2008 (9) TMI 260 - AT - Service Tax

Demand on amounts not received from their customers - valuation - It is abundantly clear from the impugned order that the question whether any amount not actually realized by the service-provider from his customer was exigible to service tax was not mindfully examined. It appears, the entire amount shown as accruals of income in the audited accounts of the assessee for the relevant period were included in the taxable value for levy of service tax - Assessee s appeal is allowed by way of remand - Department is, of course, at liberty to demand tax from the assessee after the latter has collected the payments from their customers, but subject to limitation

Summary

Issues:
1. Predeposit and waiver of stay order amount.
2. Taxability of accrued income for service tax.
3. Valuation dispute regarding service tax on amounts not received from customers.

Analysis:
1. The appellant was directed to predeposit Rs. 10 lakhs, but they deposited Rs. 9.10 lakhs. They sought waiver of the remaining Rs. 90,000. The appellant argued that service tax should not be levied on payments due but not received, citing Rule 6(1) of the Service Tax Rules, 1994 and Section 67 of the Finance Act, 1994. They referenced Tribunal decisions supporting their plea. The Tribunal noted that a major part of the demand was on accrued income from balance sheets. The case was remanded for fresh consideration, emphasizing that service tax can only be levied on amounts actually realized, not merely due.

2. The impugned order did not adequately examine whether amounts not received by the service-provider were subject to service tax. The appellant objected to service tax on amounts not received from customers, agreeing to tax on realized amounts. The dispute was categorized as a valuation issue. The Tribunal clarified that service tax can only be imposed on amounts actually received, not merely due, in line with Section 67 of the Finance Act and Rule 6 of the Service Tax Rules. The case law cited supported this position. The Commissioner was instructed to reconsider the valuation dispute, focusing on the legal position that tax can only be demanded once payments are collected.

3. The Tribunal set aside the impugned order and allowed the appeal by remanding the case for fresh consideration. The miscellaneous application was also disposed of. The decision highlighted the necessity for a thorough reevaluation of the valuation dispute, emphasizing the legal principle that service tax is only applicable to amounts realized, not merely due.

This judgment primarily dealt with the issue of predeposit and waiver, the taxability of accrued income for service tax, and the valuation dispute regarding service tax on amounts not received from customers. The Tribunal emphasized the legal position that service tax can only be levied on amounts actually realized, not merely due, and directed a fresh examination of the case in light of this principle.