2024 (7) TMI 688 - AT - Service Tax

Determination of taxable value under Section 67 of the Finance Act, 1994 - differential amount worked out comparing the bank statement and ST-3 returns - HELD THAT - It can be seen that although inquiry and investigation was carried out in the matter from 2009 to 2013, there is no averment in the show cause notice as to how the differential amount as per the bank statement can be said as derived from the consideration received by the appellant out of the activity of service under sub-section (44) of Section 65B of Finance Act, 1994. The statements of the appellant s accountants cannot be the basis to consider such amounts as taxable value without any corroborative evidence of actual provision of services against such amounts. Moreover, such statements are not relevant in absence of examination of deponents as per the mandate of section 9D of the Central Excise Act, 1944 applicable to the provisions of Finance Act, 1994. In the present matter the Adjudicating Authority has failed to follow the requirement of Section 9D of the Act applicable to the provisions of Finance Act, 1994 regarding examination in chief of witness, therefore the statements of persons are not relevant and cannot be relied upon. Since department has not provided any evidence or justification to substantiate their claim that the differential amounts represent the consideration received for rendering taxable services, demand of service tax is not tenable. The demand of service tax is liable to be set aside. Since demand of tax is not sustainable, penalty upheld under section 78 also cannot be sustained. As regards, penalty upheld under section 77 - the impugned order is not sustainable and is set aside - appeal allowed.

Summary

Issues:
1. Whether demand of service tax based on differential amount from bank statements and ST-3 returns can be considered as taxable value under Section 67 of the Finance Act, 1994.
2. Relevance and admissibility of statements of accountants without examination under Section 9D of the Central Excise Act, 1944.
3. Burden of proof on department to establish provision of taxable services against differential amounts.
4. Sustainability of penalty under sections 77 and 78 in absence of sustainable tax demand.

Detailed Analysis:
Issue 1:
The case involved a demand of service tax based on differential amounts from bank statements and ST-3 returns. The appellant argued that the department presumed all bank deposits as taxable value without proving a correlation to actual provision of taxable services. The Tribunal observed that the department failed to establish how the differential amount from bank statements could be considered as derived from consideration received for services. The onus to prove taxability lies with the department, and without corroborative evidence, the demand of service tax was deemed not tenable. The Tribunal referenced relevant case law to support this conclusion.

Issue 2:
The admissibility of statements made by the appellant's accountants without examination under Section 9D of the Central Excise Act, 1944 was contested. The Tribunal held that such statements cannot be relied upon in the absence of proper examination as mandated by law. Citing a High Court judgment, the Tribunal emphasized the importance of following the prescribed procedure for admitting statements as evidence in adjudication proceedings.

Issue 3:
Regarding the burden of proof on the department to establish provision of taxable services against differential amounts, the Tribunal noted that despite the appellant providing information and records, the department failed to present sufficient evidence of taxable services being provided. The onus to prove taxability rested with the department, and in the absence of concrete evidence, the demand of service tax was considered unsustainable.

Issue 4:
The Tribunal addressed the sustainability of penalties under sections 77 and 78 in the absence of a sustainable tax demand. It was concluded that since the demand of tax was not tenable, penalties could not be upheld. The penalty under section 77 for not honoring summons and not maintaining records was deemed unsustainable as it was consequential to the tax demand, which was found to be unsupported. The Tribunal provided detailed reasoning based on precedents and set aside the impugned order, allowing the appeal with consequential relief.

Overall, the judgment highlighted the importance of establishing a clear nexus between bank deposits and taxable services, following proper procedures for admitting statements as evidence, and placing the burden of proof on the department to substantiate tax demands with concrete evidence.