2017 (3) TMI 1508 - AT - Service Tax

Penalty u/s 77 and 78 of FA - appellant s claim that deduction for cost of materials supplied, which is included in the gross amount have not been given, resulted into wrong demand - Held that - the appellant is entitled to deduction of the material component from the gross amount - as the appellant had paid the taxes and it appears have paid rather more amount then the amount actually payable as per the calculation produced before this Tribunal, which is categorical fact on record. Accordingly, the penalty u/s 78 set aside. However the penalty u/s 77 for ₹ 5000/- is retained - also, upon reducing the material component the turnover for the financial year remains ₹ 7,34,425/- and for this year for the first time the turnover is exceeding four lakhs, they will be entitled to the threshold exemption. Accordingly, the benefit of threshold exemption for the financial year 2005-06 is allowable under N/N. 6 of 2005-ST - matter on remand to the Adjudicating Authority for the limited purpose of recalculating the tax payable, after allowing the threshold exemption and the set off for material component - appeal allowed in part by way of remand.

Summary

Issues:
Late filing of service tax returns, non-payment of service tax, imposition of penalties under Sections 76, 77, and 78 of the Act, deduction for cost of materials supplied, threshold exemption under Notification No. 6 of 2005-ST, remand for recalculation of tax payable.

Late Filing of Service Tax Returns and Imposition of Penalties:
The appellant, a proprietorship concern, was engaged in repair and maintenance services under a contract with BSNL. The Revenue issued a show-cause notice (SCN) for not timely registering, filing returns, and paying service tax. The SCN alleged suppression of information and proposed recovery of service tax, penalties under Sections 76, 77, and 78 of the Act. The appeal was dismissed ex-parte due to non-filing of a reply or representation. The appellant contended before the Tribunal that the appellant was required to bill spare parts separately, which was done, and argued against penalties citing the proprietor's illness as a reason for non-compliance. The Tribunal found the appellant entitled to deduct material costs from the gross amount, recalculated the tax payable, allowed the threshold exemption, and set aside the penalty under Section 78 but retained the penalty under Section 77 at ?5000.

Deduction for Cost of Materials Supplied and Threshold Exemption:
The appellant demonstrated through contract terms and billing documents that spare parts were separately billed, and sales tax was levied on materials supplied. The Tribunal acknowledged the appellant's entitlement to deduct the material component from the gross amount. A detailed calculation chart was filed, resulting in a reduced service tax payable of ?5,45,744. The Tribunal recognized that after deducting the material component, the turnover for the financial year was ?7,34,425, exceeding the threshold for the first time, making the appellant eligible for the threshold exemption under Notification No. 6 of 2005-ST.

Remand for Recalculation of Tax Payable:
Considering the submissions and evidence, the Tribunal allowed the appeal by remanding the matter to the Adjudicating Authority for recalculating the tax payable after allowing the threshold exemption and deducting the material component. The Tribunal noted that the appellant had paid more tax than actually payable, setting aside the penalty under Section 78 but retaining the penalty under Section 77 at ?5000.

In conclusion, the appeal was allowed in part, remanding the case to the Adjudicating Authority for recalculating the tax payable after considering the deduction for material costs and allowing the threshold exemption.