2024 (12) TMI 743 - AT - Service Tax

Levy of VAT or service tax - Service tax demand based on discrepancies between income tax and service tax returns - Section 66D(e) of the Finance Act, 1994 - HELD THAT - In the present case, the show cause notice was issued on the basis of income tax returns and gross receipts shown in Form 26-AS. Further, perusal of the invoices produced on record clearly shows that the appellant has paid the VAT on all the goods supplied during the service rendered by the appellant. This is also an admitted fact that the appellant has paid the VAT on all the parts supplied at the time of servicing of the vehicles. The Adjudicating Authority has misinterpreted the circular dated 23.08.2007 and has not produced the entire circular, which was subsequently produced in the decision of the Tribunal in the case of M G Motors vs. CCE, Alwar 2020 (4) TMI 380 - CESTAT NEW DELHI . It is found that this issue is no more res integra and has been elaborately discussed by the Principal Bench of the Tribunal in the case of M G Motors vs. CCE, Alwar, wherein identical issue was involved and the Tribunal after relying upon the decision Samtech Industries vs. CCE, Kanpur 2014 (4) TMI 995 - CESTAT NEW DELHI has held that when invoices are issued showing the value of the goods used and the service charges separately, service tax would be chargeable only on the service/labour charges and the value of the goods used for repair would not be includable in the assessable value of the services. The impugned order is not sustainable in law and is liable to be set aside - Appeal allowed.

Summary

Issues:
Appeal against the order confirming service tax demand based on discrepancies between income tax and service tax returns, interpretation of circular regarding service tax on transactions subject to VAT, dismissal of appeal by Commissioner (Appeals) on new ground, applicability of service tax on transactions subject to VAT, limitation on demand, misinterpretation of circular by Adjudicating Authority, reliance on previous tribunal decisions.

Analysis:
The case involved an appeal against an order confirming a service tax demand due to alleged discrepancies between income tax and service tax returns. The appellant, a service provider registered with the service tax department, was accused of underpaying service tax. The Adjudicating Authority upheld the demand, which was subsequently confirmed by the Commissioner (Appeals), leading to the present appeal.

The appellant argued that the demand was not sustainable as they had paid VAT on the goods sold, and service tax should not be levied on transactions subject to VAT. The appellant also contended that the demand was beyond the legislative competence, citing Section 66D(e) of the Finance Act, 1994, which excludes trading of goods from service tax. Additionally, the appellant claimed that the demand was barred by limitation as there was no intention to evade tax, relying on a relevant legal precedent.

The Revenue, represented by the Authorized Representative, supported the findings of the impugned order. However, upon reviewing the submissions and evidence, the Tribunal found that the Adjudicating Authority had misinterpreted a circular and failed to consider the full context of the circular. The Tribunal referenced previous decisions to support the appellant's argument that service tax should not be charged on transactions where VAT had been paid on goods sold during the service.

By relying on the principles established in previous tribunal decisions, the Tribunal concluded that the impugned order was not sustainable in law. The Tribunal set aside the order and allowed the appeal of the appellant, providing consequential relief as per the law. The judgment highlighted the importance of correctly interpreting laws and circulars to ensure fair and lawful application of tax regulations.