Demand Under Service Tax On RCM, Has To Be Worked Out And Calculated Transaction-Wise And Invoice-Wise: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that demand under service tax on reverse charge mechanisms has to be worked out and calculated transaction-wise and invoice-wise.

The bench of Anil Choudhary (a judicial member) has observed that in the absence of any transaction-wise and invoice-wise calculation, the show-cause notices are vague and fit to be held misconceived, and misdirected.

The appellant/assessee has service tax registration and is engaged in providing taxable services under the categories of "Renting of Immovable Properties, Manpower Supply Services, Legal Professional & Consultancy, Rent-a-Cab Services, etc. In the course of the audit, it appeared to the department that as per the balance sheet, the taxable value of legal, professional, and consulting expenses comes to Rs. 8,09,07,952, whereas as per ST-3 Returns, it is shown at Rs. 25,57,721. Hence, it appeared that the appellant has suppressed the taxable value on which service tax under RCM comes to Rs. 1,01,44,126.

A show cause notice was issued invoking the extended period of limitation and alleging that the appellant has not paid service tax under the reverse charge mechanism, as there is an apparent difference between the balance sheet figure of expenses and the amounts shown in the ST-3 Returns. The appellant was required to show cause as to why the service tax should not be demanded as service tax short-paid under RCM, along with interest. The penalty was proposed under Sections 76, 77, and 78.

A second show cause notice was also issued on the very same allegations for the period April 16 to June 17, demanding service tax on legal professional and consultancy services and on security services, including cess, as short-paid under RCM, along with interest and penalties proposed under Section 76.

The appellant contended that the order is non-speaking and unreasonable. The whole demand is bad, as it has been confirmed without proper verification with respect to the facts on record. The appellant had submitted every single voucher or invoice along with the written submissions. The appellant had also prayed for deputing an officer to the premises for verification of the documents and records. In spite of pointing out that in several cases, the service providers have charged the service tax and collected it from the appellant, in which case no tax was payable under the RCM mechanism.

The tribunal held that the show cause notice does not contain the gist of the allegations for raising the demand on an RCM basis. The provisions of service tax, read with the rules thereunder, do not provide for raising demand on the basis of an apparent difference in the figure of expenses in the balance sheet and the amount offered for service tax in the ST-3 Returns.

Case Title: M/s. M.P. Audyogik Kendra Vikas Nigam Versus Principal Commissioner of Central Goods & Service Tax and Central Excise

Case No.: Service Tax Appeal No.52190 of 2022 (SM)

Date: 26.05.2023

Counsel For Appellant: Ankur Upadhyay

Counsel For Respondent: Mahesh Bhardwaj

Click Here To Read The Order