2023 (4) TMI 772 - HC - Service Tax

Principles of natural justice - mistake in the computation of demand - value of exempted services not taken into account - tickets booked in India for passengers embarking on journeys outside India - as per Petitioner, service tax liability arises on the basis of where the journey originates and not where the tickets are sold - place of provision of service Rules - HELD THAT - The Adjudicating Authority has in paragraph 4.15 of the Order-in-Original recorded the lack of documentary evidence or verification or certification by the Chartered Accountant as well as the deficiency of supporting evidence. There is also a recording that only figures of reversal made in each financial year have been furnished without detailing as to how the figures were arrived at vis-a-vis their claim and those appearing in the ST-3 Returns which have been furnished by the Petitioner to the Respondents. It is also not in dispute that Petitioner had clearly pointed out that there was a mistake in the computation of the demand, that while calculating the demand, value of exempted service of transportation of cargoes was not taken into consideration and that the Petitioner had offered that his personnel Shri Gaurav would approach the department to explain the workings when called for. It emerges from the above that this is nothing but a case of breach of principles of natural justice, as despite Petitioner s offer to assist the Adjudicating Authority in explaining the computational errors and inspite of the Adjudicating Authority s admitted inability to figure out the details with respect to the actual reversal in relation to the subject ST-3 Returns resulting in rejection of petitioner s claim for reduction in demand, which the Authority could have simply been able to resolve by asking for the assistance of petitioner s personnel. Therefore, the decisions cited on behalf of the Respondents would not apply in the facts of this case. Matter remanded back to the Respondent Adjudicating Authority to pass a fresh order - The Adjudicating Authority to complete the entire exercise within a period of six weeks after affording an opportunity to the Petitioner to explain the computation errors in detail for the purposes of re-computation of the demand in accordance with law. Petition allowed by way of remand.

Issues Involved:
1. Non-reversal of Cenvat Credit under Rule 6(3) of the Credit Rules.
2. Classification of services where tickets are sold in India but embarkation is outside India.
3. Maintenance of separate accounts for receipt and consumption of Input Services.
4. Imposition of interest and penalties under the Finance Act and Credit Rules.
5. Computation errors in demand calculation by the Adjudicating Authority.

Summary:

1. Non-reversal of Cenvat Credit under Rule 6(3) of the Credit Rules:
The Petitioner, a branch office of M/s. Emirates, was audited and instructed to submit details of tickets booked in India where the place of embarkation was outside India. The Department issued an observation letter alleging non-reversal of Cenvat Credit for such tickets. The Petitioner argued that the turnover and exempt turnover should be determined qua the service provider and that service tax for passenger transportation services was based on the concept of embarkation.

2. Classification of services where tickets are sold in India but embarkation is outside India:
The Department issued a show cause notice alleging that tickets sold in India with embarkation outside India constituted an 'Exempted Service' as per Rule 2(e) of the Credit Rules, and thus, no service tax was leviable on such tickets. The Petitioner contended that the service tax liability arises based on where the journey originates and not where the tickets are sold.

3. Maintenance of separate accounts for receipt and consumption of Input Services:
The show cause notice also alleged that the Petitioner had not maintained separate accounts for receipt and consumption of Input Services towards the provision of exempted/taxable services as required under Rule 6(1) of the Credit Rules. The Petitioner was liable to reverse the proportionate Cenvat credit attributable to exempted service income from tickets sold in India where the place of embarkation is outside India.

4. Imposition of interest and penalties under the Finance Act and Credit Rules:
The Petitioner was alleged to have contravened the provisions of Rule 6(3) and Rule 6(3A) of the Credit Rules and was liable for imposition of interest under Section 75 of the Finance Act read with Rule 14 of the Credit Rules. Additionally, penalties under Section 77 and Section 78 of the Finance Act read with Rule 15(3) of the Credit Rules were proposed for failure to disclose the exempted turnover in the prescribed Service Tax returns (Form ST-3).

5. Computation errors in demand calculation by the Adjudicating Authority:
The Petitioner pointed out computation errors in the demand calculation, arguing that the value of exempted service of transportation of cargoes was not considered and that the total amount reversed as shown in the ST-3 returns was incorrect. The Adjudicating Authority admitted the inability to figure out the exact reversals made by the Petitioner and passed the Order-in-Original without calling for the assistance of the Petitioner's personnel to explain the workings.

Judgment:
The Court acknowledged the breach of principles of natural justice, noting that the Adjudicating Authority failed to seek assistance from the Petitioner's personnel despite the admitted computational errors. The Order-in-Original dated 9 May 2022 was set aside and the matter was remanded back to the Respondent Adjudicating Authority to pass a fresh order after affording an opportunity to the Petitioner to explain the computation errors. The entire exercise was directed to be completed within six weeks. The Writ Petition was allowed, with parties bearing their own costs.

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