Service Tax Can't Be Fastened Without Identifying Specific Service Provided And Consideration Received: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that service tax cannot be fastened without identifying the specific service provided and consideration received or to be received.

The bench of Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) has observed that in demanding the service tax, the twin conditions, i.e., identification of the particular service rendered and the payment received for such service, either before, during, or after providing such service, were to be satisfied.

The appellant/assessee is in the business of providing services like “air travel agents,” “rent-a-cabs,” “business auxiliary services,” and “tour operators” and is registered with the service tax department. On the basis of the audit conducted by the officers of AG (audit) of the accounts of the appellants for the years 2006–07 and 2008–09, the department entertained the opinion that the appellants received advances, on various counts, from their customers during these years and have not discharged the applicable service tax on the same. The appellants were asked to provide details of the advances received. It was alleged that no reply has been received from the appellant. A show cause notice was issued to the appellant demanding service tax on the advances received by them for the provision of various services. The show cause notice was adjudicated by the commissioner, confirming the demand along with interest while imposing an equal penalty.

The assessee contended that the advances from customers were amounts required to be adjusted towards outstanding liabilities of customers on account of cancellation of service, multi-branch invoices, extensions of discounts, etc. They have explained to the adjudicating authority that the nature of services rendered by the appellant did not warrant collection of advances, and on the contrary, in many cases, credit was extended for recovery of the consideration.

The assessee submits that to be eligible for service tax, any of the services listed under Section 66 should have been rendered, and any amount received for the same before, during, or after the provision of such service shall be deemed to be consideration. The department relied on Section 67(1)(i) without applying the rules in their entirety. The provisions related to service tax would give an understanding that taxability is subject to the performance of an identified “taxable service under any of the clauses of Section 65(105) of the Act” and the amounts received as consideration for the provision of such service prior to, during, or after the provision of service. The department has neither alleged nor indicated the exact taxable service that was agreed upon to be provided against the said advances received. The demand was confirmed on the basis of a presumption that the advances would have been attributable to any of the services provided by the appellant. No levy of service tax can be sustained without identifying a taxable service.

The assessee contended that the demand for service tax cannot be raised merely on the basis of the nomenclature used by the appellant in their financial statements.

The department contended that the appellant did not show any documentary evidence to substantiate their claim that the advances were not in respect of any service rendered. As per Section 67(3) of the Finance Act 1994, the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during, or after the provision of such service.

The tribunal noted that the Commissioner has considered the appellant's submission that 90% of their income is towards air travel agency service and that, in the provision of such service, no advances were being taken. Interestedly, the Commissioner uses the submission of the appellant to come to the conclusion that if 90% of the receipts are for the air travel agency service, the rest 10% are towards other services rendered or to be rendered by them, and in terms of Section 67 of the Finance Act 1994, such amounts are included in the gross value of the service for the purpose of levying service tax.

“We fail to understand how the Commissioner comes to the conclusion that this 10% of the income or advances shown in the books of accounts of the appellants leads to the inevitable conclusion that the amounts were for the provision of certain services,” the CESTAT said.

Counsel For Appellant: B L Narasimhan

Counsel For Respondent: Jaya Kumari

Case Title: Kuoni Travel India Pvt Ltd. Versus Pr. Commissioner of Central Excise

Case No.: Service Tax Appeal No. 50045 of 2016

Click Here To Read The Order