2024 (3) TMI 345 - AT - Service Tax

Issuance of two SCN - Short payment of service tax - Security Agency Services - cleaning services - recovery of service tax based on best judgment assessment under section 72 of the Finance Act - demand made on credit notes (i.e., the amounts returned by the appellant service provider to the service recipients) mistakenly treating them as debit notes (i.e., as amounts received by the appellant from the service recipients). Security agency service rendered to the Mauritius High Commission by the appellant - cleaning services - HELD THAT - It is true that at the time the SCN was issued, the appellant was registered with the service tax department for providing security agency service . When information was called for, it had not supplied the complete information sought by the department. Hence, a notice was issued invoking section 72 (Best Judgment assessment). Therefore, at that stage, the Commissioner may not have had a clear idea of the exact nature of the services provided. However, once all the information was provided in the reply to the SCN including the contracts which the appellant had entered into with its clients, it was incumbent on the Commissioner to classify the services appropriately and confirm service tax. In the process, the Commissioner might have found that service tax is not chargeable or chargeable for rendering security agency service (invoked in the SCN) or for rendering some other taxable service which the appellant may have rendered. However, there is no justification for the Commissioner to confirm a demand without specifying any head. This vagueness in the impugned order makes it impossible for the appellant to defend itself against the confirmed demand - this part of the demand cannot be sustained and needs to be set aside. Issuance of second SCN - Demand on account of the credit notes issued by the appellant which, the Commissioner considered as the amounts received by the appellant towards providing taxable services and hence confirmed the demand of service tax - HELD THAT - In this case, the appellant was the service provider and was liable to pay service tax on any amounts which it received as consideration. If it issues a debit note, it means it received some money and if it issues a credit note, it means it paid someone. The Commissioner has, clearly erred and mis-understood the credit notes as amounts which the appellant had received when, in fact, these are the amounts which the appellant had paid and therefore, service tax cannot be charged from the appellant on the amount which it had paid to other parties. Learned counsel for the appellant submits that some of the clients of the appellant had cancelled their orders and hence it had returned the amounts paid by them by issuing credit notes. Since this is a simple case of alleged wrong calculation, it is found that this is a fit case to be remanded to the Commissioner to consider the credit notes and redetermine service tax, if any, is payable for the period covered by this SCN. The appeal is partly allowed, partly rejected and partly remanded.

Summary

Issues Involved:
1. Demand of service tax based on best judgment assessment.
2. Classification of services provided by the appellant.
3. Treatment of credit notes issued by the appellant.

Summary:

Issue 1: Demand of Service Tax Based on Best Judgment Assessment:
The first Show Cause Notice (SCN) dated 21.10.2014 proposed a recovery of service tax amounting to Rs. 2,49,98,892/- based on best judgment assessment under Section 72 of the Finance Act, 1994. The Commissioner, upon receiving actual figures from the appellant, dropped a substantial part of the demand and confirmed only Rs. 31,89,537/-. The appellant contended that certain amounts were paid before and after the issuance of the SCN, which were not considered by the Commissioner. The Tribunal found that the amounts paid as service tax before and after the SCN issuance need to be verified and appropriated towards the demand.

Issue 2: Classification of Services Provided by the Appellant:
The appellant argued that the confirmed demand included amounts received for the sale of goods and services rendered to the Mauritius High Commission, which are exempt from service tax. The Tribunal upheld the demand related to services rendered to the Mauritius High Commission due to a lack of evidence for exemption. However, the Tribunal found vagueness in the impugned order regarding the classification of services as 'security services,' 'cleaning services,' or 'manpower supply services.' The Tribunal set aside the demand of Rs. 28,55,046/- due to this vagueness and remanded the issue for re-examination.

Issue 3: Treatment of Credit Notes Issued by the Appellant:
The second SCN dated 13.4.2015 covered the period 2013-14 and involved a demand based on credit notes issued by the appellant. The Commissioner erroneously added the value of credit notes to the appellant's revenue, enhancing the taxable amount. The Tribunal clarified that credit notes represent amounts paid by the appellant to its clients and should not be treated as additional revenue. The matter was remanded to the Commissioner for re-examination and redetermination of the service tax liability.

Conclusion:
The Tribunal partly allowed, partly rejected, and partly remanded the appeal. The demand related to services rendered to the Mauritius High Commission was upheld. The demand of Rs. 28,55,046/- was set aside due to vagueness. The issues regarding amounts paid as service tax and the treatment of credit notes were remanded to the Commissioner for verification and re-determination, following principles of natural justice.