Demand of Service tax on the amount credited/ debited to suspense

Dear Professional Colleague,

Demand of Service tax on the amount credited/ debited to suspense account for the period prior to May 10, 2008 is not exigible to Service tax

We are sharing with you an important judgment of Hon’ble CESTAT, Chennai, in the case of Sify Technologies Ltd. Vs. Commissioner of Central Excise and Service Tax, LTU Chennai [2015 (3) TMI 964 - CESTAT CHENNAI] on the following issue:

Issue:

Whether the Demand of Service tax on the amount credited/ debited to suspense account for the period prior to May 10, 2008 is exigible to Service tax?

Facts & background:

Service tax demand is raised on Sify Technologies Ltd. (“the Appellant”) on account of transaction of taxable service with any associated enterprise made in the books of account under suspense account. The Department contended that Explanation (C) to Section 67 of the Finance Act defining the term ‘Gross amount charged’ was amended vide the Finance Act, 2008 to substitute the word “book adjustment” with:

“book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay Service tax, where the transaction of taxable service is with any associated enterprise”.

In view of above, the Department contended that gross value of taxable service with any associated enterprise in suspense account will be exigible to Service tax retrospectively.

Being aggrieved by the aforesaid demand, the Appellant preferred an appeal before the Hon’ble Tribunal, Chennai contending that amendment made in the definition of the term ‘Gross amount charged’ is prospective and not retrospective.

The Hon’ble CESTAT, Chennai relying upon the decision of the Hon’ble Supreme Court in case Union of India Vs. Martin Lottery Agencies Ltd. [2009 (14) S.T.R. 593 (S.C.)], allowed the appeal in favour of the Appellant and held that:

a. The nature and character of the amendment decides whether an amendment made is declaratory or clarificatory and accordingly whether retrospective or not. A declaratory law is always prospective while clarificatory law is retrospective in nature;

b. It is also well settled law that statute making amendment to the effect of declaration of liability is not normally retrospective unless otherwise such intention expressed by legislature or by necessary implication intended to be so;

c. In view of the Amended Explanation, the proposition "and" throws light on the nature and character of both the clauses thereof. It categorically brings out that recording of transactions in two different patterns was enacted from two different dates. Therefore, the addition to the Explanation (C) to sub-section (4) of Section 67 of the Finance Act, with effect from May 10, 2008 is prospective in nature and that addition shall be applicable from the day that was enacted in the statute book.

Held:

Therefore, the Hon’ble Tribunal decided the matter in favour of the Appellant by holding that Service tax demand and interest on the gross value of taxable service with any associated enterprises made in the books of account under suspense account relating to the period prior to May 10, 2008 is untenable.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards,

Bimal Jain                   

FCA, FCS, LLB, B.Com (Hons)

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