The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax cannot be levied merely on amounts reported in financial statements.
The bench of Ramesh Nair (Judicial Member) and C L Mahar (Technical Member) has observed that when the revenue has not disputed the classification of services as transportation of goods by road, it was imperative to provide proof through contemporaneous evidence that the revenue could have collected during the investigation and used in the show cause notice. Therefore, while the turnover reported in the balance sheet may hold persuasive value, it is not conclusive and cannot replace the contemporaneous evidence required by statute.
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Background
The inquiry against the appellant/assessee was initiated in order to verify the facts and service tax liability. The appellant was engaged in the business of transportation of goods by road and also undertaking transportation of goods through rail certain cases.
The appellant had not furnished service tax returns for the period involved in the inquiry and after commencement of the inquiry they filed service tax returns but they were not found to be proper and complete.
Though the appellant furnished certain primary records including audited financial statements but could not furnish the consignment notes and railway receipts due to non-availability of all the records at respective times on account of destruction by white ant.
The appellant pleaded before the inquiring officer that the services of transportation of goods by road undertaken by them were not liable to service tax in their hands and therefore they shall not be held liable to pay the tax.
The department had proceeded to issue the show cause notice demanding the service tax from the appellant under forward charge mechanism. Furthermore, the revenue demanded the service tax shown to have been paid by way of utilisation of CENVAT Credits in service tax returns furnished after commencement of inquiry.
Show cause notice also proposed to demand the service tax under reverse charge mechanism in respect of legal services and security services on the basis of ledger accounts furnished by the appellant during the course of inquiry.
Arguments
The assessee contended that the service tax was not recoverable in hands of the appellant. The department classified the services of the appellant as “transportation of goods by road” and demanded the service tax by determining the value on the basis of turnover reported in balance sheet and after deducting therefrom the amount reported in service tax returns filed after commencement of the inquiry against the appellant.
The assessee with the help of tables incorporated in the show cause notice as well as order that the value of taxable service was determined after allowing abatement of 70% as per Notification No. 26/2012-ST and service tax was demanded under forward charge mechanism.
The assessee contended that the service tax cannot be recovered from the appellant having found by the revenue that the turnover was relating to services by way of ‘transportation of goods by road’ unless established that the services classifiable as services by GTA, exemptions were inapplicable and recipients were not falling in the specified categories of rule 2(1)(d).
Relevant Provisions
Section 66B imposed a tax on the value of all services, except for those specifically listed in the negative list under Section 66D. Activities detailed in Section 66D were thus outside the levy of service tax.
Therefore, it was crucial to establish that any given activity falls outside the scope of Section 66D to subject it to taxation under Section 66B. On the contrary, Clause (p) of Section 66D, as designed by Parliament, excluded the entire gamut of transportation services provided by road for goods from the scope of taxation, except when such services are rendered by a Goods Transport Agency (GTA) or a courier agency.
Conclusion
The tribunal while allowing the appeal held that a tax demand cannot be based solely on financial statements or income tax returns. It was the responsibility of the revenue to conduct a thorough investigation and present incriminating evidence to accurately determine the nature, extent, scope, value, and recipient of the services provided by the appellant.
FAQs
Can service tax be imposed merely on the basis of financial statements?
The Ahmedabad Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of Calcutta Ahmedabad Roadlines Private Limited Versus Commissioner of Service Tax held that service tax cannot be levied merely on amounts reported in financial statements.
Case Details
Case Title: Calcutta Ahmedabad Roadlines Private Limited Versus Commissioner of Service Tax
Case No.: Service Tax Appeal No. 10234 of 2021
Date: 03.10.2024
Counsel For Appellant: CA Rahul Patel
Counsel For Respondent: Tara Prakash
