2021 (7) TMI 854 - AT - Service Tax

Short payment of service tax - Service Tax Voluntary Compliance Encouragement Scheme, 2013 - abatement sought for material components - availment of Composition Scheme - substantial false declaration or not - HELD THAT - The calculation of tax short paid, as made by the ld. Commissioner in the impugned order, is not due to any mis-declaration or false declaration under VCES. Ld. Commissioner has categorically observed that difference in tax liability is mainly due to interpretation and change in calculation of service tax, therefore, the mistake of the respondent/assessee in the declaration is bona fide and there is no malafide on their part. In view of the decision of the Larger Bench in the case of M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST, DELHI OTHERS. 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) , the respondent is not required to pay service tax on the receipt of materials supplied free of cost, received from the principal. Thus, the amount demanded in the impugned order for the period 2012-2013 and 2013-2014 is set aside. Hence, the respondent is only required to pay the differential duty of ₹ 1,53,100/-. Further, penalty under Section 78 is also set aside, there being no case of falsification or contumacious conduct, in the facts and circumstances on the part of the respondent/assessee. The late fee of ₹ 20,000/- under Rule 7C is reduced to ₹ 10,000/-. The appeal of Revenue is dismissed.

Summary

Issues Involved:

1. Validity of the VCES Declaration.
2. Calculation of Service Tax Liability.
3. Inclusion of Free of Cost Materials in Taxable Turnover.
4. Imposition of Penalty and Late Fee.

Issue-wise Detailed Analysis:

1. Validity of the VCES Declaration:

The Revenue challenged the VCES declaration filed by the respondent, alleging it was substantially false. The respondent declared service tax dues of ?16,03,551/- under the VCES for the period 2010-2011 to 2nd December 2012 and paid the tax accordingly. The Revenue, however, contended that the respondent received ?11,17,79,859 during 2012-2013 for taxable services and should have declared a higher amount. The respondent argued that they had correctly calculated their tax liability under the Composition Scheme applicable to works contracts and had included the value of free materials supplied by the principal in their taxable turnover for the relevant periods. The Commissioner found that the respondent had complied with the payment procedure under VCES and that the difference in tax liability was due to calculation errors and not malafide intent.

2. Calculation of Service Tax Liability:

The Commissioner verified the tax liability for each financial year from 2008-2009 to 2011-2012. For 2008-2009, a short payment of ?3,344/- was identified. For 2009-2010, the service tax payable was ?9,27,409/-, but the respondent had paid ?7,93,874/-, resulting in a short payment of ?1,33,535/-. For 2010-2011, the short payment was ?16,221/-. For 2011-2012, the additional service tax required was ?3,70,640/- on free materials supplied, and for 2012-2013, it was ?1,09,846/-. The Commissioner concluded that the total additional liability was ?1,53,100/-, primarily due to calculation differences.

3. Inclusion of Free of Cost Materials in Taxable Turnover:

The respondent argued that free materials supplied by the principal should not be included in the taxable turnover, citing the Larger Bench decision in Bhayana Builders Pvt. Ltd., which was affirmed by higher courts. The Commissioner accepted this argument, noting that the respondent had included the value of free materials in their taxable turnover for the relevant periods and that any additional service tax liability on free materials supplied during 2011-2012 and 2012-2013 was due to late information from the principal.

4. Imposition of Penalty and Late Fee:

The Commissioner imposed a penalty equal to the tax demand of ?1,53,100/- under Section 78 and a late fee of ?20,000/- for late filing of the service tax return for January 2013 to March 2014. However, the Tribunal found that the short payment of tax was due to bona fide errors and not malafide intent. Consequently, the penalty under Section 78 was set aside, and the late fee was reduced to ?10,000/-.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upheld the respondent's VCES declaration as not substantially false, and confirmed the additional tax liability of ?1,53,100/-. The penalty under Section 78 was set aside, and the late fee was reduced to ?10,000/-. The respondent was not required to pay service tax on free materials supplied by the principal, following the Bhayana Builders decision. The cross-objections by the respondent were allowed, entitling them to consequential benefits as per law.