2018 (7) TMI 336 - AT - Service Tax

Demand of service tax with interest and penalty - inclusion of service tax amount in the amount shown in the Profit and loss account - case of Revenue is that the appellant is not entitled to the benefit of calculation of the amounts shown in the Profit and Loss accounts being taken as cum-tax amounts as they have not produced any ledgers or other evidence to substantiate their claims - Held that - A plain reading of the Profit and Loss statement shows that the service tax receipts shown therein are inclusive of the service tax - I do not agree with the learned Commissioner (Appeals) that any additional evidence in the form of ledgers or invoices is required to prove that the value shown in the Profit and Loss statements is inclusive of the service tax element because the very statement says so. In fact it is that very statement which forms the basis for the show cause notice - the assessees are eligible for calculation of the differential tax reckoning the amounts shown in the Profit and Loss statements as inclusive of service tax. The demand of differential duty gets reduced correspondingly and so does any mandatory penalty imposed on them - it is a fit case to remand these cases to the original authority and do so. The Original Authority is directed to recalculate the differential duty payable and penalty, taking the amounts shown in the Profit and Loss statements as service charges and also the corresponding service tax indicated therein - appeal allowed by way of remand.

Summary

Issues:
Discrepancy in service tax payment based on Profit and Loss Accounts.

Analysis:
The appeals involved two sister firms providing clearing and forwarding agent services, registered with the Service Tax department. An investigation revealed that the appellants had not declared the full value of services rendered and had underpaid their service tax liability. Show cause notices were issued for recovery of the differential service tax, interest, and penalties under Sec.78 and 77. The original authority confirmed the demands and penalties, which were upheld by the Commissioner (Appeals), leading to the current appeals.

During the hearing, the appellants argued that the income shown in their Profit and Loss accounts included the service tax amount, and thus, the value of service tax needed to be deducted to calculate the correct tax liability. They provided extracts of the Profit and Loss accounts to support their claim. The department, however, contended that the appellants had not produced sufficient evidence to substantiate their claims.

After considering both sides, the Member (Technical) found that the appellants were paying service tax and filing ST-3 returns. The investigation highlighted a difference between the value of service charges in the Profit and Loss accounts and the declared values in the ST-3 returns. The Member observed that the Profit and Loss statements clearly indicated that the service tax receipts were inclusive of the service tax amount. Therefore, the Member disagreed with the Commissioner (Appeals) that additional evidence like ledgers or invoices were necessary, as the Profit and Loss statements themselves confirmed the inclusion of service tax. Consequently, the Member remanded the cases to the original authority to recalculate the differential duty and penalty based on the amounts shown in the Profit and Loss statements.

In conclusion, the judgment addressed the discrepancy in service tax payment by considering the Profit and Loss accounts as the basis for calculating the correct tax liability. The appellants were found eligible for recalculating the tax based on the inclusive service tax amounts in their Profit and Loss statements, leading to a reduction in the demand and penalties imposed on them.