2018 (9) TMI 1517 - AT - Service Tax

Maintainability of SCN - Short paid Service Tax - Whether the show cause notice is maintainable for raising a demand of service tax as short paid? Held that - Revenue have not found any fault and/or error in the books of accounts and the financial statements which have been duly audited by a Chartered Accountant as required under the other Taxation Acts etc. - Ruling of Coordinate Bench of this Tribunal in the case of Commissioner of Service Tax, Delhi vs. Convergys India, 2018 (1) TMI 1174 - CESTAT CHANDIGARH , wherein under similar circumstances show cause notice demanded differential duty for the apparent difference in the receipts as per balance sheet as compared to the ST-3 returns this Tribunal held that the receipt declared in the balance sheet is for accounting purposes or for the purpose of Income Tax and the same cannot be considered as Revenue for levy of service tax. We also note that the book of accounts are not rejected and without rejecting the assumption of the gross receipt as taxable service, is untenable, and grossly wrong. The SCN is misconceived and vague, and also erroneous - Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Maintainability of show cause notice for raising a demand of service tax as short paid.

Analysis:
The issue in this appeal revolves around the question of whether the show cause notice is valid for raising a demand of service tax as short paid. The appellant, a partnership firm engaged in providing taxable services, was alleged to have not filed their ST-3 returns in time, leading to a demand for service tax. The show cause notice invoked an extended period of limitation for the period 2011-12 to 2014-15. The notice was based on discrepancies between the gross value of works contract shown in the balance sheet and that declared in the ST-3 returns, resulting in an alleged evasion or underpayment of service tax.

The appellant contested the show cause notice, arguing that it was misconceived. They claimed that the amount of gross receipts shown in the balance sheet was adjusted after accounting for sundry creditors and debtors, and should not be directly compared to the figures in the ST-3 returns. The appellant highlighted that the financial statements had been audited by a Chartered Accountant and no errors were found. They also cited a ruling by a Coordinate Bench of the Tribunal in a similar case, where it was held that the receipts declared in the balance sheet for accounting or income tax purposes cannot be considered as revenue for the levy of service tax.

After a thorough analysis, the Tribunal concluded that the show cause notice was indeed misconceived, vague, and erroneous. The Tribunal found that the authority issuing the notice lacked a basic understanding of accounting principles, leading to the misinterpretation of financial statements. As the books of accounts were not rejected and no errors were found during the audit, the assumption of gross receipts as taxable service was deemed untenable and incorrect. Therefore, the Tribunal allowed the appeal, setting aside the impugned order and granting the appellant-assessee consequential benefits in accordance with the law.

This judgment highlights the importance of a proper understanding of accounting principles and the need for accurate interpretation of financial statements in tax matters. It emphasizes the significance of conducting audits and adhering to established legal principles when assessing tax liabilities based on financial data.