2024 (3) TMI 406 - AT - Service Tax

Non-discharge of applicable service tax on advances received from customers - Department has neither alleged nor indicated the exact taxable service which was agreed upon to be provided against the said advances received - HELD THAT - It is found that the Adjudicating Authority fails to understand that in demanding the service tax, the twin conditions i.e. identification of the particular service rendered and the payment received for such service, either before, during or after providing of such service, were to be satisfied - Learned Commissioner has considered the appellant submission that 90% of their income is towards air travel agency service and that in provision of such service no advances were being taken. Interestedly, Learned Commissioner uses the submission of the appellant to come to the conclusion that if 90% of the receipts is for the air travel agency service, the rest 10% is towards other services rendered or to be rendered by them and in terms of Section 67 of the Finance Act 1994 such amounts are includable in the gross value of service for the purpose of levying of service tax. It cannot be understood as to how the Commissioner comes to the conclusion that this 10% of the income or advances shown in the books of accounts of the appellants leads to the inevitable conclusion that the amounts were for provision of certain services - there are no specific service has been identified by the Adjudicating Authority, while accepting in principle that duty evasion cannot be proved with mathematical precision, the same cannot be established by applying a mathematical formula - Courts and Tribunal have been consistently holding that service tax cannot be fastened without identifying the specific service provided and consideration received or to be received for the same. Tribunal has held in the case of Shubam Electrical 2015 (6) TMI 786 - CESTAT NEW DELHI which was upheld by Supreme Court in 2016 (5) TMI 1055 - DELHI HIGH COURT that We notice that in the show cause, neither any period has been specified nor any amount of demand quantified. The show cause notice does not refer to any agreement between the appellant and the telephone company so as to identify the exact nature of service rendered. It also does not name the taxable services allegedly rendered by the appellant. These deficiencies in a show cause notice are fatal and such a show cause notice is per se unsustainable as it disables the assessee to defend itself, thereby being violative of the principles of natural justice. The impugned order is not legally sustainable and is liable to be set aside - appeal allowed.

Summary

Issues Involved:

1. Whether the advances received by the appellant were subject to service tax.
2. Whether the demand for service tax was validly raised based on the financial statements.
3. Whether the demand was time-barred.
4. Whether penalties and interest imposed were justified.

Summary:

1. Advances and Service Tax Liability:
The appellant, engaged in various services, was audited, leading to a show cause notice demanding service tax on advances received. The appellant argued that these advances were adjustments for cancellations, multi-branch invoices, and discounts, not for specific services. The Tribunal noted that to levy service tax, the service must be identified, and the payment must be linked to it. The Commissioner's assumption that 10% of the income was for other services, without identifying specific services, was flawed. The Tribunal emphasized that service tax cannot be imposed based on assumptions without identifying the taxable service.

2. Basis of Demand:
The appellant contended that service tax cannot be levied merely based on financial statement nomenclature without establishing the nature and purpose of payments. The Tribunal supported this, stating that the demand cannot be sustained without specific allegations of taxability and identification of services provided.

3. Time-Barred Demand:
The appellant argued that the demand was time-barred as there was no mala fide intent or suppression of facts. The Tribunal did not explicitly address this issue in detail but set aside the demand on other grounds.

4. Penalties and Interest:
The appellant argued that penalties and interest could not be imposed if the demand itself was unsustainable. The Tribunal agreed, noting that penalties under Sections 76 and 78 cannot be imposed simultaneously, and set aside the penalties and interest.

Conclusion:
The Tribunal set aside the impugned order, finding that the demand for service tax was not legally sustainable due to the failure to identify specific taxable services and the improper basis for the demand. The appeal was allowed with consequential relief.