Notice received Service tax on labour supply, Service Tax

[Prashant Shinde]

I was a proprietor in 2016-17 and supplied a manpower for house keeping, gardening, nurses and doctors etc to one private limited hospital. I registered for service tax also but not filed returns due to RCM. I received a notice in 2021 from service tax for enquiry about my turnover from IT return. I replied that since I am proprietor and hospital is Pvt Ltd I am not liable to pay service tax.The matter was stopped but again in 2024 I received a notice from Kolhapur office I submitted my bills which was not in invoice format, Bills was like all person name salary and gross total pay and 5% service charge was added, TDS was deducted @1% and rest amount was transferred to my bank.I also submitted bank statement which was confirmed the payment as per bills Now service tax officer want agreement and ledger of hospital Hospital is not providing any details. I also don't remember that agreement was signed or not?.

What to do weather I am liable to pay service tax.

If agreement is exist and charges inclusive all taxes is written in agreement what will happen.

Please advise

Posts / Replies

[KASTURI SETHI]

As per Notification No. 7/15-ST dated 01.03.15 amending original notification No.30/12-ST dated 20.06.12 (serial no. 8), 100% Service Tax liability is to be discharged by the service recipient (Private Ltd. Company) under RCM. No registration is required by the Service Provider. 

You will have to produce documentary evidence i.e. books of accounts and copy of agreement, bills etc. to the effect that you have provided Manpower supply to Private Ltd. company. The burden of proof is cast upon you. If you fail to produce the records demanded by the department, ST has to be paid under FCM along with interest and penalty.

[KASTURI SETHI]

In continuation of my above reply.

If there is a clause 'inclusive of all taxes'  in the agreement, it is implied that you have collected, inter alia, Service Tax also from the Service Recipient and Sections 73 A, 73B, 78, 87 and 89 of the Finance Act, 1994 will come into play for recovery of Govt. dues along with interest and penalty. 

In this scenario, it is an uphill task (near impossible) to prove that you have not collected Service Tax from the Service Recipient.

[KASTURI SETHI]

The burden of proof is cast upon a person claiming concession or exemption from duty---- Hon'ble Supreme Court in a  large number of cases

 

[Amit Agrawal]

My views are as under:

A. Burden to prove classification of services & 'liability to pay taxes upon the noticee' lies upon Dept. and not on the noticee.

B. Consideration inclusive of taxes does not mean that 'Service Tax liability on Recipient under RCM mechanism' is paid by the recipient to the service provider. 

C. Agreement can be verbal or written and need not necessarily be in writing. 

D. Show-Cause-Notice is NOT a starting point of investigation by Dept. but it is post-investigation adjudicating process if Dept. feels that there is a short payment / non - payment of taxes etc. 

D1. After issuance of SCN, Dept. cannot insist on producing any particular documents or agreements. Now, it is noticee's choice how & on what grounds, he wants to defend himself against demand raised in the SCN. 

E. Shifting of liability to pay taxes from forward mechanism to RCM is neither a exemption from tax nor concession to the service provider, in the context of legal principals relating 'burden to prove'. 

F. Generally speaking, such tax-demands are not tenable both on limitations or merit/s. Please consult subject-expert while drafting further replies to SCN, including on the point of limitations and representation before original adjudicating authority.  

These are ex facie views of mine and the same should not be construed as professional advice/suggestion.

[KASTURI SETHI]

Registration — Exemption from Registration to persons supplying goods and services only Reverse Charge basis

In exercise of the powers conferred by sub-section (2) of section 23 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government hereby specifies the persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient of such goods or services or both under sub-section (3) of section 9 of the said Act as the category of persons exempted from obtaining registration under the aforesaid Act.

2. This notification shall come into force on the 22nd day of June, 2017.

[Notification No. 5/2017-Central Tax, dated 19-6-2017]

[Amit Agrawal]

Question raised is about 'liability to pay taxes' and not about legal requirement to get registration (ever though the proprietor was anyway registered with Tax Dept. as per stated facts).

As per query, demand is raised by Dept. on the basis of Income Tax Return showing turnover of services while there was no service tax return filed for FY 2016-17. 

'Exemption from taxes' and 'Liability to pay taxes either under Forward Charge or Reverse Charge Mechanism' are two different things. And, burden to prove classification of services and liability to pay taxes lies upon Department and not on the noticee. 

Similarly, burden to prove 'intention to evade taxes etc.' lies upon Revenue to extend period of limitation to issue SCN. 

And I stand by whatever is stated by me in earlier post in the context of the query raised. 

These are ex facie views of mine and the same should not be construed as professional advice/suggestion.

[KASTURI SETHI]

Verbal agreement is legally valid, if supported by the documentary evidence.