before the introduction of Service Tax on CA services. The appellant contended that taxability should be determined based on the date of provision of service, not the date of payment. The Tribunal agreed with this argument, ruling that Service Tax is leviable on the date of service provision. As CA services were not taxable at the time of service provision, even though payment was received after the introduction of Service Tax, the demand of Rs. 12,065/- was set aside.

Issue 2:
Regarding the demand of Rs. 17,485/- for services rendered as a sub-contractor, the appellant referenced a circular from 31.10.1996 stating that when the main contractor pays Service Tax on the gross value, including the sub-contractor's service, the sub-contractor is not required to pay Service Tax. The Tribunal found that the appellant's belief based on this circular was reasonable. Therefore, the demand of Rs. 17,485/- was set aside on the grounds of being time-barred, without delving into the merits of the case.

Issue 3:
The demand of Rs. 88,625/- was related to management consultancy services provided before 01/08/2002, which were initially exempted under notification 59/98-ST. Although an amendment later withdrew this exemption, the Tribunal held that the amendment could not be applied retrospectively. Therefore, for the period before the amendment, CA services for management consultancy were exempted. Consequently, the demand of Rs. 88,625/- was also set aside. Since the demand was not sustained, penalties and interest were deemed unsustainable. The impugned order was modified accordingly, and the appeal was allowed.

In conclusion, the Tribunal ruled in favor of the appellant on all three issues, setting aside the demands for Service Tax based on the specific legal arguments presented and the applicable notifications and circulars.