2025 (3) TMI 575 - AT - Service Tax

Demand notice under proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns - demand of Service Tax on cancellation charges miscellaneous charges and cheque return charges - demand of Service Tax on services covered under RCM when the same is claimed as Cenvat credit by the Appellant - demand of inadmissible credit in respect of which invoices were not produced but duly accounted for in the Books of Accounts is justified or not - penalties. Whether demand notice is justified under proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns? - HELD THAT - As per provisions of Section 73(1B) of the Finance Act 1994 which provides the circumstances in which notice of demand was not required to be issued reveal that where tax was self assessed and returns were furnished no notice of demand was required to be issued under Section 73(1) - In the present case tax was self assessed and service tax liability was declared in returns as already admitted in the SCN as well as impugned order. So issuance of SCN for recovery of self assessed tax is patently unwarranted and legally incorrect. It is also found that the service tax liability declared in the ST-3 returns was deposited before issuance of SCN. As per provisions of Section 73(3) if any short levied or short paid service tax is deposited before issuance of the SCN no notice under Section 73(1) in respect of the amount so paid was required to be issued. As regard imposition of equal penalty under Section 78 of the Finance Act 1994 it is imposable when any notice has been issued under Section 73(1) of the Finance Act 1994 but in this case as there was no requirement to issue notice under Section 73 the imposition of penalty under Section 78 is unwarranted. In this regard the Tribunal in the case of M/s Mass Marketing and Advertisement Services P. Ltd. 2006 (2) TMI 20 - CESTAT BANGALORE where it has been held that no penalty is imposable if service tax is deposited before issuance of SCN. The same view has also been taken in the case of M/s Impress AD-ADIS and Displace 2004 (8) TMI 3 - CESTAT BANGALORE where the Tribunal has held that no penalty is imposable if service tax is deposited before issuance of SCN. Whether demand of Service Tax on cancellation charges miscellaneous charges and cheque return charges is legally correct? - HELD THAT - In the present case nothing is being tolerated by the party. The buyer entered into an agreement to buy flat and as per the agreement if the buyer cancels the deal he has to pay certain amount of the value of flat. The charge of the said amount is a legal consequence as defined in the Indian Contract Act. It is a kind of penalty which is being charged without any activity/service. Hence no service tax would be chargeable on the said amount - there is no element of service in respect of cheque bouncing/return charges collected by the party. No service has ever been provided by the party against such charges. The charging of cheque bouncing charges is in the form of imposition of a penalty. It is not being charged towards any service. Under Section 66E(e) of the Finance Act 1994 service tax is payable on the activity for tolerating an act. Cheque bouncing is not covered under the said clause. Hence no service tax is payable on the same. In respect of the income recorded under the head Miscellaneous income it is found that only bank interest received on account of deposits has been booked under the said head. As per Section 66D(n)(i) of the Finance Act 1994 interest accrued on deposits is a service classified in the Negative list. It means no service tax would be chargeable on the amount of interest. The demand of Service Tax on the Miscellaneous Income which represents interest earned by the party is not sustainable. Whether demand of Service Tax on services covered under RCM is justified when the same is claimed as Cenvat credit by the Appellant? - HELD THAT - It is found that whatever service tax was paid thereon could have been taken back by the Appellant in the form of CENVAT credit as the Appellant was registered as service tax assessee and was eligible to avail credit on input services. The above services were undoubtedly input services for the Appellant. Thus it is a case of revenue neutrality net revenue gain would be nil. Hence at the end there is no loss of revenue to the Exchequer. It has been settled law that in case of revenue neutrality demand of any differential duty would not be sustainable - In this case the Court has enunciated that demand of differential duty as not sustainable on the ground of revenue neutrality in as much as differential duty would be available as credit to the assessee - the demand in the present case is not sustainable. Whether demand of late fee for filing ST-3 returns beyond the due date specified under Section 70 of the Finance Act 1994? - HELD THAT - There are no provisions to raise any demand notice for late fees. It is provided that a return can be filed with late fees of maximum amount of Rs.20, 000/-. It does not prescribe that incase of non- payment of late fees any demand notice is required to be issued. In the lack of any provision for issuing show cause notice for demand of late fee we refrain to confirm any such demand. A careful consideration of the provision of Section 75 of the Finance Act indicates that it is a type of provision of compensatory nature where an assessee withholds it s tax liability. Interest is chargeable on the actual amount of tax withheld by the assessee. When an assessee is holding sufficient balance in Cenvat credit account which is to be utilized only for payment of due taxes no interest would be chargeable - In the case of Avo Carbon India Pvt. Ltd. vs. Commissioner Of GST CE (Chennai) 2024 (8) TMI 1205 - CESTAT CHENNAI it has been held that if the party had sufficient credit balance the demand of interest in this regard cannot sustain and requires to be set aside. Penalty - HELD THAT - Penalty under Section 77(2) of the Finance Act 1994 was of residual nature. In the SCN and also in the impugned order nothing was discussed to impose the penalty. Conclusion - i) The issuance of the SCN for recovery of self-assessed tax was unwarranted. ii) The imposition of penalties under Sections 78 and 77(2) was not justified. iii) The demand for service tax on cancellation charges cheque return charges and miscellaneous income was not legally sustainable. iv) The penalties for breach of contract are not services and do not attract service tax. The impugned order cannot be sustained and the same is set aside - Appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following principal issues in the appeal:

(i) Whether the issuance of a demand notice under the proviso to Section 73 was justified when the tax liabilities had already been accepted by the Appellant through the filing of ST-3 Returns.

(ii) Whether the demand of Service Tax on cancellation charges, miscellaneous charges, and cheque return charges was legally correct.

(iii) Whether the demand of Service Tax on services covered under the Reverse Charge Mechanism (RCM) was justified when the same was claimed as Cenvat credit by the Appellant.

(iv) Whether the demand of inadmissible credit in respect of which invoices were not produced but duly accounted for in the Books of Accounts was justified.

ISSUE-WISE DETAILED ANALYSIS

Issue No. (i): Demand Notice under Section 73

The Tribunal noted that all Service Tax Returns for the period from April 2013 to March 2016 had been filed, albeit after the due date. Section 70 of the Finance Act, 1994 allows for the filing of returns even after the due date, and late filing does not affect self-assessed tax. The Appellant had self-assessed its Service Tax liability and filed returns before the issuance of the Show Cause Notice (SCN). Under Section 73(1B), if the tax has been self-assessed and declared in returns, no notice of demand is required. The Tribunal found that the issuance of the SCN for recovery of self-assessed tax was unwarranted and legally incorrect. The imposition of equal penalty under Section 78 was also found unwarranted since no notice was required under Section 73. The Tribunal relied on precedents where no penalty was imposed if the service tax was deposited before the issuance of the SCN.

Issue No. (ii): Service Tax on Cancellation and Miscellaneous Charges

The Tribunal observed that deductions made from deposits upon cancellation of bookings were penalties for breach of contract, not services. Under Section 66B, service tax is charged on services provided, and the definition of service under Section 65B(44) involves an activity for consideration. The Tribunal concluded that the deduction of amounts due to cancellation did not constitute a service, as no activity was carried out by the builder. The Tribunal referred to the decision in Jaipur Jewellery Shop, where it was held that no service tax was chargeable on cancellation charges. The Tribunal also noted that cheque return charges were penalties, not services, and thus no service tax was payable. For miscellaneous income, which included bank interest, the Tribunal found that interest was classified in the Negative list under Section 66D(n)(i), exempting it from service tax.

Issue No. (iii): Service Tax on RCM Services

The Tribunal found that the Appellant could have taken back the service tax paid on RCM services as CENVAT credit, resulting in revenue neutrality. Since the Appellant was eligible to avail of credit on input services, there was no net revenue gain or loss to the Exchequer. The Tribunal cited the Supreme Court's decision in V. F. Commercial Vehicles Ltd., which established that demand for differential duty is unsustainable in cases of revenue neutrality.

Issue No. (iv): Demand for Inadmissible Credit

The Tribunal noted that there were no provisions for issuing a demand notice for late fees under Section 70. The Appellant had sufficient balance in the Cenvat credit account to meet service tax liabilities, and the non-debiting of the account was a technical error. The Tribunal cited precedents where interest was not chargeable if there was sufficient credit balance. Penalty under Section 77(2) was quashed as it was of a residual nature and not discussed in the SCN or impugned order.

SIGNIFICANT HOLDINGS

The Tribunal concluded that the issuance of the SCN for recovery of self-assessed tax was unwarranted. The imposition of penalties under Sections 78 and 77(2) was not justified. The demand for service tax on cancellation charges, cheque return charges, and miscellaneous income was not legally sustainable. The Tribunal emphasized that penalties for breach of contract are not services and do not attract service tax. The Tribunal set aside the impugned order and allowed the appeals with consequential relief, as per law.