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Judgment
A.K. Jyotishi, Member (T)
M/s Shri Shakti Resorts & Hotels Limited (herein after referred to as Appellant) have filed an appeal against Order-in-Appeal No.HYD-SVTAX-SC-AP2-67-23-24-ST, dated 03.07.2023. In the impugned order, Commissioner (Appeals) has, interalia, dropped the demand confirmed by the Original Adjudicating Authority vide Order-in-Original dated 29.07.2022 except for demand on account of rental income.
The issue, in brief, is that the appellants were providing various services like mandap keeper services, restaurant services, hotel, renting of immovable property services, club or association services, beauty parlor services, dry cleaning services etc. In the course of audit and verification of Service Tax returns with the Profit & Loss Account it appeared to the Department that there was difference between total revenue declared in the Service Tax returns and figures appearing in Profit & Loss account. Therefore, based on this difference the Department worked out a short payment of service tax to the tune of Rs. 1,14,38,874/-. Further, despite the appellants providing reconciliation statement vide their letter dated 18.03.2020 and assessee explaining that a large difference is on account of various taxes collected and paid, which also figured both in the income and expense side of the balance sheet, the Department did not accept the explanation in view of the fact that assessee could not give details of exemption claimed and the fact that they were not mentioned in the returns filed nor any invoice/documents were provided to the audit team. The Department also felt that during certain period, the exemption for rental income from educational institution was not available and since they had raised certain invoices towards such rent, that they had charged and collected service tax from the educational institution but have not paid any service tax on that income.
The Original Authority confirmed the entire amount demanded primarily on the ground that the explanations given by the appellants are not acceptable, especially in view of non-submission of material proof like invoices, bills etc.
Commissioner (Appeals) has examined the reasons given for the difference, item wise, during 2014-15, 2015-16 and 2016-17 and came to the conclusion that since the Department failed to consider that certain incomes were on account of payment of taxes such as Service Tax, VAT and Luxury Tax etc., and therefore he set aside the demand on account of income of Rs. 5,87,30,219/- out of Rs. 8,11,36,070/- on this count alone. He further analysed the income received on account of various heads like interest, discount, profit on sale of assets, contribution towards cess, cafeteria sale, sale of scrap etc., and after examining the entire books of accounts and explanations, he did not find them chargeable to service tax.
As regards income from renting of immovable property to educational institution, after considering the explanation given by the appellants, he came to the conclusion that the exemption for such services was withdrawn vide Notification No. 06/2014-ST dated 11.07.2014 and therefore to the extent of such rental income of Rs. 20,69,960/-, it was clearly not exempted during material time and ordered for re-computation of their service tax liability for the impugned period.
The Advocate for the appellant has mainly argued that the Commissioner (Appeals) has already allowed substantial appeal after going through explanations and gave findings that there was no requirement for them to pay any service tax and further since there was no liability, he has also not confirmed the levy of penalty under Section 78. As regards the amount of service tax liability on account of revenue earned as rental income, for which admittedly no exemptions were available during certain period, he is not disputing it on merit. His main ground is that there is no sufficient ground in show cause notice for invoking extended period in the present case as the elements required for Section 78 are not present in his case. He has relied on a judgment of M/s Maharaja Crane Services Vs Commissioner of CGST, Chandigarh Final Order No. 60565/2021 dated 19.03.2021 where the Tribunal had set aside the demand by holding that extended of five years cannot be invoked. He has also relied on other judgment like C.J.Shah & Co Vs Union of India [2018 (359) ELT 22 (Bom)]
On the other hand, the Learned DR reiterated the findings of the impugned order. He also concedes that no appeal had been filed by the Revenue against the order of the Commissioner (Appeals). However, he argued that in respect of demand on account of rental income during 2014-
15 when the exemption was clearly not available, the demand has to be sustained and the appellant is required to pay the same along with interest and they are also liable to penalty under Section 78. He also reiterated that they were aware about their liability as they had raised the invoices to the educational institution charging service tax and have collected also. In this regard, the Learned Advocate for the appellant countered the submissions of the Department that they had actually collected service tax as nothing of that effect has been brought in show cause notice or on record that they had actually collected the service tax.
Further, by way of additional submissions, vide letter dated 25.04.2024 the appellant have clarified that the amount of Rs. 20,60,690/-mentioned in Order-in-Appeal is for the full 12 months during 2014-15 whereas the amount should be only Rs. 15,52,420/- from the period 11.07.2014 to 31.03.2015. They have also submitted a full set of copy of appeal papers filed before the Commissioner (Appeals) which are relevant for this case.
Heard both the parties and perused the records.
In the facts of the case, the short question to be decided is whether the appellants were liable to pay the service tax on the rental income received from educational institution during 2014-15, in view of the fact that para 9 of Notification No. 25/2012-ST was substituted by Notification No. 06/2014-ST with effect from 11.07.2014. In this regard, on going through notification it is clear that the exemptions were not available during this period even though it was otherwise available prior to the period and even after the subsequent period. I also find that the show cause notice has not given clear break up of various incomes which were received as income arising out of “services provided by the appellant” nor they have given any specific applicable rate of duty or exemption under which they were either liable to service tax or otherwise exempted. They have only gone by the difference between profit & loss account and ST-3 returns and have also alleged that the assessee has not disclosed the correct income and the short payment has come to light only because of the audit was conducted. Based on this, Department alleged that assessee had intentionally suppressed the facts and therefore liable for extended period of limitation in terms of Proviso to Section 73(1) of Finance Act 1994 and also penalty under Section 77 and 78.
The mere perusal of the show cause notice shows that it has not brought categorically the grounds on which the demand was proposed. Further, it is an admitted fact that they were not liable to service tax prior to this demand period or subsequent to this demand in terms of extent notifications. Under this condition, there could have been a bonafide belief that they were not liable to pay service tax. Further, merely because they were raising the invoices in the same old fashion it does not make them defaulter who deliberately and intentionally, despite knowing the fact that they were liable to pay service tax, chose not to pay service tax. No such details or grounds to the contrary have been brought in the show cause notice for invoking proviso to Section 73. Further, the order of the Commissioner (Appeals) is quite detailed and it clearly shows that after examining the submissions of the appellants, he has allowed the entire appeal except on account of the rental income and this order has not been contested by the Department. It is obvious that appellants impression about these incomes not being chargeable to service tax was upheld by the Commissioner (Appeals). This further supports the assessee’s contentions that they had no deliberate intention or malafide to avoid or evade service tax payment on rental income during the period 2014-15 (i.e. 11.07.2014 to 31.03.2015) even if, admittedly, it was liable to service tax.
I also find much weight in the submission that the Department has not proved that they had actually collected the service tax from these educational institutions during the material period and its gets further supported that the Department has not raised any show cause notice under Section 73(A) in respect of such amount which was supposedly collected by them and not paid. Thus this ground also does not support Department for invoking extended period.
Proviso to Section 73 provides that the demand can be raised even beyond the normal period of 30 months, but within 5 years, where the service tax has not been levied or paid etc., by fraud, willful misstatement, suppression of facts, contravention of any provision of the chapter or the rules made therein with intent to evade payment of service tax. I find that neither in the show cause notice nor in the Order-in-Original there has been any discussion as to how the proviso of Section 73 is applicable in the facts of the case and on the contrary and the facts of the case show that there was no deliberate or intentional non-payment of service tax and therefore invoking proviso to Section 73(1) is clearly bad in Law.
Therefore, I find that in the facts of the case, proviso to Section 73 is not applicable and therefore extended period cannot be invoked for demanding service tax on the rental income during the material period in 2014-15 as the show cause notice has clearly been issued after 30 months from the given date. Therefore, the demand is clearly time barred. Since the demand is already time barred and no deliberate suppression etc., is invokable in the facts of the case, the penalty is also not leviable under Section 78.
Accordingly, I allow the appeal with consequential benefit, if any, as per law.