2010 (3) TMI 339 - AT - Service Tax

Security services stay pre deposit - Revenue found on investigation that the appellants had not paid full amount of Service Tax on security charges collected by them and differential Service Tax was worked out to Rs. 3, 52, 67, 513/-. The amount was demanded on the basis of figures in the Profit & Loss Account since the appellants have not any details. For the subsequent two years also in spite of issue of repeated summons and letters to the appellants they failed to submit the required data and details of actual amount of Service Tax collected paid and payable. Held that - for the purpose of levying of Service Tax the appellants are required to maintain accounts and since the Service Tax is required to be paid on receipt basis it is more important that appellants maintain proper accounts. Further the appellants are also required to maintain accounts to show the services rendered amount received and the period of which it relates. In these circumstances we find that it would be proper to require the appellants to deposit the full amount of Service Tax and the penalties - Subject to the pre-deposit of Rs. 3 crores as directed the requirement of pre-deposit of the balance amount of Service Tax interest thereon and penalties are waived and stay against recovery of the same is granted during the pendency of the appeal.

Summary

Issues:
1. Liability of Service Tax on security charges collected by appellants.
2. Maintenance of accounts on cash basis vs. accrual basis.
3. Lack of proper records and evidence regarding Service Tax payments.
4. Adequacy of deposit amount for Service Tax and penalties.

Analysis:
1. The appellants were providing Security Agency's Services and were found to have not paid the full amount of Service Tax on security charges collected, leading to a demand of Rs. 6,31,60,945/- with interest and penalties. The Revenue issued show-cause notices based on incomplete data provided by the appellants, who claimed inability to produce detailed records due to a flood that damaged their office and records. The Tribunal noted the appellants' argument that they paid Service Tax only on amounts received post-16-10-98 and that the excess amounts in the Profit and Loss Account related to services rendered before that date, which they couldn't evidence due to the loss of records.

2. The appellants contended that they maintained accounts on a cash basis and were not required to follow an accrual basis, citing provisions of the Income Tax Act and Company Act. The Tribunal agreed with the appellants that cash basis accounting was permissible. However, the Tribunal raised concerns about the lack of specific records to link payments to services rendered, questioning how customers paid without clarity on the services provided and amounts due. The appellants' inability to provide detailed records raised doubts about the accuracy of their claims.

3. The Tribunal highlighted the appellants' failure to maintain proper records despite being a company with significant turnover and multiple offices, noting discrepancies in the audit reports regarding Service Tax payments. The Tribunal found it suspicious that the appellants claimed outstanding receipts dating back to 1982-1999 without substantiating these figures. The lack of detailed records and the auditors' oversight of Service Tax obligations raised doubts about the appellants' financial management practices.

4. Considering the appellants' inadequate deposit offer of Rs. 2.5 crores against a total liability exceeding Rs. 19 crores, the Tribunal directed them to deposit Rs. 3 crores within 12 weeks. The Tribunal emphasized the mandatory penalty under Section 78 of the Finance Act, 1994 and the importance of maintaining proper accounts for Service Tax compliance. The appellants were granted a stay against recovery of the remaining amount pending the appeal upon making the directed pre-deposit.

This detailed analysis of the judgment highlights the key issues surrounding the liability of Service Tax, accounting practices, record-keeping deficiencies, and the adequacy of the deposit amount required for Service Tax and penalties.