2024 (12) TMI 741 - AT - Service Tax

Recovery of service tax not paid or short paid with interest and penalty - HELD THAT - It is found that the first demand which has been made in respect of the value of material such as grass, plants, manure, pesticides etc. supplied for landscaping activities under the category of Interior Decorator Services has to be included the said value. There are no merits in the inclusion of the said value in the value of the taxable services for the reason that the issue has been settled by the various decisions in this regard. In the case of M/S AGRAWAL COLOUR ADVANCE PHOTO SYSTEM, M/S AGRAWAL COLOUR QUICK SYSTEM, M/S AGRAWAL COLOUR PHOTO INDUSTRY VERSUS COMMISSIONER OF CENTRAL EXCISE AND ANOTHER 2020 (4) TMI 799 - MADHYA PRADESH HIGH COURT Hon ble Madhya Pradesh High Court has held that value of the material supplied while providing the taxable services cannot be included in the value of taxable services, even if the material is consumed for providing the taxable service. Hence there are no merits in the demand made on this account. In respect of other two demands the only difference which is observed between the value of taxable services as per ST-3 returns and the figures in the Financial Accounts has been explained by the appellant to be for the reason that the books of account was maintained on accrual basis whereas service tax was paid on receipt basis. Commissioner (Appeals) have in absence of any evidence to substantiate the same held that in favour of the demands, in any case if service tax has been paid on the entire value then their cannot be demand for service tax second time. Appellant can establish the same by way of production of the said documents before the Original Authority. As the demand of service tax made by this order is set aside, the penalties are also set aside in respect of first demand. In respect of the other demands for which the matter remanded the quantum of penalty can be determining only after ascertainment of the tax payable after proper reconciliation. The demand made in respect of the cost of material supplied for providing landscaping services under the category of Interior Decorator Services set aside - matter is remanded for ascertaining the factum of payment of service tax on account of the difference in the manner of the figures in the balance sheet which were higher than those in the ST-3 returns during the same period - Penalties are set aside. Appeal is partly allowed by way of remand.

Issues Involved:

1. Whether service tax was payable on consideration claimed to be received for supply of grass, plants, pesticides, and other materials.
2. Whether receipts shown as 'miscellaneous income' were liable to be included in taxable value for levy of service tax.
3. Whether certain receipts were for taxable cleaning service.
4. Applicability of extended period of limitation and penal provisions.
5. Whether the appellant's activities qualify as works contracts not subjected to service tax.

Detailed Analysis:

1. Service Tax on Supply of Materials:

The primary issue was whether the value of materials such as grass, plants, and pesticides supplied for landscaping activities should be included in the taxable value under the category of Interior Decorator Services. The tribunal found that the contracts executed by the appellant were for landscaping services, which are taxable under the statutory definition of interior decorator services. However, it was held that the value of materials supplied should not be included in the taxable value, as established by various judicial decisions. The tribunal referenced the case of Agrawal Color Advance Photo System, where it was determined that the value of materials consumed while providing services cannot be included in the taxable value if there is documentary proof of sale. Therefore, the demand for service tax on this account was set aside.

2. Miscellaneous Income and Taxable Value:

The appellant was found to have excluded certain consultancy services categorized as 'miscellaneous income' from the taxable value in their ST-3 returns. The original authority determined a service tax liability based on the discrepancy between the balance sheet and ST-3 returns. The tribunal upheld this determination, emphasizing the appellant's failure to provide cogent evidence to demonstrate that these activities did not attract service tax. The burden of proof was on the appellant to show that the consideration was not for taxable services, which they failed to do. Thus, the tribunal upheld the service tax demand and the equal penalty for non-payment.

3. Taxable Cleaning Service:

Regarding the demand related to cleaning services, the appellant argued that the discrepancy arose due to maintaining accounts on an accrual basis while declaring taxable value on a receipt basis. The tribunal found this submission theoretical and unsupported by documentary evidence. Consequently, the service tax demand and penalty for cleaning services were upheld.

4. Extended Period of Limitation and Penal Provisions:

The tribunal addressed the applicability of the extended period of limitation and penal provisions. It was noted that the appellant's actions, such as issuing separate sales invoices for materials, were seen as attempts to obfuscate the true nature of services rendered, justifying the invocation of the extended period and penalties. However, penalties related to the demand for service tax on materials were set aside due to the tribunal's decision to exclude material costs from the taxable value.

5. Works Contract Argument:

The appellant argued that their activities were in the nature of works contracts, which were not subject to service tax. The tribunal did not find merit in this argument, as the contracts were clearly for landscaping services, falling under the taxable category of interior decorator services. The tribunal relied on statutory definitions and contract details to refute the works contract claim.

Conclusion:

The tribunal set aside the demand for service tax on the cost of materials supplied for landscaping services under Interior Decorator Services. However, it upheld the demands related to discrepancies in declared service values and imposed penalties, subject to a remand for ascertaining the factum of payment of service tax. The appeal was partly allowed, with penalties set aside for the first demand.

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