2024 (9) TMI 1597 - AT - Service Tax

Irregular Availment of Composition scheme - short payment of tax due to discharge of tax at the rate prevailing on the date of provision of service and raising of invoice as against the rate prevailing on the date of receipt of the taxable value - short payment of tax by following realization basis as against the accrual basis prescribed under the POT Rules - short-payment of tax based on an improper comparison of select GL Codes - nonmaintenance of separate records with respect to input services user for dutiable and exempt output services - Irregular availment of pro-rata cenvat credit attributable to bad debts written off. Irregular Availment of Composition scheme - HELD THAT - There is no dispute regarding the eligibility of the appellant to avail the composition scheme. It is observed that there is no specific procedure prescribed Rule 3(3) of the Composition Rule for exercising the option to avail the scheme. In the absence of such formal requirement in wring to avail the scheme, the payment made by the appellant under the scheme is construed as deemed exercise of the option under the Scheme. This issue has been settled by the decision of the Hon ble Calcutta High Court in M/S. LARSEN TOUBRO LIMITED VERSUS ASSISTANT COMMISSIONER, SERVICE TAX COMMISSIONERATE, DIVISION-III, KOLKATA OTHERS 2022 (12) TMI 523 - CALCUTTA HIGH COURT where it was held that ' no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed, the fact of the paying service at composition rate in the return filed by the service provider is enough indication to show that they have opted for payment under the works contract composition scheme.' - The appellant has rightly paid service tax under the Works Contract Composition Scheme and hence the demand confirmed under this category is not sustainable. Demand of service tax of Rs.56,172/- confirmed in the impugned order on the allegation that the Appellant should have discharged service tax @4.12% prevalent on the date of receipt of the taxable value as against the rate of 2.06% prevalent at the time of rendering of the service - HELD THAT - The taxable event in this case is the rendition of service. Hence, service tax is payable at the rate applicable at the time of rendition of the services. It is observed that this view has been held by the Hon ble High Court, Delhi in the case of VISTAR CONSTRUCTION (P) LTD/PIYARE LAL HARI SINGH BUILDERS PVT LTD VERSUS UNION OF INDIA AND ORS 2013 (2) TMI 52 - DELHI HIGH COURT where it was held that ' the rate of tax applicable on the date on which the services were rendered would be the one that would be relevant and not the rate of tax on the date on which payments were received. The instruction dated 28-4-2006 which is contrary to the law declared by the Supreme Court is clearly invalid.' Demand of Rs.18,95,028/- confirmed in the impugned order based on the difference between gross amount billed vis- -vis gross amount realised as reflected in the returns filed - HELD THAT - The adjudicating authority has not given any finding to the contrary of the reconciliation report submitted by the appellant. As the department has not produced any other evidence to substantiate short payment of further demand on this count, it is held that only this amount of Rs.18,128/- needs to be confirmed on this count. Accordingly, the demand of service tax of Rs.18,128/- along with interest, confirmed under the category of 'Business Auxiliary Service' and the remaining demand confirmed under this category in the impugned order set aside. Since this amount has already been paid by the appellant from their Cenvat account on 31 May 2013 along with interest, the payment of service tax and interest is appropriated against the demand confirmed in this order. As the demand occurred only due to the reconciliation report submitted by the Chartered Accountant, there is no suppression of fact established in this case. Accordingly, no penalty imposable on the appellant on this demand confirmed. Short-payment of service tax of Rs.3,53,30,714/- based on the comparison of select GL Codes appearing in the Trial Balance of the Appellant vis- -vis the income reflected in the ST 3 returns - HELD THAT - It is observed that the appellant submitted a detailed reconciliation report duly certified by a Chartered Accountant, along with the reply to the show cause notice. As per this report, there was no differences in the income reflected in the trial balance and the income reflected in the ST 3 returns. However, it is observed that the adjudicating authority has not given any finding on this report in the impugned order - the demand confirmed on this count in the impugned order is not sustainable and accordingly, the same is set aside. Violation of Rule 6 of the CCR on account of non-maintenance of separate records with respect to input services user for dutiable and exempt output services - HELD THAT - The appellant have maintained Contract-wise/project-wise separate records in its accounting software (SAP). In this method of accounting, each contract/project was shown as a separate profit centre. Therefore, separate records with respect to exempt and taxable outward supply were maintained by the Appellant in compliance with Rule 6 of the Cenvat Credit Rules. Thus, the appellant is not liable to pay an amount equivalent to 5/8% of the value of exempted goods, as demanded in the impugned order - reliance placed on the judgement of the Tribunal in the case of Essar Projects India Limited Vs. CCE 2011 (2) TMI 187 - CESTAT, AHMEDABAD whereby it was held that the provision of Rule 6(3) does not apply if the Cenvat records are maintained project-wise/contract-wise - the demand of reversal of Cenvat credit confirmed in the impugned order on this count is not sustainable. Irregular availment of pro-rata cenvat credit attributable to bad debts written off - HELD THAT - There is no provision under the Cenvat Credit Rules, 2004 or in the Finance Act, 1994 which requires for reversal of Cenvat credit for the services provided for which no consideration has been received by an assessee - the demand confirmed on this count is not sustainable. Invocation of extended period to demand service tax - Penalty - HELD THAT - There is no suppression of facts with intention to evade payment of tax established in this case. The appellant has been filing returns regularly disclosing all information to the department. There were multiple audit conducted on the appellant's records. Also, it is observed that the entire demand has been raised based on their profit and loss account and balance sheet. Thus, the demands confirmed in the impugned order by invoking extended period of limitation is not sustainable on the ground of limitation. For the same reason, the penalty imposed on the appellant is not sustainable. Appeal disposed off.

Summary

Issues Involved:
1. Irregular availment of Works Contract Composition Scheme.
2. Short payment of tax due to the discharge of tax at the rate prevailing on the date of provision of service.
3. Short payment of tax by following realization basis as against the accrual basis.
4. Short payment of tax based on an improper comparison of select GL Codes.
5. Violation of Rule 6 of the CCR on account of non-maintenance of separate records.
6. Irregular availment of pro-rata Cenvat credit attributable to bad debts written off.
7. Invocation of the extended period for demanding service tax.

Detailed Analysis:

1. Irregular Availment of Works Contract Composition Scheme:
The appellant contended that they were eligible for the composition scheme as clarified by Circular No. 128/10/2010 - ST. The appellant argued that the payment made under the scheme is construed as deemed exercise of the option due to the absence of a prescribed formal requirement. This view was supported by the decision in Larsen and Toubro Limited Vs. Assistant Commissioner, Service Tax Commissionerate, Kolkata, which held that the payment of service tax at the compounded rate in statutory returns is sufficient compliance. The tribunal agreed, setting aside the demand of Rs. 68,02,449/-.

2. Short Payment of Tax Due to Rate Prevailing on Date of Provision of Service:
The appellant argued that the taxable event is the rendition of service, and hence, the rate of tax applicable is the one prevalent when the services were rendered. This was supported by the judgment in Vistar Construction (P) Ltd. Vs. Union of India, which held that the taxable event is the rendition of service. The tribunal agreed, setting aside the demand of Rs. 56,172/-.

3. Short Payment of Tax by Following Realization Basis:
The appellant provided a detailed reconciliation report and argued that they were discharging tax on an accrual basis post the introduction of POT Rules. They also pointed out that they had already paid Rs. 18,128/- along with interest. The tribunal confirmed the demand of Rs. 18,128/- and set aside the remaining demand of Rs. 18,95,028/- due to lack of contrary findings by the adjudicating authority.

4. Short Payment of Tax Based on Improper Comparison of GL Codes:
The appellant submitted a detailed reconciliation report certified by a Chartered Accountant, showing no differences in income as alleged. The tribunal noted that the adjudicating authority had ignored this report and relied on the judgment in Firm Foundations & Housing Pvt. Ltd. Vs. Pr. Commr. Of ST, Chennai, which held that there cannot be a straitjacket comparison between trial balance and ST 3 returns for construction companies. The tribunal set aside the demand of Rs. 3,53,30,714/-.

5. Violation of Rule 6 of the CCR:
The appellant maintained separate records contract-wise/project-wise in their accounting software (SAP), showing compliance with Rule 6 of the Cenvat Credit Rules. The tribunal relied on the judgment in Essar Projects India Limited Vs. CCE, which held that project-wise/contract-wise maintenance of records suffices. The demand of Rs. 49,90,185/- was set aside.

6. Irregular Availment of Pro-rata Cenvat Credit Attributable to Bad Debts:
The appellant argued that there is no provision requiring reversal of Cenvat credit for services provided without receiving consideration. The tribunal agreed, citing the judgment in SBI Cards and Payments Services Private Limited Vs. Commissioner of Service Tax, Delhi, which held that there is no requirement for reversal of Cenvat credit for unreceived consideration. The demand of Rs. 18,27,025/- was set aside.

7. Invocation of Extended Period for Demanding Service Tax:
The tribunal found no suppression of facts with the intention to evade tax, noting that the appellant had regularly filed returns and disclosed all information. The entire demand was based on their profit and loss account and balance sheet. Thus, the tribunal held that the demands confirmed by invoking the extended period of limitation were not sustainable.

Conclusion:
1. All demands confirmed in the impugned order were set aside on merit and limitation, except for Rs. 18,128/- along with interest, which was already paid by the appellant.
2. All penalties imposed on the appellant were set aside.
3. The appeal was disposed of on these terms.

(Order Pronounced in Open court on 27.09.2024)