2006 (6) TMI 29 - AT - Service Tax

Service Tax Consulting Engineer Service tax liability not to be paid when assessee has not received payments towards value of taxable service SCN issued beyond the period of one year Demand not sustainable

Summary

Issues:
1. Liability for service tax on consultancy engineering services.
2. Plea of limitation regarding demands for service tax.
3. Interpretation of Section 68 of the Finance Act 1994 and Rule 6 of the Service Tax Rules.
4. Granting of stay based on non-receipt of payments for taxable services.

Analysis:

Issue 1: Liability for service tax on consultancy engineering services
The appeal involved demands of Service Tax and penalties imposed on the appellants for consultancy engineering services provided to clients. The appellants raised debit notes for the services, including service tax, but did not receive the payments. The department contested that the liability for service tax arises upon providing taxable services, regardless of payment receipt. However, the Tribunal held that as per Section 68 of the Finance Act 1994 and Rule 6 of the Service Tax Rules, service tax is payable only upon receipt of payments for taxable services. The appellants' non-receipt of payments was confirmed by a certificate from Chartered Accountants, leading to the appeal being allowed.

Issue 2: Plea of limitation regarding demands for service tax
The appellants argued that the demands for service tax were time-barred, citing their registration date, regular return filings, and reliance on a Tribunal judgment. The Commissioner rejected this plea, stating the demands were not barred by time. However, the Tribunal disagreed, emphasizing that the show cause notice issued beyond one year was indeed time-barred due to the continuous filing of returns by the appellants and the department's awareness of the non-receipt of payments.

Issue 3: Interpretation of Section 68 of the Finance Act 1994 and Rule 6 of the Service Tax Rules
Section 68 of the Finance Act 1994 mandates payment of service tax for taxable services provided, subject to prescribed rates and periods. Rule 6(1) of the Service Tax Rules specifies that service tax must be paid to the government by the 5th of the following month after receiving payments for taxable services. The Tribunal interpreted these provisions to emphasize that service tax liability arises only upon actual receipt of payments for the services provided, aligning with the appellants' argument and leading to the appeal being allowed.

Issue 4: Granting of stay based on non-receipt of payments for taxable services
The Tribunal granted a full stay on the demands of service tax, considering that the appellants had not received payments for the taxable services provided to their clients. This decision was based on the provisions of Section 68 and Rule 6(1) of the Service Tax Rules, which do not require payment of service tax unless payments for the services are actually received. The continuous filing of returns and communication with the department regarding the non-receipt of payments further supported the Tribunal's decision to grant the stay and allow the appeal with consequential relief.