2019 (1) TMI 1112 - AT - Service Tax

Valuation - commercial or industrial construction service - inclusion of written off dues in assessable value - Held that - It is surprising that the adjudicating authority has deemed these debit notes, relating to supply of materials by the customers, to be documents that substitution of monetary consideration by nonmonetary consideration. Consideration, in common understanding, is the recompense for providing anything to a provider and is, consequently, subsumed within the property of the provider. Debit notes imply the intent to withhold the value therein from the monetary consideration and the issue of materials in lieu for subsuming in an asset that will vest with the issuer cannot, by any stretch, be deemed to be consideration - It is, therefore, not the non-monetary consideration referred to in section 67 of Finance Act, 1994 and the relevant Rules. Penalty u/s 78 of FA - Held that - The appellant is a provider of services against contract that also involves supply of goods which would take the activity beyond the ambit of tax under the provisions that have been held to be service simplicitor. In these circumstances, and the due discharge of tax liability on the undisputed portion of the demand, imposition of penalties under section 78 of Finance Act, 1994 is not appropriate. The recovery of tax of ₹ 10,07,854 and penalty imposed under section 78 of Finance Act, 1994 is set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to confirmation of demand for the period from 2005-06 to 2008-09 in fresh proceedings, limited to recovery of tax on amounts not received from customers and on bad debts. Dispute over billed amount and reduction of consideration covered by debit notes. Imposition of penalties under sections 76, 77, and 78 of Finance Act, 1994.

Analysis:
The appeal challenges the confirmation of demand for the period from 2005-06 to 2008-09 in fresh proceedings following a remand order of the Tribunal. The appellant argued that tax liability should be restricted to actual receipts on services rendered after the introduction of section 65(105)(zzq) of Finance Act, 1994 on 16th June 2005 and that 'written off dues' should be excluded. The dispute in the second round of proceedings was focused on the recovery of tax on amounts not received from customers and on bad debts. The appellant sought the exclusion of certain deductions to crystallize the tax liability, relying on various judicial decisions supporting their claim.

The Authorized Representative emphasized the findings of the original authority regarding the tax liability on gross value as prescribed by section 67 of Finance Act, 1994 and rule 5(1) of Service Tax (Determination of Value) Rules, 2006. The appellant's claim of short-payment on the part of customers through debit notes was scrutinized, and it was concluded that the gross value for tax assessment should include any nonmonetary consideration, as per the relevant provisions.

The Tribunal examined the legality and propriety of maintaining the demand for tax on amounts not received by the appellant and the imposition of penalties under sections 76, 77, and 78 of Finance Act, 1994. It was noted that the debit notes related to the supply of materials by customers did not constitute nonmonetary consideration as referred to in the relevant rules. The Tribunal found flaws in the impugned order confirming the tax liability and deemed the tax on the disputed amount not leviable on the date of the show cause notice issuance.

Moreover, the Tribunal considered the distinction between services and works contract for levy of tax under Finance Act, 1994, citing relevant judicial decisions. It was concluded that the appellant's activity involving both services and goods supply falls beyond the scope of tax under the provisions held to be service simplicitor. Therefore, the imposition of penalties under section 78 of Finance Act, 1994 was deemed inappropriate, and the recovery of tax and penalty imposed under the impugned order was set aside.