Custom, Excise & Service Tax Tribunal
Mall Hotel Limited vs Ce & Cgst Allahabad on 5 March, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70561 of 2016
(Arising out of Order-in-Original No.ALD/EXCUS/000/(ST-137/2014) 07 of
2016 dated 23/02/2016 passed by Commissioner of Central Excise & Service
Tax, Allahabad)
M/s Mall Hotel Ltd., .....Appellant
(Mall Road, S-20/55, Cantt, Varanasi)
VERSUS
Commissioner of Customs, Central Excise &
Service Tax, Allahabad ....Respondent
(38, M.G. Marg, Allahabad)
APPEARANCE:
Shri Manoj Kumar Agrawal, Chartered Accountant &
Shri Dharmendra Srivastava, Chartered Accountant for the Appellant
Shri S.T. Khairnar, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO.70110/2024
DATE OF HEARING : 09 November, 2023
DATE OF PRONOUNCEMENT : 05 March, 2024
SANJIV SRIVASTAVA:
This appeal is directed against Order-in-Original
No.ALD/EXCUS/000/(ST-137/2014) 07 of 2016 dated
23/02/2016 passed by Commissioner of Central Excise & Service
Tax, Allahabad. By the impugned order following has been held:-
ORDER
(i) I confirm the demand of Rs.1,84,74,408/-
(Rupees One Crore Eighty Four Lakhs Seventy Four Thousand Four Hundred and Eight Only) including Education Cess and Secondary & Higher Education Cess, as service tax short pald, for the period 2009-10 to 2012-13, upon M/s Mall Hotel 2 Service Tax Appeal No.70561 of 2016 Ltd. Ramada Plaza Hotel), The Mall, 5 - 20/55 Cantt. Varanasi 221002 [ U .P.] and order for recovery of the same under the provisions of proviso to Sub-Section (1) of Section 73 read with Section 73 (2) of Chapter V of the Finance Act, 1994.
(ii) I order for charging Interest at the appropriate rate under the provisions of Section 75 of the Finance Act, 1994 on the amount of Service Tax confirmed at (i) above.
(iii) I impose a further penalty of Rs. 10000/- (Ten Thousand Only) under Section 77(1) (c) (iii) of the Finance Act, on the party for their failure to comply with the summons issued by the department.
(iv) I impose a further penalty of Rs. 5000/- (Five Thousand Only) under Section 77 (2) of the Finance Act, 1994 on the party.
(v) I also impose a penalty of Rs.1,84,74,408/-
(Rupees One Crore Eighty Four Lakhs Seventy Four Thousand Four Hundred and Eight Only), upon upon M / s Mall Hotel Ltd. (Ramada Plaza Hotel), The Mall, S - 20/55 Cantt. Varanasi - 221002 [U.P.] under the provisions of Section 78 of the Finance Act, 1994."
2.1 Appellant held service tax registration and are providing taxable services as Cab Operators, Mandap Keepers, Convention, Tour Operator, Event Management, Health & Fitness Centre, Renting of Immovable Property, Business exhibition, Internet, Travel Agents, Restaurant, Hotel Accommodation etc. 2.2 During the course of audit certain observations were made which are recorded in para 4 and 5 of the show cause notice reproduced below:
"4. Whereas during the course of audit of the records of the party which was undertaken by the team of officers from Central Excise & Service Tax, Commissionerate,
3 Service Tax Appeal No.70561 of 2016 Allahabad, for the period Aug 2009 to Sept 2011 and Subsequently for the period October 2011 to Mar 2013, following facts have emerged, which have been enumerated as under:
PERIOD AUG. 2009 TO SEPT. 2011:
4.1.1 The party is registered for "renting of immovable property services" based on consideration received against such renting. The scrutiny of the party‟s records has revealed that they have not paid service tax to the tune of Rs.1,30,13,837/-. The party‟s Trial Balance Sheets for 2009-10 and 2010-11 (in respect of M/s. JHV Mall & Multiplex) clearly shows amount of Rs. 84,32,901/- and Rs. 45,80,936/- as credit entries "Service Tax @10.3%"
(totaling to Rs.1,30,13,837/-), respectively as liability for service tax payment (RUD-1&2). The party on being probed by audit asserted that they have been paying service tax only when their tenants pay their rents along with service tax leviable thereon. If their tenants pay rents only without service tax leviable thereon, the party does not pay service tax. This practice is wholly repugnant to the service tax rules and regulations. The party has further pleaded that most of their tenants have challenged the validity of imposition of service tax on renting of immovable property and the Hon‟ble High Court of Bombay has countermanded coercive recovery of service tax on renting of immovable property from the members of the petitioners if they have tendered suitable undertakings. The party assured that they would recover service tax from their tenants and pay to the Dept., if their tenants lose the case. The party further stated that the audit has wrongly clubbed the trial balance figure of F.Y.2009-10 and F.Y. 2010-11, however, the party did not produce any calculation to support their above version. A Summon dated 11/09/2012 (RUD-3) was issued to the party but the party failed to comply the Summon. Thus it appears that the party has nothing to support their version. The party 4 Service Tax Appeal No.70561 of 2016 have further submitted that the matter of payment of service tax on renting of immovable property has been resolved by the Apex court and that the parties (tenants) are either paying service tax to the party or are depositing themselves. But they have not submitted any detailed reconciliation for the period 2009-10 and 2010-1 1. Thus it appears that the service tax liability as shown in their trial balance sheet for the year 2009-10 and 2010- 11, respectively amounting t s,84,32,901/- and Rs. 45,80,936/- both totaling to Rs. 1,30,13,837/- along with education cess and secondary higher education cess appears to be recoverable from them.
4.1.2 Apart from the premises rented by the party in M/s. JHV Mall & Multiplex, the party were also called upon to furnish details with regard to rental income in respect of their premises other than the JHV Mall. However, the party could not produce figures relating to their premises other than the JHV Mall. The party vide letter dated 17.07.2013 (RUD -4) submitted a detailed list of their tenants and details of rent accrued to them during the period 01.10.2011 to 31.03.2012. They intimated that they have no rental income except as mentioned in the said list and rent received from shops within hotel premises are included in the list. On perusal of the list and as explained by the party it has been observed that the attached list is related to the period October‟2011 to March‟2012 which includes the rent of seven shops situated in the Ramada Plaza Hotel. However, the party failed to provide the figures with regard to the rent received in respect of the shops situated in the hotel for the period from August‟ 2009 to September‟ 2011, as pointed out by the audit. The party were again vide letter C. No 20-ST/RS/VNS/Mall Hotel/Audit/149/2011/4096-97 dated 19.08. 2013 from the jurisdictional Range Superintendent-Sarnath, Varanasi (RUD-5) requested to provide the specific information related to the period August‟ 2009 to September‟2011. The
5 Service Tax Appeal No.70561 of 2016 party vide letter dated 14.08.2013 (RUD-6) reiterated the submission as already submitted but did not provide the documents as called for. The party was specifically asked by the Range Officer, Sarnath, Varanasi vide letter dated 14.11.2013 and 03.12.2013 [RUD-7 (i) and (ii)| to provide the figures of the seven shops situated in the hotel for the period October‟ 2011 to March‟2012 and if they fail to provide the desired information, the amount as mentioned by their reply dated 17.07.2013 shall treated as amount received against rent in respect of the said seven shops and their service tax liability shall be calculated on pro- rata basis for the period August‟ 2009 to September‟ 2011. The party did not respond to the said communication. Thus on the basis of letter of the party dated 17.07.2013, their service tax liability in respect of totai seven shops situated in the hotel, works out as under:
Details of amount of Rent related to Shop situated in the Mall ........
Thus it appears that the service tax liability of Rs. 11,04,675/- as shown in chart above and Rs. 1,30,13,837/- as per para 4.1.1 totaling to Rs. 1,41,18,512/- including Education Cess and Secondary Higher Education Cess appears to be demandable and recoverable from them.
4.1.3 NON PAYMENT OF SERVICE TAX ON RENTING OF IMMOVABLE PROPERTY W.E.F. 01/07/2011 DESPITE RAISING INVOICES.
Whereas, the Point of Taxation Rules, 2011 took effect mandatorily from 01/07/2011. which prescribes hat raising of bills/ invoices for taxable service shall be taxable event and shall entail payment of service tax whether or not consideration against such service has Been received. On scrutiny of records, relevant ledgers of the party (RUD-
8) by the Audit, it has been 6 Service Tax Appeal No.70561 of 2016 revealed that the party have, during the period 01.07.2011 to 17.10.2011, billed to their tenants "Shop Rent"
amounting to Rs. 10392771/- and "Shop Maintenance"
amounting Rs. 3410493/-
Against the said billed amount, the party have also shown in their ledgers service tax @ Rs.10.30% amounting to Rs. 1070454/- towards "Shop Rent" and Rs. 351272/- towards "Shop Maintenance" total service tax amounting to Rs. 1421726/-. But the party failed to deposit service tax Rs.10,70,454,/-+ Rs. 3,51,272/- totaling Rs.14,21,726/- despite having raised invoices. The said amount should have been paid in terms of the provisions contained in the Point of Taxation Rules 2011.
5. Period OCT. 2011 TO MAR. 2013:
During the course of scrutiny of financial records of the party by the Audit for subsequent period ie. October. 2011 to March, 2013, Balance sheet, Trial Balance, ST-3 returns for the period 2011-12 and 2012-13 were examined. On scrutiny of the audited financial statements of the party for the said period, it has been revealed as under:-
5.1 For the period 2011-12, the party, in their profit and loss account, have shown income towards „Shop rent and maintenance‟ amounting to Rs. 46070849/-. The party, in their trial balance have shown income amounting to Rs 39540762/-. Furthermore, on scrutiny of ST-3 returns for the same period, the party have shown gross value of service w.r.t. "renting of immovable property" amounting to Rs. 33661425/-. Thus there has been huge difference in the value of taxable services i.e. "renting of immovable property" amounting to Rs. 11329819/- in their Trial balance vis-a-vis the value of services declared in their ST- 3 returns for the period 2012-13. The party could not explain the difference. Thus it appears that the party have willfully suppressed the value of taxable service "renting of immovable property services" with intent to evade payment of service tax amounting to Rs. 1533805/-
7 Service Tax Appeal No.70561 of 2016 (inclusive of Ed. Cess and SHE cess) accrued on the of said suppressed value of services. (Reference chart Annexure-A prepared by Audit enclosed) 5.1.2 For the period 2012-13, the party, in their profit and loss account, have shown income towards "Shop rent and maintenance" amounting to Rs. 45588373/-. The party, in.
their trial balance for the same period, towards the same account, have shown income amounting to Rs. 46783913/- . Furthermore, on scrutiny of ST-3 returns for the same period, the party have shown gross value of service w.r.t.
"renting of immovable property" amounting to Rs. 35454094/-. Thus there has been huge difference in the value of taxable services i.e. "renting of immovable property" amounting to Rs. 11329819/- in their Trial balance vis-a-vis the value of services declared in their ST- 3 returns for the period 2012-13. The party could not explain the difference. Thus it appears that the party have willfully suppressed the value of taxable service "renting of immovable property services" with intent to evade payment of service tax amounting to Rs. 1400365/- (inclusive of Ed. Cess and SHE cess) accrued on the of said suppressed value of services. (Reference chart Annexure-B prepared by Audit enclosed)"
2.3 As Appellant has not disclosed the documents as pointed out by the audit party. This fact came to the knowledge of department that the party has suppressed material of facts from the department by not declaring to their documents wanted under the category of Renting of Immovable Property and they also failed to response to various communications and summons issued by the department. Therefore, extended period of limitation was also invoked.
2.4 Para 9 of the show cause dated 16.10.2014 records as follows:
"9. Thus, in summation, the service tax amounting to rs 1,84,74,408/- not paid by the party is demandable and recoverable under proviso to Section 73 (1) of the Act 8 Service Tax Appeal No.70561 of 2016 along with the interest as applicable under Section 75 of the Act, ibid. They are also liable to penalty under Section 76,77 and 78 of the Act for not paying service tax in due time thereby contravening the provisions of Section 67, 68, 69 and 70 of the Act read with Rule 4, 6 and 7 of the Service Tax Rules, 1994 and Rule 3 of the Valuation Rules."
2.5 The show cause notice asks the appellant to show cause as to why-
(a) The Service Tax amounting to Rs.1,84,74,408/- inclusive of education cess and S. Higher Education cess should not be demanded and recovered under the proviso to Section 73(1) of the Act along with due interest under Section-75 of the Act.
(b) Penalty should not be imposed upon them under Section 77 of the Act for violation of provisions of Section 66, 67, 69 and 70 read with Rule 4 and 7 of the Rules and Rule 3 of Valuation Rules.
(c) Penalty should not be imposed upon then under the provisions of Section 77(1) (c) (iii) of the Finance Act, for failure to comply with the summons, as discussed above.
(d) Penalty should not be imposed upon them under provisions of Section 76 of the Act for violation of Section 68 of the Act read with Rule 6 of the Rules ;and
(e) Penalty should not be imposed upon then under the provisions of Section 78 of the Act, for having committed suppression of facts with intent to evade payment of service tax."
2.6 This show cause notice was adjudicated as per the impugned order, referred in para-1 above. Aggrieved appellant have filed this appeal.
3.1 We have heard Shri Dharmendra Srivastava and Shri Manoj Kumar Agarwal Chartered Accountants for the appellant and Shri Sarweshwar T. Khairnar, Authorized Representative for the revenue.
9 Service Tax Appeal No.70561 of 2016 3.2 Arguing for the appellant learned Chartered Accountant submits that-
Credit balance shown in trial balance for 2009-10 of Rs. 8432901/- has inadvertently included Sundry creditors amounting of Rs 6781884/- with closing balance of ledger head „Service tax @ 10.30%". After deducting this amount from the trial balance figure, the amount of service tax due will be amounting Rs. 1651017/-.
Respondent has wrongly picked up closing balance of ledger head „Service Tax @10.3%" for 2010-11 without deducting opening balance Rs. 1651017/- (already covered in 2009-10 as reflected in point 1 above) closing balance of 2009-10 can be verified from ledger amount of service tax payable of 2009-10 and copy of audited balance sheet. Hence, service tax payable amount for disputed period 2009-10 to 2010-11 comes to Rs. 4580936/- as against Rs. 13013837/-
Service tax payable of Rs. 4580936/- has been accounted for in books on accrual basis whereas demand for period upto 31-03-2011 (or upto 30-06-2011 on option of assessee) was on realization basis and appellant has paid tax on realization basis as and when payment is received from Tenants (Rule 6 of service tax rules and Rule 9 transitional provisions of point of taxation Rules, 2011) Service tax in respect of services upto 30-06-2011 have been paid subsequently through reversal service tax on unrealized rent, service tax paid by tenants on direction of Hon‟ble Supreme Court in case of M/s Retailer‟s Association of India Civil Appeal No. 8390 of 2011 and undertaking provided by tenants. Copies of undertaking from tenants, documents relating to service tax payment directed by tenants on directions of court are enclosed with appeal.
The balance liabilities which is remaining unpaid at the end of year 2013-14 is only Rs. 12,94,749/- pertaining to rental income of period prior to July 2011, tax on which 10 Service Tax Appeal No.70561 of 2016 will be paid as per realization basis as per applicable legal provisions.
Demand in respect of the shops situated at Ramada Hotel:
Details of Service Tax on rental Income of shop in hotel was provided to department during audit and it shows that the service tax liability was discharged from April 2011 onward. Pro-rata calculation has been worked out for period August 2009 to September 2011 which is based on Notional calculation.
No evidence adduced by revenue to show that rent amount as computed has been realized.
There is no provision in law providing for a notional valuation.
Prior to 30.06.2011, service tax was payable on realization basis and hence, service tax should not be demanded without evidence of realization of income. Demand of Rs 14,21,726/- for the period July 2011 to October 2011 is already covered in the earlier demand made for the period August 2009 to September 2011 Service tax on rental income of hotel shop was provided to department vide letter dated 14-08-2013 and it shows that service tax liability was discharged from April 11 onwards hence, demanding service tax for same period shall amount to double taxation.
Demand for October 2011-March 2012 amonting to Rs 15,33,805/- has been confirmed on the basis of the figures in balance sheet for the period period April 2011 to March 2012- Period from April 11 to Sep 11 has already been considered in above to raise service tax demand, hence, computing demand again is not warranted. The figure in the balance sheet and ST-3 return are completely reconcilable.
The rent amt. which was not realized upto 30.6.11 was Rs. 5879337/- upto 30.06.2011 and which was paid in subsequent years as and when it was realized. During
11 Service Tax Appeal No.70561 of 2016 2012-13 it was paid on Rs. 2507245/- and during 2013-14 on Rs. 586441/- balance amount on which service tax in payable was Rs. 2785651/- and Service Tax payable will be Rs. 286922/-.
If the value of Non taxable Electricity and Water Charges are excluded along with the rent received upto the 1 st June 2011, there is absolutely no difference in the value of the taxable service as per ST-3 return and in the Balance Sheet.
Demand of Rs 14,00,365/- for the period 2012-13 has been made without taking into account the ST-3 return filed for the period April to June 2012. If the said return is also taken into account then the value of taxable service shown in ST-3 return will exceed the value of taxable services indicated in the balance sheet. Thus there was excess service tax paid on Rental Income of Rs.25,07,245/-.
Demand cannot be sustained on limitation in view of the decisions rendered as follows and relied upon by the appellant:
o Ispat industries Ltd. [2006 (199) ELT 509 (Tri-Mum)] o NIRC Ltd. [2007 (209) ELT 22 (Tri-Del)] o Chemicals and Fibers of India Ltd. [1988 (33) ELT 551 (Tri)] 3.3 Arguing for the revenue learned Authorized Representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned orders along with the submissions made in appeal and during the course of argument.
4.2 For holding against the appellant, Commissioner has observed as follows:-
7.1 DEMAND OF Rs.1,30,13,837/-
7.1.1 The first allegation in the SCN is that scrutiny of the party‟s records have revealed that they have not paid service tax to the tune of Rs.1,30,13,837/-. The party's Trial Balance Sheets for 2009-10 and 2010-11 (in respect
12 Service Tax Appeal No.70561 of 2016 of M/s JHV Mall & Multiplex) clearly show amount of Rs.84,32,901/- and Rs.45,80,936/- as credit entries "Service Tax @10.3%" (totaling to Rs.1,30,13,837/-), respectively as liability for service tax payment. The party have not submitted any detailed reconciliation for the period 2009-10 and 2010-11. Thus, it appeared that the service tax liability shown in the party's trial balance sheets for the year 2009-10 and 2010-11, amounting to Rs.84,32,901/- and Rs.45,80,936/- respectively, both totaling to Rs. 1,30,13,837/-, along with education cess and secondary higher education cess, was liable to be recovered from them.
7.1.2 While contesting the said allegation, the party, in their defence reply dated 03.07.2015, have stated that the of demand of Rs.1,30,13,837/- has been wrongly computed by adding closing balance of Year 2009-10 and 2010-11. It is the party's contention that the closing balance of year 2009-10 has also been taken wrongly. In trial balance the amount of sundry creditors for services was Rs.67,81,884/- which has been treated as service tax liability by the department. The amount has been shown as sundry creditors in balance sheet as well as in next trial balance. The party enclosed the balance sheet with schedule "G" and relevant page of trial balance for year 2009-10 and 2010-11 to the department.
It is party's contention that these documents were also produced to the audit team and they are on record. The party's contention is also that their reply dated 12.09.2014 clearly shows that the closing balance for year 2009-10 of Service Tax Liability was Rs.16,51,017/- but same was taken as Rs.84,32,901/- by the department. It also shows the amount of Rs.3,88,376/- to be reversed on written off rent amount of Rs.37,70,640/-. The closing balance for March 2011 was only Rs.41,92,560/-. As per the party, the aforesaid liability has been paid off through cash payment, through reversal of Service tax on 13 Service Tax Appeal No.70561 of 2016 unrealized rent, Service Tax paid by the party by the direction of Hon'ble Supreme Court of India and undertaking provided by the party. The party have also stated that the liability of Rs.41,92,560/- was wrongly shown as Rs.1,30,13,837/- by adding Sundry creditors of Rs.67,81,884/-, Closing balance of year 2009-10 Rs.16,51,017/- and Reversal amount of Rs.3,88,376/-. The party substantiated the detail of Sundry Creditors of Rs.67,81,884/- with copy of account of sundry creditors which as per the party clearly shows that the balance liability which remained unpaid at the end of year 2013-14 was only Rs.12,94,749/- and it relates to amount of unrealized rent as on 31.03.2014. The party also stated that the amount will be paid as and when realized as the same is related with the period prior to July'2011 and is payable on realization basis.
7.1.3 I find that the above rival contentions need to be examined in light of the documents available on record. I find that in the trial balance for the period 1-Apr-2009 to 31-Mar-2010 of JHV Mall & Multiplex, amongst various debit and credit entries, a specific entry titled "Service Tax @ 10.3%" is found mentioned. Corresponding to this entry, an amount of Rs. 8432901.00 has been shown as credit. Further, I also find that in the trial balance for the period 1-Apr-2010 to 31-Mar-2011 of JHV Mall & Multiplex, amongst various debit and credit entries, a specific entry titled "Service Tax @ 10.3% has been made and corresponding to the said entry, an amount of Rs.4580936.00 has been shown as credit. Both the documents have been made RUD-1 & RUD-2 to the impugned SCN.
7.1.4 I now proceed to examine the documents shown by the party in their defence. I have seen the Schedule -G of the party's balance sheet for the period 2009-10 and 2010-11, which they have annexed with their defence reply as Annexure-1. The first part of the document Annexure-1 is 14 Service Tax Appeal No.70561 of 2016 an extract of the Balance Sheet of Mall Hotel Limited as on 31 Mar. 2010. An entry appears in Schedule -G of the said balance sheet under the head "A) Current Liabilities", under sub head "d) Sundry Creditors for services", and an amount of Rs.6781884.00 has been shown against the said sub-head. The said entry has been made under the column "JHV Mall". The second part of the document Annexture-1 is an extract of the balance sheet of Mall Hotel Limited as on 31 Mar. 2011. An entry appears in Schedule -G of the said balance sheet under the head "A) Current Liabilities under sub-head" d) Sundry Creditors for services", and an amount of Rs.6781884.00 has been shown against the said sub-head. The said entry has also been made under the column "JHV Mall". I further find that the breakup of the said amount Rs.6781884.00 has been explained by the party in Annexure-2 of their submission, which is reproduced as under:
Sr. No. Party Name Amount
1 Tiles Corner 82,880.00
2 Dee Pearls (India) Pvt. Ltd. 348,292.00
3 Kalawati Paint & Hardware 800,651.00
4 Sharad Airconditioning Co. 4,514,381.00
5 Johnson Lifts (1) Ltd. 963,440.00
6 Hindustan Paints 51,190.00
7 Dazzal Designer Tiles (P) Ltd. 21,050.00
TOTAL 67,81,884.00
7.1.5 The party have also submitted an unsigned and
unsubstantiated list of parties in respect of which they say they have written of huge amounts as "bad debt". The said list are submitted as Annexure-B and Annexure-C of their submission. The party have also submitted an unsigned and unsubstantiated list of tenants, who as per the party are party to the Home Retail Solution case pending before the Hon'ble Supreme Court. The said list is submitted as Annexure-D of their submission.
15 Service Tax Appeal No.70561 of 2016 7.1.6 I find that on the basis of Annexure-B, the party have tried to impress the point that during the period 2010-11, they have written- off rent amounting to Rs.3770640/- as "Bad Debt" on which service tax amounting to Rs. 388376/- was payable. Further as per Annexure-C, the party have tried to impress the point that during the period 2010-11 and 11 - 12 they have written- off rent amounting to Rs. 11988911 /- as "Bad Debt "on which service tax amounting to Rs. 1213966 /- was payable. As per Annexure-D, the party have tried to impress the point that certain parties, who have purportedly been part of the litigation in the Home Solutions case pending before the Apex Court, have paid service tax amounting to Rs. 1240494.00 as per the Court's direction and for remaining amount of Rs. 1384106.00, the said parties (tenants) have given an undertaking, also as per Court's order. 7.1.7 On examining the allegations made in the impugned SCN in juxtaposition with the averments putforth by the party, I find that there are grave inconsistencies in the latter. My conclusion in the matter are summarized up hereinafter:
(i) I find that the figures taken by the department ie. Rs.
84,32,901/- for the period 2009-10 and Rs. 45,80,936/- for the period 2010-11, have been picked from the relevant trial balance sheets of the party. These entries appear as "Service Tax @10.3%" in the credit side of the trial balance of the party. In my view, the entries appearing in the trial balance are sacrosanct figures and the party cannot deny the validity of the said figures. Further, since the figures appear on credit side of the trial balance, clearly the said amounts have been determined as payable as Service tax by the party themselves and consequently ought to have been paid by the party to the department.
(ii) The party have sought to explain the figures appearing in their trial balance with a certain figure amounting to Rs.67,81,884/- appearing in Schedule-G of their balance 16 Service Tax Appeal No.70561 of 2016 sheet. Contrary to the party's assertion, I find that the figure amounting to Rs.67,81,884/- has been booked towards "A) Current Liabilities", under sub -head "d) Sundry Creditors for services. Now, the nomenclature itself and also as per common commercial wisdom, the amounts appearing as "A) Current Liabilities, under sub-head d) Sundry Creditors for services", are amounts which are to be paid by the party towards availment of certain services, though unexplained by the party, to their vendors of tiles, paint, lift, hardware etc., as explicit in Annexure-2 submitted by the party. The net amount payable towards "Service Tax @10.3% " as mentioned in their trial balance cannot be set-off or equated with the "A) Current Liabilities", under sub-head d) Sundry Creditors for services", appearing in the relevant balance sheet for the relevant year.
I find that the party's attempt as above tantamounts to equating apples with oranges, which obviously is ridiculous and thus unacceptable.
(iii) I also find that the party, with a view to obfuscate the issue, have submitted certain unsubstantiated uncertified sheets to press home the point that huge amounts of rent alongwith the service tax leviable thereon, have been written-off as "bad debt". I however find that there are no corresponding entries in their balance sheet. Thus, in view of absence of relevant entries in the balance sheet, clearly the said contention of the party cannot be accepted on face value, and is liable to be rejected.
(iv) I also find that the party have taken the plea that in respect of certain tenants, the amount is under dispute before the Hon'ble Supreme Court in the Home Solutions case. However, I find that the party have not submitted any relevant documents in this regard to substantiate their claim. Further, I also find that there is no corresponding entry in their balance sheet. Thus, in absence of any evidence to back their plea, I reject the plea of the party.
17 Service Tax Appeal No.70561 of 2016 7.1.8 In view of the above discussion, I hold that the party have miserably failed to controvert the allegation made in the SCN to the effect that they have short paid service tax amounting to Rs. Rs.1,30,13,837/-. The demand is clearly made out as the said figures are mentioned as payable in the credit side of their trial balance as "Service Tax @10.3%".
7.2 DEMAND OF Rs. 11,04,675/-:
7.2.1 The second allegation in the SCN is that scrutiny of the party's records revealed that apart from the premises rented by the party in M/s. JHV Mall & Multiplex, the party were also receiving rental income in respect of their premises other than the JHV Mall. However, the party could not produce figures relating to their premises other than the JHV Mall. The party vide letter dated 17.07.2013, submitted a detailed list of their tenants and details of rent accrued to them during the period 01.10.2011 to 31.03.2012. They intimated that they have no rental income except as mentioned in the said list and rent received from shops within hotel premises are included in the list. On perusal of the list and as explained by the party, it has been observed that the attached list is related to the period October 2011 to March 2012, which includes the rent of seven shops situated in the Ramada Plaza Hotel. However, the party failed to provide the figures with regard to the rent received in respect of the shops situated in the hotel for the period from August 2009 to September 2011. The party was specifically asked by the Range Officer, Sarnath, Varanasi vide letter dated 14.11.2013 and 03.12.2013, to provide the figures of the seven shops situated in the hotel for the period October 2011 to March 2012 and it was clearly mentioned in the letter that if they fail to provide the desired information, the amount as mentioned in their reply dated 17.07.2013 shall treated as amount received against rent in respect of the said seven shops and their service tax liability shall be calculated on 18 Service Tax Appeal No.70561 of 2016 pro- rata basis for the period August‟2009 to September 2011. The party did not respond to the said communication. Thus on the basis of letter of the party dated 17.07.2013, their service tax liability in respect of total seven shops situated in the hotel was worked out to be Rs. 11,04,675/-.
7.2.2 While contesting the said allegation, the party, in their defence reply dated 03.07.2015, have stated that prior to April'2011 the noticee has neither received the rent nor any service tax, hence he has not paid the service tax except for 2 shops which were let out in 2010-11. The party submitted the details of rent outstanding from various shops from August 2009 to March 2011 along with the copy of account of Debtors. As per the party, on the perusal of chart it is apparent that the total rent outstanding from shops were Rs.50,40,000/- and the Service Tax Liability on the rent will be Rs.4,70,644/-
which will be payable at the time of realization, as the same is related with the period prior to July 2011. Further, as per the party, the rent realized from 2 shops were paid during 2010-11 and chart of service tax payment along with challan was submitted by the party.
7.2.3 Now, while examining the rival contentions, I find that the party's contentions is erroneous, in as much as, the party have stated that the total rent outstanding from shops were Rs.50,40,000/- and that the said receipt relates to the period 2009-10 and 2010-11. Now, had the party's contentions been true, the same would have been reflected as "debtors" in the relevant balance sheet. However, there is no such mention in the balance sheet. Moreover, during the course of investigation, I find that enough opportunity was granted to the party to explain the short payment of service tax on shops rented in their Ramada Plaza Hotel. However, the party evaded compliance. Thus, I find that the party's submission is an afterthought and demand of 19 Service Tax Appeal No.70561 of 2016 service tax of Rs.11,04,675/- is clearly made out against the party.
7.3 DEMAND OF Rs. 14,21,726/-
7.3.1 The third allegation in the SCN is with regard to the contravention of the provisions contained in the Point of Taxation Rules, 2011, which took effect from 01/07/2011, and prescribe that raising of bills/ invoices for taxable service shall be the taxable event and shall entail payment of service tax whether or not consideration against such service has been received. On scrutiny of records, relevant ledgers of the party, it has been revealed that the party have, during the period 01.07.2011 to 17.10.2011, billed to their tenants "Shop Rent" amounting to Rs. 10392771/- and "Shop Maintenance" amounting Rs. 3410493 /- Against the said billed amount, the party have also shown in their ledgers service tax @ Rs. 10.30% amounting to Rs. 1070454/- towards "Shop Rent" and Rs. 351272/- towards "Shop Maintenance", total service tax amounting to Rs. 1421726/-. However, the party failed to deposit service tax Rs.10 Rs. 10,70,454,/- + Rs. 3,51,272/- totaling Rs.14,21,726/- despite having raised invoices. 7.3.2 I find that the party have not contested the above allegation/ liability, neither in their defence submission dated 03.07.2015, nor in their written submission made at the time of personal hearing held on 29.12.2015. This can only imply that they have accepted their liability. As such, I am clear the said demand is liable to be confirmed. 7.4 DEMAND OF Rs.15,33,805/-
7.4.1 The fourth allegation in the SCN is that scrutiny of the party's records revealed that for the period 2011-12, the party, in their profit and loss account, have shown income towards "Shop rent and maintenance" Cop mounting to Rs. 46070849/-. The party, in their trial balance for the same period, towards the same account, have shown income amounting to Rs. 39540762/-. Furthermore, on scrutiny of ST - 1 returns for the same period, the party have shown 20 Service Tax Appeal No.70561 of 2016 gross value of service w.r.t. 'renting of immovable property' amounting to Rs. 33661425/-. Thus there has been huge difference in the value of taxable services i.e. 'renting of immovable property' amounting to Rs. 12409424 /- in their Profit and Loss account vis-a-vis the value of services declared in their ST-3 returns for the period 2011-12. The party could not explain the difference. Thus the allegation is that the party have willfully suppressed the value of taxable service renting of immovable property services' in the ST - 3 return with intent to evade payment of service tax amounting to Rs. 1533805/- (inclusive of Ed. Cess and SHE cess) which accrued on the said suppressed value of services. 7.4.2 While contesting the said allegation, the party, in their defence reply dated 03.07.2015, have stated that the period is related with change in Point of Taxation Rule. The amount of Rent which was not realized was Rs.58,79,337/- on the cut-off date and which was paid in the subsequent years as and when it was realized. During the year 2012 - 13 it was paid on Rs.25,07,245/- and during the year 2013-14 on Rs.5,86,441/- the balance amount on which service tax is payable was Rs.27,85,651/- and Service Tax Payable will be Rs.2,86,922/-.
7.4.3 Now, in context of the differences pointed out by the department in the different financial records of the party for identical period, I find that the party have failed to explain the difference in amounts mentioned in the various records. The party, in support of their defence have submitted an unsubstantiated and unverified chart in support of their defence as Annexure-G with their defence reply dated 03.07.2015. On examination of the said chart, I find that for the Year 2011-12, under the head "shop rent & maintenance", the party have shown taxable value as per balance sheet Rs.46070849.00. The party have deducted an amount Rs. 6530087.00 from the said taxable value as "non-taxable value electricity & water". The net 21 Service Tax Appeal No.70561 of 2016 taxable value has been arrived at as Rs.39540762.00. In the same chart, the party have stated that they have paid service tax on taxable value Rs. 33661426.00.
I find that the party have unsuccessfully tried to suggest that the figures pertaining to "shop rent & maintenance" appearing in their balance sheet are the gross value of taxable service, the value appearing in their trial balance are minus the "non-taxable value -electricity & water" and the one appearing in their relevant ST-3 return is even further reduced due to unexplained reasons. I hold that the entire act of the party is against the established practice and norms of accounting and in utter disregard to the statutory service tax provisions. The mathematical puzzle presented by the party is just an afterthought. I hold that the party's defence in this regard does not succeed and the demand is clearly made out. 7.5 DEMAND OF Rs.14,00,365/-
7.5.1 The fifth allegation in the SCN is that scrutiny of the party's records revealed that for the period 2012-13, the party, in their profit and loss account, have shown income towards "Shop rent and maintenance" amounting to Rs. 45588373/-. The party, in their trial balance for the same period, towards the same account, have shown income amounting to Rs. 46783913/-. Furthermore, on scrutiny of ST-3 returns for the same period, the party have shown gross value of service w.r.t. 'renting of immovable property' amounting to Rs. 35454094/-. Thus there has been huge difference in the value of taxable services i.e. 'renting of immovable property' amounting to Rs. 11329819/- in their Trial balance vis-a-vis the value of services declared in their ST-3 returns for the period 2012-
13. The party could not explain the difference. Thus it is alleged that the party have willfully suppressed the value of taxable service renting of immovable property services' with intent to evade payment of service tax amounting to 22 Service Tax Appeal No.70561 of 2016 Rs. 14,00,365/- (inclusive of Ed. Cess and SHE cess) which accrued on the said suppressed value of services. 7.5.2 While contesting the said allegation, the party, in their defence reply dated 03.07.2015, have stated that the ST-3 amount for year 2012-13 has been shown as Rs.3,54,54,094/-whereas the same is Rs.4,79,33,249/-. The audit team has not added the amount shown in 1st ST-3 i.e. for period from April'2012 to June'2012 of Rs.26,34,055/- and Rs. 98,45,100/- total Rs.1,24,79,155/- . During year 2012-13 there was excess service tax paid on Rental Income of Rs.25,07,245/- and during year 2013- 14 Rs.5,86,441/-.
7.5.3 Now, with regard to the differences pointed out by the department in the different financial records of the party for the same period, I find that the party have failed to explain the difference in amounts mentioned in the various records. The party, in support of their defence have submitted an unsubstantiated and unverified chart in support of their defence as Annexure-G with their defence reply dated 03.07.2015. On examination of the said chart, I find that for the Year 2012-13, under the head "shop rent & maintenance", the party have shown taxable value as per balance sheet Rs.45588373.00. The party have deducted an amount Rs. 162369.84 from the said taxable value as "non-taxable value -electricity & water". The net taxable value has been arrived as Rs.45426003.16. In the same chart, the party have stated that they have paid service tax on taxable value Rs. 47933249.00. The party, in their trial balance for the same period, towards the same account, have shown income amounting to Rs. 46783913/-.
I hold that the entire act of the party is against the established practice and norms of accounting and in utter disregard to the statutory service tax provisions. The mathematical conundrum presented by the party is just an 23 Service Tax Appeal No.70561 of 2016 afterthought. I hold that the party's defence in this regard does not succeed, and the demand is clearly made out." 4.3 We find that the issue involved in the present case is with regards to reconciliation of account statements of the appellant with the tax payment and ST-3 returns.
August 2009 to September 2011 4.4 Before we further proceed to examine the issue it is worth npoting that for the period prior to introduction of Point of Taxation Rules, 2011, with effect from 1st April 2011, the payment of service tax was on the receipt basis, i.e. service tax was required to be paid on the services provided when the payment for the services provided was received from the service recipient. It is established that in India the financial records and the accounts are maintained on the accrual basis and not on the receipt basis. As per Indian Accounting Standard (Ind AS) 1:
"Accrual basis of accounting 27 An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.
28 When the accrual basis of accounting is used, an entity recognizes items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework."
The document under the category of "Technical Notes and Manuals", titled "Transition to Accrual Accounting", prepared by Abdul Khan and Stephen Mayes, International Monetary Fund Fiscal Affairs Department, explains the difference in the two manner of accounting stating as follows:
"Accrual accounting is an accounting methodology under which transactions are recognized as the underlying economic events occur, regardless of the timing of the related cash receipts and payments. Following this methodology, revenues are recognized when income is 24 Service Tax Appeal No.70561 of 2016 earned, and expenses are recognized when liabilities are incurred or resources consumed. This contrasts with the cash-accounting basis under which revenues and expenditures are recognized when cash is received and paid respectively."
As the trial balance, Balance Sheet, Profit and Loss Accounts are maintained following the accrual accounting principle, making demand of service tax for this period on the basis of these documents, without verifying the fact of receipt of payment is contrary to the statutory period as they existed till 1st April 2011. Taking note of the difficulties, that may be faced by the trade, Rule, 9 of the Point of taxation Rules, 2002, specifically provided for option to the service provider, to continue with cash accounting system for payment of service tax till 1st July 2011. The demands made for this period just by relying on the entries in the books of account and financial records without establishing the actual receipt of these amount cannot be sustained for this reason itself. Even otherwise we do not find anything in the show cause notice (dated 16.10.2014) or the impugned order (dated 23.02.2016) to show that these amounts were received subsequently and service tax is paid or not when the amounts have been received. Also no reference has been made to cash flow statement or any similar stamen that would have been prepared for theis period or any subsequent period. 4.5 Relying on the trial balance for the year 2009-10 and 2010-11 (in respect of JHV Mall & Multiplex) it has been alleged in the show cause notice that an amount of Rs 1,30,13,837/- [Rs 84,32,901/- (2009-10) + Rs 45,80,936/-(2010-11)] as credit entries "Service Tax @ 10.3%". As evident from the show cause notice and the impugned order, these figures are from trial balance and not even from the audited balance sheet of the appellant.
Appellant had sought to explain the said entries in the trial balance, by referring to Audited Balance sheet. They had contended that in the figure for the year 2009-10, inadvertently 25 Service Tax Appeal No.70561 of 2016 an amount of Rs 67,81,884/-, which was liability towards the sundry creditors have been added.
Impugned order records that this amount cannot be set off from the amount indicated in the trial balance as service tax. We also find that in the audited balance sheet, in Schedule G, under the head C) Provision Appellant have themselves shown service tax payable for the year ending 31st March 2010 as Rs 8,137,048.03 and the sundry creditors as Rs 8,902,753.94. The relevant extract of the balance sheet for the year 2009-10 is reproduced below:
Particular Food Mirchi JHV Mall Ramada Head Del Current Previous s Office hi year Year SCHEDULE G Current Liabilities and Provisions A) Current Liabilities Sundry 7535290. 7535290. 7535290.Creditors 07 07 07
for Civil work & Others Sundry Creditors Others Sundry 75324 28869.6 1549201. 4057543. 3191814. 0 8902753. 12305864 Creditors 2 65 85 82 94 .46 Contract 0 0 0 0 433985.6 0 433985.6 433985.6 0 ors credit balance Stale 0 0 0 0 117609.9 0 117609.9 117609.9 4 Cheques 4 4 Sundry 0 0 6781884 0 1986499. 0 8768383. 1986499. .00 40 40 Creditors 4 for Service Audit 0 0 0 0 63090.00 0 63090 89615.00 Fees Payable Electricit 0 0 0 0 0 0 0 0 y Payable Due to 80093.0 112787. 305672.0 2108428. 0 0 2606980 1384105. 0 00 0 00 Employe 00 es TDS 0 79.00 13185.00 27382.00 0 0 40646 101782.0 Payable 0 PF & ESI 9001.00 7876.00 21391.00 82656.00 0 0 120924 117255.0 Advance 0 0 0 0 0 0 0 0 from Custome rs 26 Service Tax Appeal No.70561 of 2016 Provsion 0 0 0 0 2650674. 0 2650674. 2650674. 35 for Tax 35 35 Provision 0 0 0 0 44843.00 0 44843.00 44843.00 for FBT Provision 0 0 0 0 4185838. 0 4185838. 4185838. 00 for tax 00 00 AY 9-10 Provision 0 0 0 0 63139.00 0 63139 63139.00 for FBT AY 9-10 Provision 0 0 0 0 6614774 0 6614774 0 .00 for Tax AY 10-11 Advance 0 0 0 0 0 0 0 0 from Custome r Other 6148.86 8585.55 173685.1 1157781. 50000.00 0 1396200. 1152053. 34 Outstand 0 85 08 ing Total as 170566. 158197. 8845018. 7433791. 19402268 0 29395068 24633263 in B/S 86 17 75 19 .11 .08 .83 Correcte 170566. 158197. 8845018. 7433791. 19402268 36009842 24633263 86 17 19 .11 d Total 75 .08 .83 B) Sundry deposits from suppliers and others 921828.0 786828.0 0 0 C) Provision Employe 1651017. 159435.9 1810452. e 00 3 93 provident Fund Service 0 200000. 1237754 6164859. 534434.0 0 8137048. 7411851. .40 tax 00 63 0 03 49 Payable 200000 2888771. 6324295. 9947500. 7411851. 4 56 96 49 D) Security Deposits Received 0 0 9524450. 0 810000.0 0 10334450 50755038 00 0 .00 .39 Grand 170566. 358197. 21258240 14269786 28692120 0 64748911 50755038 Total 86 17 .15 .75 .18 .11 .39
From the above it is evident that grand total of the schedule G is reflected in the balance sheet as Sundry Creditors & Outstanding Liabilities. Further it is observed that when the figures giving the constituent wise break up and the total figure are cross tallied then in the head of Sundry Creditors, Others, the company wise total comes to Rs 29,395,068.08 whereas if the total is done constituent wise the total comes to Rs 3,60,09,842.08/-. This 27 Service Tax Appeal No.70561 of 2016 error in the balance sheet has crept in for the reason that while calculating the totals for company an liability of Rs 6,614,774.00 shown for the Head office towards Provision for Tax for A Y 10-
11 has not been taken into account. Since the Grand Total of Schedule G calculated company wise or the Constituent wise is matching there is an error in the schedule G in accounting the figures under the head of secondary creditors to this extent. The submission made by the appellant that this liability inclusive of liability towards the seven creditors is totally incorrect. The figure of current liability against these seven creditors which total upto Rs 67,81,884/- is reflected in the schedule G along with the service tax liability of Rs 81,37,048.03. The figure of Rs 67,81,884/- is reflected in the Schedule G under the column of JHV Mall and the service tax liability is reflected as Rs 12,37,754.40. The submissions made by the appellant that the error is on the account of inclusion of the amount of Rs 67,81,884/- in the total liability towards service tax payable against shop rents is totally not maintainable. Similarly in view of the figures reflected in balance sheet Schedule G for JHV Malls the findings recorded in the impugned order also needs to be to be rejected. As per the balance sheet total liability of the appellant towards Service Tax is at the end of Financial Year ending March 2010.
4.6 We reproduce the Schedule G to the audited balance sheet for the year 2010-11:-
Particula Food Mirchi JHV Mall Ramada Head Delhi Current Previous rs Office year Year SCHEDULE G Current Liabilities and Provisions A) Current Liabilities Sundry 6567931. 6567931. 7535290.Creditor 53 53 07
s for Civil work & Others Sundry Creditors Others Sundry 88154. 24489. 1134492. 5166344. 3191814. 743191 1703721 8902753. Creditor 00 61 63 39 82 5.00 0.45 94 s Contract 0 0 0 0 270586.1 0 270586.1 433985.6 4 28 Service Tax Appeal No.70561 of 2016 ors 4 credit balance Stale 0 0 0 0 117609.9 0 117609.9 117609.9 4 Cheques 4 4 Sundry 0 0 6781884 0 2867257. 0 9649141. 8768383. .00 40 Creditor 4 4 s for Service Audit 0 0 0 0 63090.00 0 63090 63090 Fees Payable Electricit 0 0 0 0 0 0 0 0 y Payable Due to 314078 142107 1326406. 3684185. 0 0 5466776 2606980 .00 .00 00 00 Employe es TDS 0 0 13496.00 112190.0 2391861. 0 2517547. 40646 0 35 Payable 35 PF & ESI 25448. 21473. 60064.00 243899.0 0 0 350884 120924 00 00 0 Advance 0 0 25073.00 0 0 0 25073 0 from Custom ers Provsion 0 0 0 0 2650674. 0 2650674. 2650674. 35 for Tax 35 35 Provisio 0 0 0 0 0 0 0 44843.00 n for FBT Provisio 0 0 0 0 4185838. 0 4185838 4185838. 00 n for tax 00 AY 9-10 Provisio 0 0 0 0 0 0 0 63139 n for FBT AY 9-10 Provisio 0 0 0 0 661477 0 6614774 6614774 4.00 n for Tax AY 10-11 Provisio 0 0 0 0 7934800. 0 7934800 0 00 n for tax AY 11- 12 Other - 0 102326.8 5189474. 5492330. 0 1078403 1396200. 100.84 61 00 Outstan 2 0.59 85 ding Total as 427579 188069 9443742. 14396093 3578063 743191 6766803 2939506 .16 .61 6 5 in B/S 45 5.22 8.08 170566 158197 8845018. 7433791. 1940226 0 .86 .17 75 19 8.11 Correcte 170566 158197 8845018. 7433791. 1940226 3600984 .86 .17 19 8.11 29 Service Tax Appeal No.70561 of 2016 d Total 75 2.08
B) Sundry deposits from suppliers and others 536700.0 410128.0 946828.0 921828.0 0 0 0 0 C) Provision Employe 0 0 4192560. 168146.2 0 0 4360706. 1810452.e 00 1.00 21 93
providen t Fund Service 0 0 872754. 5598548. 534434.0 0 7005737. 8137048.
40 tax 94 0 34 03Payable 0 0 5065314. 5766695. 534434 0 1136644 9947500.
4 15 3.55 96 D) Security Deposits Received 0 0 10220839 0 810000.0 0 1033445 0.00 0 0.00 Grand 427579 188069 24717446 20699488 4410312 743191 9756762 6474891 Total .16 .61 .85 .15 9.53 5.00 8.3 1.11 From the perusal of the above schedule to total liability towards service tax is indicated in the balance sheet for the year ending 31.03.2011 is shown as Rs 70,05,737.00. We agree with the contention of the appellant that demand made in the impugned order by adding up the figures of service tax payable @ 10.3 in the trial balance for the years 2009-10 and 2010-11, is against all the principles of accounting. The total liability as it stands at the end of the year is net liability at the end of that financial year inclusive of the liabilities if for the past year. As we have pointed out earlier, that for the reason of manner of accounting for service tax which is on receipt basis and accounting in the financial accounts is on accrual basis, this liability towards service stands at the end of year awaiting the receipt of payments from the service recipient. This liability will be erased only when the service recipient makes the payment. Thus as per the Schedule G of the balance sheet of the appellant total outstanding liability, as per the balance sheet for the Financial Year 2010-11 is Rs 70,05,737.34 and not Rs 1,30,13,837/-. While making the above observations we are aware that the demand of Rs 1,30,13,837/- is only in respect of the "JHV Mall and Mutiplex", whereas we have determined the issue by taking the balance sheet for the Mall Hotel Limited, which includes the service tax payable from all the constituents 30 Service Tax Appeal No.70561 of 2016 thereof. Though this amount is indicated a liability in the balance sheet, still it is not in violation of any of the provisions of Service Tax Rules, 1994, and cannot be said to be not paid or short paid, for invoking the provisions of Section 73 (1) for demanding this amount. The due date for payment of this tax would have to be determined on the basis of the date of receipt of payment from the service recipient. Revenue has proceeded to demand this tax without even determining the date of receipt of payment. It is possible that some of this liability would have been discharged on the date of show cause notice/ order in original. The impugned order to extent of confirming the demand in this respect is without any understanding of the principles of accounting followed and the provisions of Service Tax Rules, 1994.
4.7 Challenging the levy of service tax, on the renting of immovable property, service recipients filed a writ petition in various High Court. The levy was held to be constitutionally valid by the High Courts. In the case of M/s Retailers Association of India [2011 (23) STR 561 (Bom)] Hon‟ble Bombay High Court held as follow:
"30. We have adverted to the affidavit in reply in order to buttress the point that a legislative hypothesis contained in parliamentary legislation cannot be questioned on the ground that the assumption of fact is in error. Parliament is entitled to make assessments of fact on the basis of which it legislates. Indeed, such assessments of fact are intrinsic to the very nature of the legislative exercise and the Court which exercises the power of judicial review particularly in fiscal matters would not be justified in re- examining the wisdom or the correctness of such an exercise by Parliament. The legislature in fiscal matters is entitled to a high degree of latitude in designing legislation and in formulating methodologies for the recoveries of fiscal exactions. Such an exercise cannot ordinarily be questioned as being beyond the powers of the enacting legislature.
31 Service Tax Appeal No.70561 of 2016
31. In Navnitlal C. Javeri v. K.K. Sen, Appellate Assistant Commissioner of Income-tax, AIR 1965 SC 1375 a Constitution Bench of the Supreme Court considered a constitutional challenge to the provisions of Section 2(6A)(e) of the Income Tax Act, 1922 under which a loan which was received by a shareholder of a private company was treated as a dividend paid to him by the company. The issue before the Supreme Court was whether the legislature in enacting the Section had exceeded the limits of the legislative field prescribed by Entry 82 of List I. Repelling the constitutional challenge the Supreme Court held as follows :
"If the legislature realises that the private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading the payment of tax, it can step in to meet this mischief, and in that connection, it has created a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. We have already explained how a small number of shareholders controlling a private company adopt this device. Having regard to the fact that the legislature was aware of such devices, would it not be competent to the legislature to devise a fiction for treating the ostensible loan as the receipt of dividend? In our opinion, it would be difficult to hold that in making the fiction, the legislature has travelled beyond the legislative field assigned to it by entry 82 in List I."
32. Finally, it may be noted that Counsel appearing on behalf of the Petitioners sought to place reliance on the judgments of the Supreme Court in J.K. Industries v. Chief Inspector of Factories and Boilers, (1996) 6 SCC 665 and Mathuram Agarwal v. State of Madhya Pradesh, (1999) 8 SCC 667. The submission is that the levy of service tax on renting of immovable property under clause (zzzz) is ultra vires the charging provision. J.K. Industries involved the 32 Service Tax Appeal No.70561 of 2016 interpretation of the provisions inter alia of Section 2(n) of the Factories Act, 1948. The Supreme Court held, that a proviso may, in certain cases, be an exception to a principal statutory provision though it cannot be inconsistent with what is expressed in the main provision. The Court held that if a proviso is so inconsistent, it would be ultra vires the main provision and would be struck down. Hence as a general rule, it would be proper to construe all the provisions of the statute together without making either of them redundant or otiose. Mathuram Agarwal‟s case dealt with Section 127 of the M.P. Municipalities Act, 1961 which authorised the imposition inter alia of a tax payable by owners of houses, buildings or lands situated within the limits of a municipality with reference to the annual letting value. The rate of taxation was specified in a table appended to Section 127A. The rate at which the tax had to be levied commenced with property, the annual letting value of which exceeded Rs. 1,800/- per annum and in such a case, the tax was to be levied at 6% of the annual letting value. No rate of tax was prescribed for a property, the annual letting value of which was less than Rs. 1,800/-. The proviso to sub-section (2) of Section 127A, however, stipulated that if any such building or land was in the ownership of a person, who owns any other building or land in the same municipality, the annual letting value of such building or land, shall for the purposes of the Clause, be deemed to be the aggregate annual letting value of all buildings or land owned by him in the municipality. The Supreme Court held that the main provision which was the charging section, made no provision regarding the rate at which tax was to be paid in case the building or land in question had an annual letting value of less than Rs. 1,800/-. However, the proviso required the exempted property to be subjected to tax and for the purpose of valuing that property alone the value of the other properties was to be taken into 33 Service Tax Appeal No.70561 of 2016 consideration. In these circumstances, the proviso was held to be contrary to the charging section. Both these cases deal with provisos or exceptions to the main provision. This can have no application whatsoever to the present case where the very charge is imposed on the taxable services defined with reference to the diverse clauses of Section 65(105).
33. Therefore in our view, looked at from either stand point, the legislative basis that has been adopted by Parliament in subjecting taxable services involved in the renting of property to the charge of service tax cannot be questioned. The assumption by a legislative body that an element of service is involved in the renting of immovable property is certainly not an assumption which can be regarded by the Court as being so manifestly absurd or perverse as to lead to an inference that Parliament had treated as a service, an item which in no rational sense could be regarded as involving service. But more significantly, even if the Court were to proceed on the basis, suggested by the Petitioners that no element of service is involved, that would not make the legislation beyond the legislative competence of Parliament. So long as the legislation does not trench upon a field which has been reserved to the State legislatures, the only conclusion that can be drawn is that the law must be treated as valid and within the purview of the field set apart for Parliament. There is, it must be emphasised, no violation set up of any provision in Part III of the Constitution, (save and except on the issue of retrospectivity which would be considered subsequently)."
37. The object of the amendment, brought about with retrospective effect, is to expressly bring the legislative provision in conformity with the original parliamentary intent. The Supreme Court held in Bakhtawar Trust v. M.D. Narayan, (2003) 5 SCC 298 that it is open to the legislature to alter the law retrospectively provided the 34 Service Tax Appeal No.70561 of 2016 alteration is made in such a manner that it would be no more possible for the Court to arrive at the same verdict. The purpose and object of validating legislation is to ensure a fundamental change of circumstances upon which the earlier judgment was founded. This may be done by re-enacting retrospectively a valid and legal taxing provision and then by a fiction making the tax already collected stand under the re-enacted law. The amendment in the present case passes muster on that test.
38. The constitutional validity of the provision has been upheld by the High Courts of Punjab & Haryana and Orissa in Shubh Timb Steels Limited v. Union of India, (2010) 236 CTR (P & H) 562 = 2010 (20) S.T.R. 737 (P & H), and Utkal Builders Limited v. Union of India, (2011) 186 ECR 74 (Orrisa) = 2011 (22) S.T.R. 257 (Ori.).
39. For the reasons which we have indicated herein above, we do not find any substance in the challenge raised before the Court. All the Petitions shall accordingly stand dismissed. Rule is accordingly discharged. There shall be no order as to costs."
4.8 This decision was challenged before the Hon‟ble Supreme Court and court has vide its order dated 14.10.2011 reported at [2012 (26) STR J 96 (SC)] gave the direction as follow:
" C.A. No. 8390/2011 M/s. Retailers Association of India v. Union of India & Ors.
Having heard learned counsel for the parties on the question of stay with regard to the arrears of service tax due from the members of the appellant association prior to 30th September, 2011, we direct as follows :
all members of the appellant association, namely, Retailers
(i) Association of India, who are before us, shall deposit with the concerned department 50% of the arrears towards the said tax within six months in three equated 35 Service Tax Appeal No.70561 of 2016 instalments, on or before 1st November, 2011; 1st January 2012 and 1st March, 2012; (ii) for the balance 50% all the members shall furnish a solvent surety to the satisfaction of the jurisdictional Commissioner; (iii) they shall file individual affidavits in this Court, within four weeks from today undertaking to pay the balance arrears of service tax, stayed in terms of this order, as may be directed by this Court at the time of final disposal of the appeal; and (iv) the successful party in this appeal shall be entitled to interest on the amount stayed by this Court at such rate as may be directed at the time of final disposal of the appeal.
It is clarified that this interim order shall apply only in the case of those members of the association who were petitioners before the High Court in the writ petition giving rise to this appeal and who shall file the requisite affidavits within the aforesaid period of four weeks from today. We further direct that any default in deposit of any one of the instalments by the dates fixed above, would result in vacation of this stay order and it will be open to the department to recover the balance amount in accordance with law.
I.A. No. 3 for impleadment Learned counsel for the applicant seeks leave to withdraw the application stating that the applicant would file a substantive petition. Accordingly, the application is dismissed as not pressed.
C.A. Nos. 8391-8393/2011 Shoppers Stop Ltd. Etc. Etc. v. Union of India & Ors Etc. Etc. Being a member of the appellant-association in C.A. No. 8390/2011, no separate orders are called for in this appeal.
36 Service Tax Appeal No.70561 of 2016 C.A. No. 8397/2011 M/s. Metro Shoes Ltd. & Anr. v. Union of India & Ors.
C.A. No. 8398/2011 M/s. Major Brands (India) Pvt. Ltd. v. Union of India & Ors.
C.A. No. 8428/2011 - Cinemax India Ltd. v. Union of India & Ors.
Having heard learned counsel for the parties on the question of stay with regard to the arrears of service tax due from the appellants prior to 30th September, 2011, we direct as follows :
(i) all the appellants in each of the appeals, who are before us, shall deposit with the concerned department 50% of the arrears towards the said tax within six months in three equated instalments, on or before 1st November, 2011;
1st January 2012 and 1st March, 2012; (ii) for the balance 50% each of the appellant in these appeals shall furnish a solvent surety to the satisfaction of the jurisdictional Commissioner; (iii) they shall file affidavits in this Court, within four weeks from today undertaking to pay the balance arrears of service tax, stayed in terms of this order, as may be directed by this Court at the time of final disposal of the appeals and (iv) the successful party in these appeals shall be entitled to interest on the amount stayed by this Court at such rate as may be directed at the time of final disposal of the appeals.
It is clarified that this interim order shall apply only in the case of the appellants who shall file the requisite affidavits within the aforesaid period of four weeks from today. We further direct that any default in deposit of any one of the instalments by the dates fixed above, would result in vacation of this stay order and it will be open to the department to recover the balance amount in accordance with law."
37 Service Tax Appeal No.70561 of 2016 4.8 In terms of the above directions the tenants of the appellant have made the payment of 50% of service tax due to the government and have filed the undertaking of service tax which are as follows:-
Sl. No. Party Name Service Tax Undertaking Paid as per for Service Court Order Tax Due 1 Bata India Ltd. 0 696222 2 Cotton By Century 120068 121596 3 Cannaught Plaza Restaurant 151998 151998 Pvt. Ltd.
4 Metro Shoes 323315 323315
5 Provogue India Ltd. 90975 90975
6 Indian Terrain 161530 0
7 Pizza Hut 392608 0
Total:- 12,40,494/- 13,84,106/-
4.9 Thus in our view the recovery of the service tax due has
been stayed by the Hon‟ble Apex Court subject to the conditions as specified. The service recipients who are before the Hon‟ble Supreme Court have complied with the conditions specified. On this account recovery of service tax has been stayed then the entire basis on which these proceedings have been initiated for the period August 2009-July 2011 is faulty. Taking into account the payments made by the tenants and undertakings given appellant have filed chart indicating that the total liability that remains unpaid is Rs 12,94,749.00/-. The said chart is reproduced below:
Year 2009-10 2010-11 2011-12 2012-13 2013-14 Total Opening Balance 0 1651017 4192560 3795045 2959284 Liability 4384779 4377803 2314624 3826 0 Paid by Cash 2723073 1402657 799142 158230 158868 Discount 10689 45227 2809 135688 122948 Balance 1651017 4580936 5705233 3504943 2677468 Reversal of ST on 0 388376 1213966 0 0 W/o Paid by Recepient 0 0 272066 968429 1240495 Undertaking Given 0 0 696222 273594 414290 1384106 Net Balance 1651017 4192560 3795045 2959284 1294749 Appellant have also submitted that this unpaid amount of service tax will be paid by the appellant as they realize the amounts due 38 Service Tax Appeal No.70561 of 2016 from the their service recipient as per the provisions which existed during the disputed period.
For the period August 2009 to September 2011 4.10 A demand of Rs 11,40,675/- has been made from the appellant during this period in respect of the received for the shops situated in Ramada Hotel. Interestingly this demand has been made by taking the rent received by the appellant on the pro-rata basis. On the basis of letter dated 14.08.2013, the demand has been worked out presuming the rent amounts received in respect of the shops located at Ramada Hotel (Mall hotel) on the basis of the basis of the rent details given for the period Oct 2011 to March 2012, as following:
SI. Shop Name Per month Total Rent Rate Service Ed. S&H Total No. rate worked calculated Service Tax Cess Ed. Service out as per during the of Tax Cess Tax Party's letter period of worked dated Audit i.e. out in 14.08.2013 8/2009 to Rs.
and Range 9/2011 (26
Sarnath, months)
Varanasi
Letter dated
14.11.2013
1 LE Oriental 70000 1820000 10.30% 182000 3640 1820 187460
Arts, Shop
No. 2
2 LE Oriental 75000 1950000 10.30% 195000 3900 1950 200850
Arts, Shop
No. 5
3 Chavi Arts 65000 1690000 10.30% 169000 3380 1690 174070
& Crafts
4 Divine 65000 169000 10.30% 169000 3380 1690 174070
Gems
5 Mala 65000 1690000 10.30% 169000 3380 1690 174070
Textiles
6 Shree Ji 50000 1300000 10.30% 130000 2600 1300 133900
Kayakalpam
7 UBICO 22500 585000 10.30% 585000 1170 585 60225
Networks P
Ltd.,
TOTAL 10725000 1072500 21450 10725 1104675
This demand has been made by the applicant on Point of Taxation Rules. Admittedly, this demand is for the period August 2009 to September 2011. The Point of Taxation Rules, 2011 were introduced with effect from 1st April 2011 and the appellant was having the option to pay the service tax in respect of the transactions upto June 2011 on the receipt basis. The demand for the period upto June, 2011 by invoking the provisions of Point of Taxation Rules, 2011 itself is bad in law. Appellant has 39 Service Tax Appeal No.70561 of 2016 contested the computation of the demand on pro rata basis and have submitted that the information in respect of the rent received in respect of the shops situated at Ramada Hotel (Mall Hotel) was made available to the Revenue even at the time of the audit. This information is duly supported by the ledgers produced by the appellant. We observe from the information submitted that appellant has during the period August 2009 to March 2011 collected the rent against these shops as follows:
Amount in Rs.
2009-10 (From Aug 2009) 2010-11 1 LE Oriental Arts, Shop No. 2 3,20,000 4,80,000 2 LE Oriental Arts, Shop No. 5 3,20,000 4,80,000 3 Chavi Arts & Crafts 3,20,000 4,80,000 4 Divine Gems 8,00,000 12,00,000 5 Mala Textiles 2,40,000 0 6 Arogyam 4,00,000 0 7 Shree Ji Kayakalpam 0 1,83,983 8 UBICO Networks P Ltd., 0 6,00,000 Total 24,00,000 34,23,983 Rent on which service Tax Paid 7,83,983 Rent on which Service tax is payable 24,00,000 26,40,000 Total on which service tax payable 50,40,000 4.11 As we have observed earlier that for the period upto June 2011 service tax was payable on the receipt basis. Hence demand confirmed against the appellant by invoking the Point of Taxation Rules, 2011 is totally having no basis in law. Appellant had made the submission to the adjudicating authority in this regard which has been totally ignored, leading to the confirmation of the demand by invoking the Point of Taxation Rules, 2011 for the period when they were not even applicable.
For the period April 2011, appellant have claimed that figures shown in their balance sheet as income from shop rent maintenance has been reconciled and the they have paid the service tax on the rent received on accrual basis as per Point of Taxation Rules, 2011 from the July 2011 and on the realization basis for the period upto June 2011.
For the period July 2011 to September 2011 4.12 A demand for Rs. 14,21,726/- has been made against the appellant for the period July 2011 to September 2011 by invoking the provisions of Point of Taxation Rules, 2011, under the category of renting of immovable property services. In our view the entire demand in the category of renting of immovable 40 Service Tax Appeal No.70561 of 2016 service has been made for the period August 2009 to September 2011 as has been discussed under the para 4.10. If this demand is again made separately then the same would amount to duplication of demand. Admittedly for the period from July 2011, Point of Taxation Rules, 2011 are applicable and the appellant has paid the service tax in respect of the income received under the category of "Renting of Immovable Property as is discussed in following paragraphs.
For October 2011-March 2012 4.13 During the period 2011-12, as per revenue appellant has shown income from "Shop Rent and Maintenance" as Rs 4,60,70,849/-. In the trial balance they have shown this amount has Rs. 3,95,40,762/-. In the ST-3 return they have shown this figure as Rs. 3,36,61,426/-. Appellant has sought to explain the differences in the figures shown in the balance sheet, trial balance and ST-3 returns by referring to the profit and loss account statement for the year 2011-12. From the said statement following is evident:
Amount in „Rs 1 Rental income 4,60,70,849/-
2 For the period April, 2011 to June, 2011 58,79,337/-. 3 Non taxable electricity and water charges 65,30,087/-. 4 Taxable Value [1-(2+3)] 3,36,61,425/- 5 Taxable Value as per ST-3 return 3,36,61,425/-
In the impugned order Commissioner has without going into the details of the said submissions have summarily rejected the contentions raised by the appellant.
4.14 In fact proviso to Rule 9 of the Point of Taxation Rules, 2011 reads as follows:
"9. Transitional Provisions:
....
Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued upto the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date 41 Service Tax Appeal No.70561 of 2016 on which the payment is received or made as the case may be."
In terms of the above proviso, the option was given to the appellant-assessee the determine and pay the service tax either on accrual basis or on the receipt basis. Thus demand could not have been made by referring to these rules, for the transactions during the period April 2011 to June 2011, if the appellant has chosen to pay the service tax on receipt basis. Appellant have contended that the service tax in respect of this amount has been paid as and when the same was realized.
4.15 It is fact that no service tax could have been demanded on the amounts collected as "electricity and water charges", as has been held in a number of decisions. In case of L & T Infocity [Final Order No A/30303-30304/2023 dated 2709.2023] Hyderabad Bench has held as follows:
"14. Having regard to the Order passed by this Tribunal in the case of VITP Pvt Ltd (supra), wherein the reliance has also been placed on Hon‟ble Supreme Court‟s judgment in the case of Intercontinental Consultants & Technocrats Ltd (supra), as also factual matrix brought out in the SCNs as well as in the OIOs, the amount collected towards water, electricity and diesel are in the nature of reimbursable expenses and therefore, not liable for inclusion in the taxable value towards provision of Management, Maintenance or Repair services by the Appellant. There is nothing in the SCNs or impugned orders, which states that they have been collecting anything over and above the amount incurred towards payment of electricity bill and water bill or diesel consumption or that there was any profit involved therein. When they were only collecting actual charges, those will be nothing else, but only collection of amount on reimbursement basis. The fact that the reimbursable expenses, have been specifically brought under the coverage of gross value w.e.f. 14.05.2015, further supports the Appellant‟s argument that the 42 Service Tax Appeal No.70561 of 2016 amounts collected on reimbursable basis were not liable for inclusion before that. In fact they have stated that in their own case itself for the subsequent period, Commissioner (Appeals) has also set aside the demand for the period 01.10.2014 to 14.05.2015 on "diesel charges".
15. Therefore, demand on these three charges viz., electricity, water and diesel cannot sustain for the reasons discussed, supra......"
4.16 Thus we do not find any merits in the demand confirmed for this period for the reason that there is difference in the figures indicated in the Profit an Loss Account for this period and the ST-3 returns. After deducting the figures as indicated by the appellant in the chart submitted towards transactions prior to 1 st July 2011 and the expenses towards the "electricity and water charges" from the rental income shown in profit and loss account for this period the figure tallies with the figure declared in ST-3 return. The service tax on the outstanding amount of shop rent for period April 2011-June 2011, was paid for an amount of Rs 25,07,246/- during the year 2013-14 and the remaining canl be paid when the amount is realized.
For the Year 2012-13 4.17 For the year 2012-13 as per the revenue appellant has shown income from "Shop rent and Maintenance" as Rs. 4,55,88,373/-, in their trial balance as Rs. 4,67,83,913/- whereas the declared value of taxable service during this period as per ST-3 return is Rs 3,54,54,094/-. Thus appellant has suppressed the value of taxable service to the extent of Rs.1,13,29,819/- in their ST-3 return and short paid the service tax amounting to Rs 14,00,365/-.
For the reason of change in manner of taxing of the services during the Financial Year 2012-13, the service tax returns were filed for the period April 2012-June 2012, July 2012-September 2012 and October 2012-March, 2013. The value of taxable services as shown in the three service tax returns is as follows:
Period Maintenance & Repair Renting of Immovable Property Total Apr-Jun 26,34,055 98,45,100 1,24,79,155 43 Service Tax Appeal No.70561 of 2016 Jul-Sept 26,91,855 91,72,242 1,18,64,097 Oct-Mar 57,87,470 1,78,02,527 2,35,89,997 Total 1,11,13,380 3,68,19,869 4,79,33,249 From the above table it is evident that revenue has while computing the value of taxable service during this period has taken into account only two returns i.e. for the period July-Sept 2012 and Oct,12 to March 2013 {Total value of taxable service as per these two returns is Rs 3,54,54,094 = Rs 1,18,64,097/- + Rs 2,35,89,997/-}. However if the value of taxable service as per the ST-3 returns filed during 2012-13 is taken into account then the total value of taxable services reflected in the ST-3 returns is Rs 4,79,33,249/-. This discrepancy in computing the value of taxable service as per ST-3 return was pointed out by the appellant to the adjudicating authority. However without even verifying the factual position as per ST-3 returns adjudicating authority has confirmed the demand made on this account, without any application of mind. As the value as indicated in the ST-3 return is higher than that reflected in the Profit and Loss Account or the Trial Balance, we do not find any merits in the demand made.
4.18 The Point of taxation Rules, 2011 provides for determination of the due date for payment of service tax. If the tax is not paid by the due date but paid subsequently revenue cannot proceed to determine the tax payable again which is never in dispute but could have demanded the interest for the period of delay in payment of service tax. Point of Taxation Rules, 2011 do not create the liability to pay service tax, and hence invoking the provisions of Section 73 (1) to demand the service tax by invoking the provisions of said rule cannot be upheld.
4.19 Since we do not find any merits in the demand made the same is set aside. As demand is set aside the demand for interest and penalties are also set aside. As we are setting aside the impugned order on the merits itself we do not go into the aspect of limitation.
44 Service Tax Appeal No.70561 of 2016
5.1 In view of the above discussions as above, the appeal is allowed.
(Pronounced in open court on-05 March, 2024) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp