M/s. Shri Durga Diesels vs Commissioner Of CGST & Central Excise, Alwar

Rajeev Tandon, Member (T)

The impugned appeal has been filed by M/s. Shri Durga Diesels, Alwar assailing the Order-in-Appeal No. 109(RLM)ST/JPR/2023 dated 28.03.2023. The short question involved in the present matter concerns the confirmation of demand for service tax based on sales/gross receipts for the year 2014-15 to 2017-18 based on information as collected from the Income Tax data (ITR-5). It is an admitted position that the demand in the present matter has been worked out on the basis of Income Tax Returns for the year 2014-15 to 2017-18 filed by the appellant and on the basis of 26 AS and profit and loss accounts for the aforesaid period. It is observed that there is no other basis for sustaining the demand as upheld by the lower authority other than that stated above. It is further observed that the demand for the second half of 2014-15 as also post period of 2017-18 has been worked out on “deemed” basis rather than on actuals in the absence of relevant information for the said specific period. It may therefore be said that the aforesaid show cause notice essentially emanates out of third party data alone and has no other substantiation.

The department therefore armed with information from the tax department, as obtained from third party sources alleged that the appellant was liable to service tax as per table indicated below:

F.Year

P&L

(Income & Expenses liable to Service Tax)

ST

rate

%

ST

demand (Rs.)

Sale Of

Service

Any

Other Income

Legal

Expen ses

Total (Rs.)

2014-15

17,61,196

1,21,612

11,900

18,94,708*

12.36

2,34,186

2015-16

18,46,747

0

0

19,82,823

14.5

2,67,778

2016-17

19,82,823

0

0

19,82,823

15

2,97,423

2017-18

(up to

June 2017)

20,16,206

0

0

20,16,206**

15

3,02,431

TOTAL

11,01,818

*For F.Y. 2014-15 the figures of whole year have been taken as deemed receipts (on presumption) for Oct-14 to March-15 on the pretext of absence of month wise receipts.

**Further, for the F.Y. 2017- 18 it has been stated that the figures have been arrived at by deducting Rs.1,39,204/- (26AS receipts from July-17 to March-18) from P&L receipts of Rs.21,55.230/- but again the service tax has been worked out on the figures of whole year which includes the period of July 17 to March 18 wherein no service tax was leviable.

The appellant has submitted that part of the demand raised in the show cause notice for the Period April 2014 to September 2014 was time barred whereas demand for the period July 2017 to March 2018 was out of the scope of the service tax as a new regime of Indirect Taxation (GST) had come into force w.e.f. 01.07.2017. They have further submitted that the demand raised by the department is arbitrary and the fact of availability of threshold exemption of Rs.10 Lakh available to them, for each of the years concerned in terms of Notification No. 33/2012 dated 20.06.2012 has not been considered at all.

Insofar as for the demand for 2014-15, it is an admitted position that for the half year from October 2014 to March 2015 is concerned, that the same have been worked out on an artificial basis by applying figures for the whole year and arriving at the demand amount on a ‘deemed’ basis. This is nothing short being of arbitrary and illegal. Such a working out of demand on an assumed basis is clearly unsustainable. The appellant have appropriately drawn support to the Hon’ble Apex Court’s decision in the case of

Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd. reported as 2018 (03) LCX 0125 for the proposition that only w.e.f. May 2014 to 2015 by virtue of amended provision of Section 67 could such reimbursable expenditure or cost form part of the value of taxable service for the purpose of tax levy. Thus, warranty services rendered by the appellant prior to the aforesaid period cannot be taxed. There is also merit in the appellants submission that no tax can be demanded on an amount of Rs.3,09,143/- for the period 2014-15 towards sale of spare parts on which VAT has been paid. It is their contention that the abatement amount as worked out towards the aforesaid amounts need to be provided to them while working out the quantum of tax short levied, if any. For the Financial Year 2015-16 and 2016-17 they have submitted that merely working out the tax amount on the basis of gross figures included in the balance sheet, without considering the value of sale on which VAT has been paid is clearly unsustainable. The appellant has therefore tabulated the value of services rendered arriving at the total taxable value for each of the three years and their service tax liability as under:

2015-16

(Rs.)

2016-17

(Rs.)

2017-18

(Rs.)

Total

Value of parts under provided Warranty Services: (Exempt) (Reimbursed by company-

Bosch) FOLDER-A

6,72,500/-

10,75,353/

-

2,53,693/-

20,01,546/

-

Labour Charges for Warranty Service (Taxable) (Reimbursed by company

Bosch) -FOLDER-B

4,29,541/-

2,19,790/-

47,475/-

6,96,806/-

Independent labour charges;

(Taxable)-FOLDER-C

7,44,705/-

6,87,679/-

5,15,089/-

19,47,473/

-

Total taxable value

11,74,247/-

9,07,469/-

5,62,564/-

26,44,280/

-

Threshold Exemption

10,00,000/-

10,00,000/

-

10,00,000/-

30,00,000/

-

Net Taxable Value

1,74,247/-

(-)92531

(-)4,37,436

(-)3,55,719

Service Tax Liability

25,266/-

NIL

NIL

25,266/-

It is an established principle of law that no tax can be demanded on figures artificially worked out, merely on the basis of some third party data unless they are co-related independently with other evidence. The sustenance of demand amount without other corroborative evidence cannot be upheld. Moreover, due abatement of threshold exemption limit, if admissible, is a right of the appellant and cannot be ignored and therefore cannot be denied. Moreover, it is held in a series of cases that no tax is leviable on the tax component perse. Under the circumstances, I am of the view that the demand for duty as made out in the show cause notice and consequent demand for payment of interest and penalty cannot be considered and is not made out. The impugned order of the lower authority is set aside and the matter remanded with the direction that due abatement as admissible to the appellant based on threshold limits, as well as discounting of sales that are VAT paid be considered before re-adjudicating the matter afresh.

On the plea of the AR that the appellant had not tendered any reply to the show cause notice nor appeared for the personal hearing before the adjudicating authority and that sufficient chances were afforded to the appellant and that they had not produced any documentary evidence in support of their claim seeking abatement on account of warranty services it is pointed out that the said narrations are a matter of record as produced at the time of the hearing before this Tribunal by the appellant. The same are therefore required to be looked into and be considered by the lower authority while deciding the matter afresh.

The appeal is disposed by way of remand in the aforesaid terms.