2007 (10) TMI 148 - AT - Service Tax

U/R 6(1) tax must be calculated on the basis of payments received in the preceding month not on value of services shown on accrual basis in the P/L A/c - where tax have not collected separately from clients, the value has to be taken as value plus tax matter remanded for deciding liability

Summary

Issues:
1. Calculation of service tax on the basis of payments received vs. value of services shown in the profit and loss account.
2. Treatment of service tax when not collected separately from clients.
3. Remand for fresh calculation of tax liability, penalty determination, and applicability of extended period.

Analysis:

Issue 1: Calculation of service tax on the basis of payments received vs. value of services shown in the profit and loss account
The appellants had not paid service tax in cases where they did not receive the value of services from their clients. The Department had calculated tax liability based on the profit and loss account, which the appellants argued was incorrect. Rule 6(1) of the Service Tax Rules, 1994 was cited, stating that tax should be paid on payments received for taxable services in the preceding month. The Tribunal agreed with the appellants, emphasizing that tax cannot be calculated based on the accrual basis in the profit and loss account. Therefore, the impugned order was set aside, and the matter was remanded for a fresh calculation of tax amount based on payments received.

Issue 2: Treatment of service tax when not collected separately from clients
The appellants had instances where they received the value of services from clients but did not collect service tax separately. In such cases, the value of services received should be considered as value plus tax, requiring a bifurcation to determine the tax amount payable on those receipts. The Tribunal directed the original authority to conduct a detailed exercise to determine the tax liability considering these principles. The appellants were instructed to cooperate and provide all related documents for the fresh calculation of tax liability.

Issue 3: Remand for fresh calculation of tax liability, penalty determination, and applicability of extended period
The Tribunal allowed the appeal by way of remand, directing the original authority to quantify the tax amounts, determine penalty, and assess the applicability of the extended period of time after adjusting the tax amounts already paid. The appellants were granted an adequate opportunity for hearing during this process to ensure a fair determination of their tax liability.

In conclusion, the Tribunal's decision focused on the correct calculation of service tax based on payments received, the treatment of service tax when not collected separately from clients, and the need for a fresh calculation of tax liability, penalty determination, and consideration of the extended period.