2025 (3) TMI 782 - AT - Service Tax

Recovery of service tax with interest and penalty - difference in figures of P L A/c and ST-3 returns - whether the Appellant has correctly disclosed the value of taxable services in ST-3 returns? - levy of late fees and penalties u/s 78 77(1)(c) 77(1)(d) 77(2) of FA. Demand of service tax of Rs 5, 98, 38, 654/- based on difference in figures of P L A/c and ST-3 returns and whether the Appellant has correctly disclosed the value of taxable services in ST-3 returns - HELD THAT - A perusal of the two invoices reproduced in the impugned order also shows that the Appellant has separately charged for advertisement services and sale of goods along with service tax and VAT on respective components of invoices. The consideration for the two being identified and charged separately the contract is clearly a composite contract for providing advertisement services and sale of goods and not an indivisible contract which is also accepted in paragraph 16.6 of the impugned order. Therefore the Appellant has rightly paid service tax and VAT on respective components which is in consonance with the law laid down in Imagic Creative (P) Ltd. v. CCT 2008 (1) TMI 2 - SUPREME COURT where while considering the composite contract relating to advertisement services the Hon ble Supreme Court held Payments of service tax as also VAT are mutually exclusive. Therefore they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is therefore difficult to hold that in a case of this nature sales tax would be payable on the value of the entire contract irrespective of the element of service provided. The approach of the assessing authority to us thus appears to be correct. Once the amounts representing sale of goods i.e. Rs 13, 35, 68, 175/- and amounts representing value of services falling under negative list i.e. Rs 30, 42, 96, 081/- are adjusted and deduction in terms of Circular No. 341/43/96 dated 31.10.1996 is applied which has also been allowed in the impugned order there is no difference in figures appearing in Balance Sheet and ST-3 returns and therefore the demand of service tax of Rs. 5, 94, 38, 654/- cannot be sustained. Denial of cenvat credit of Rs 97, 36, 884/- is sustainable on the grounds stated in the impugned order - HELD THAT - The impugned order does not dispute the explanation that the Appellant has taken space on lease from institutions including Lucknow Golf Club India Industries Association and others for installation of bill boards LED signage etc. and used such space for providing advertisement services through such bill boards LED signage etc.. This activity of taking space on lease is clearly an input service used for providing output service and therefore the Appellant is entitled to credit of service tax charged on lease rentals and hence credit cannot be denied on this ground. The last allegation of non-submission of invoices also does not survive as the order records that the invoices were subsequently produced by the Appellant which were verified and after verification credit of only Rs 97, 36, 884/- has been denied the merits of which has already been discussed in this order. Thus the denial of credit in the present case is not warranted. Whether late fees can be demanded and penalties u/s 78 77(1)(c) 77(1)(d) 77(2) can be imposed? - HELD THAT - The show cause notice proposed imposition of penalty u/s 77 (1)(c) for failure to furnish information u/s 77(1)(d) for failure to pay tax electronically and Section 77(2) for contravention of the provisions without alleging anything as to when and what information was not furnished by the Appellant when and what amount of tax was not paid electronically and which provisions have been contravened by the Appellant. It is a settled law that show cause notice is the foundation of the case set up by the Revenue and once the show cause notice lacks necessary particulars it is difficult to uphold imposition of penalties under these provisions. As regards late fee the demand of late fee has been confirmed under Section 70 read with Rule 7(C) on the ground that the Appellant has not averred anything in the defence reply or at the time of personal hearing. This finding appears to be perverse and contrary to record as in paragraph 8 of reply dated 13.02.2020 the Appellant has clearly stated that delay in submission of ST-3 return was on account of delayed collection of dues and the Appellant has filed the service tax returns by paying tax from his own pocket. The delayed submission of return on account of delayed collection of tax and payment of service tax from own pocket which otherwise is to be charged and deposited is a reasonable ground for belated submission of ST-3 returns and therefore the late fee imposed cannot be sustained. Conclusion - i) The demand of service tax and denial of CENVAT credit were not sustainable. ii) Once the amounts representing the sale of goods and services under the negative list were adjusted there was no discrepancy between the Balance Sheet and ST-3 returns rendering the service tax demand unsustainable. iii) The denial of credit was unwarranted as the Appellant had demonstrated compliance with relevant provisions and maintained proper accounts. iv) Imposition of penalties are upheld. Late fees not sustained. The appeal is liable to be allowed and the impugned order to the extent challenged is set-aside with consequential reliefs to the Appellant.

Summary

ISSUES PRESENTED and CONSIDERED

A. Whether the demand of service tax of Rs 5,94,38,654/- based on the difference in figures of the Profit & Loss Account and ST-3 returns is justified.

B. Whether the denial of CENVAT credit of Rs 97,36,884/- is sustainable based on the grounds stated in the impugned order.

C. Whether the imposition of late fees and penalties under Sections 78, 77(1)(c), 77(1)(d), and 77(2) of the Finance Act, 1994, can be justified.

ISSUE-WISE DETAILED ANALYSIS

Issue A: Demand of Service Tax of Rs 5,94,38,654/-

The demand was based on discrepancies between figures in the Profit & Loss Account and the ST-3 returns. The Appellant contended that the amounts in question included receipts from the sale of goods and services falling under the negative list, which are not subject to service tax. The Appellant also provided a reconciliation of figures, supported by contracts and invoices showing VAT payments on goods sold, asserting that these sales were separate from service contracts.

The Court found that the contracts were composite, not indivisible, and that the Appellant had correctly segregated and paid service tax and VAT on respective components. The Court referenced the precedent set in Imagic Creative (P) Ltd. v. CCT, which distinguished between composite and indivisible contracts, supporting the Appellant's position. The Court also noted that the sale of space on hoardings/unipoles/rooftops falls under the negative list, as established in previous Tribunal decisions.

The Court concluded that once the amounts representing the sale of goods and services under the negative list were adjusted, there was no discrepancy between the Balance Sheet and ST-3 returns, rendering the service tax demand unsustainable.

Issue B: Denial of CENVAT Credit of Rs 97,36,884/-

The denial of CENVAT credit was initially proposed on grounds including non-production of invoices, availing credit on non-input services, and failure to maintain separate accounts for exempted and taxable services. The Appellant provided invoices and argued that the services in question were indeed input services for providing taxable output services.

The Court found that the Appellant had provided sufficient documentation, including invoices verified by the jurisdictional office, which supported the legitimacy of the claimed credits. The Court criticized the impugned order for lacking specific reasoning for the denial of credit and noted that the adjudicating authority must provide clear reasons to justify its decisions.

The Court concluded that the denial of credit was unwarranted, as the Appellant had demonstrated compliance with relevant provisions and maintained proper accounts.

Issue C: Imposition of Penalties and Demand of Late Fee

The imposition of penalties under Sections 78, 77(1)(c), 77(1)(d), and 77(2) was challenged due to a lack of specific allegations in the show cause notice. The Court emphasized that a show cause notice must contain detailed allegations to form a valid basis for penalties. The absence of such particulars rendered the penalties unsustainable.

Regarding the late fee, the Court found that the Appellant had provided a reasonable explanation for the delayed submission of ST-3 returns, citing delayed collection of dues and payment of service tax from its own funds. The Court deemed this a valid ground for waiving the late fee.

SIGNIFICANT HOLDINGS

The Court held that the demand of service tax and denial of CENVAT credit were not sustainable, emphasizing the importance of distinguishing between composite and indivisible contracts and acknowledging the legitimacy of the Appellant's documentation and reconciliation efforts.

The Court reiterated the necessity for detailed reasoning in orders denying credit and imposing penalties, underscoring the requirement for show cause notices to contain specific allegations.

The final determination was to allow the appeal, setting aside the impugned order to the extent challenged, and granting consequential reliefs to the Appellant.