Quashed Service Tax Demand as Calculation Sheets can’t be assumed to allege collection of Service Tax

The CESTAT, Chandigarh in the case of M/s. Pearls Buildwell Infrastructure Limited v. Commissioner of Central Excise & Service Tax, Chandigarh - I [Service Tax Appeal No. 1196 of 2011 dated September 19, 2023] set aside the demand confirmed by the Commissioner for Service tax on the basis of calculation sheet only. The Tribunal found that the appellants did not collect any service tax from their customers, substantiated by the absence of invoices and a certificate from their customer confirming this. Consequently, the Commissioner's reliance on calculation sheets to establish service tax collection was considered insufficient. As a result, the impugned order was deemed unsustainable, and the appeal was allowed. Simultaneously, the Department's appeal against the dropped demand was dismissed.

Facts

M/s Pearls Buildwell Infrastructure Limited ("the Appellant") is engaged in Construction Services related to road laying. An intelligence report indicated that the Appellants had collected service tax from their customers but had not deposited it with the exchequer. Consequently, a show-cause notice was issued on April 23, 2010, demanding service tax of Rs. 97,71,146.68/- along with interest. The notice also proposed penalties under Sections 76, 77 & 78 of the Finance Act, 1994 ("the Finance Act"). The Appellants had already deposited Rs. 10,20,994/- as Service Tax and Rs. 55,731/- as interest, which was sought to be adjusted.

The Commissioner, through the impugned order dated March 25, 2011, confirmed a demand of Rs. 10,24,928/- and the related interest but dropped the rest of the demand. The Appellants appealed against this confirmation, and the Department appealed against the dropped demand.

The Appellant further contented that the Commissioner's findings relied on calculation sheets discovered during a search, overlooking a certificate from the Appellant and its customers vide letters dated September 03, 2008 and October 06, 2008 confirmed that no service tax had been charged.

Issue

Whether the provisions of Section 73A of the Finance Act is applicable to the case? 

Held

The CESTAT, Chandigarh in Service Tax Appeal No. 1196 of 2011 held as under:

• Observed the applicability of section 73A of the Finance Act in this case. It was crucial to determine whether the Appellants had collected service tax from their customers, and if so, whether this collection was in excess of the assessed service tax.        
• Observed that, ongoing through the provisions of Section 73A, it is evident that sub-clause 2 of Section 73A remains applicable in the instant case. It is observed that, in order to invoke this clause, it is imperative that the noticee must have collected an amount that is not legally mandated to be collected, in any manner that represents Service Tax. In the present case, it has not been established by the Department that the Appellant have issued invoices or bills indicating the collection of service tax from their customers.
• Noted that the Certificate issued, along with the absence of challenged records, indicated that the Appellant had not collected any from their customers.
• Further observed that the allegations against the Appellant were primarily based on isolated and uncorroborated calculation sheets discovered during the search. These sheets were deemed insufficient to establish the collection of service tax. 
• Held that the impugned order could not be sustained and was set aside.
• Noted the argument of the suit being time-barred, as the audit occurred in 2008, and the show-cause notice was issued in 2010. However, since the Appellants had a strong case on merit, the issue of time bar was deemed inconsequential.
• The Appellants' appeal (ST/1196/2011) was allowed, and the Department's appeal (ST/1238/2011) was dismissed.

Relevant Provision

Section 73A of the Finance Act

"Service Tax Collected from any person to be deposited with Central Government

(1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government.

(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.

(3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government.

(4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined.

(5) The amount paid to the credit of the Central Government under sub-section (1) or sub- section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1).

(6) Where any surplus amount is left after the adjustment under sub-section (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said  Act and such person may make an application under that section in such cases within six months from the date of the public notice to be issued by the Central Excise Officer for the refund of such surplus amount."