2025 (5) TMI 774 - AT - Service Tax

Short payment of service tax - Exemption from service tax under N/Ns. 1/2006-ST dated 01.03.2006 26/2012-ST dated 20.06.2012 30/2012-ST dated 20.06.2012 - Rent-a-cab scheme operator services and Manpower Recruitment or Supply Agency Service (MRSAS) - non-consideration of reply of appellant - violation of principles of natural justice - HELD THAT - From a perusal of the impugned OIA the Commissioner (Appeals) has assumed that the Appellant did not dispute the service tax liability and that the only dispute was the split--up demand in terms of Notification No.30/2012 with regard to abatement. Apart from this unfortunately the First Appellate Authority has not discussed anything about the merits since according to him no other grounds was urged before him. Reply filed by the appellant to the SCN before the Original Authority has been conveniently ignored by both the authorities. Moreover the Appellant has been disputing the tax liability on various grounds since according to them after the introduction of negative service with effect from 01.07.2012 the services to the Educational Institutions were specifically exempted which according to them was their bona--fide understanding. Further the cum--duty benefit has also not been discussed by both the lawyer authorities and hence it is deemed it appropriate to set aside both the orders and remand the matter back to the file of Original Authority for de--novo adjudication. It goes without saying that the question of abatements and cum--duty benefits are the statutory benefits which should be made available to an assessee when the assessee is otherwise eligible for the same and for this there may not be any separate claims by assessee since it is the duty of the statutory authorities to extend all such statutory benefits to the assesses. Conclusion - Reply filed by the appellant to the SCN before the Original Authority has been conveniently ignored by both the authorities. The impugned order is set aside and the matter is remanded to the file of Adjudicating Authority who shall afford reasonable opportunities of being heard to the appellant and then pass speaking order as per law - Appeal allowed by way of remand.

The core legal questions considered by the Tribunal revolve around the following issues:

1. Whether the appellant was liable to pay service tax under the Rent-a-cab scheme operator services and Manpower Recruitment or Supply Agency Service (MRSAS) despite their contention of exemption.

2. Whether the appellant was obligated to include the Rent-a-cab scheme operator service in their ST-2 registration form and the implications of non-inclusion.

3. The applicability and correctness of abatements under Notification Nos. 1/2006-ST, 26/2012-ST, and 30/2012-ST to the appellant's service tax liability.

4. The correctness of the demand of service tax on the entire value of services versus the appellant's contention that only 25% of the service tax was payable by them, with the balance 75% to be discharged by the service recipient.

5. The appellant's claim of exemption from service tax on services provided to Educational Institutions run as Charitable Trusts, and the effect of the introduction of negative list services effective 01.07.2012.

6. The applicability of the cum-duty basis for calculating service tax liability when the appellant had collected service tax from clients but allegedly did not deposit the same with the exchequer.

7. Whether the adjudicating and appellate authorities properly considered the appellant's defenses and statutory benefits such as abatements and cum-duty benefits during adjudication.

Issue-wise Detailed Analysis

Issue 1 & 2: Liability under Rent-a-cab Scheme Operator Services and MRSAS and Registration Requirements

The Revenue initiated investigation on suspicion that the appellant was providing Rent-a-cab scheme operator services without declaring the same in their ST-2 registration form and was collecting service tax but not remitting it. The summons issued to the appellant were initially not complied with, prompting further inquiry including cross-verification with Income Tax returns and Profit & Loss accounts. The Revenue concluded that the appellant was engaged in providing Rent-a-cab services in specific regions and manpower supply services to factories and educational institutions.

The legal framework governing service tax liability includes the Finance Act, 1994, and relevant notifications granting abatements or exemptions. The appellant's failure to include the Rent-a-cab service in the registration form was a procedural lapse but the primary question was whether the service tax was due on such services.

The Court observed that the appellant's statements and documents confirmed the provision of taxable services under Rent-a-cab and MRSAS categories. Thus, the appellant was liable to pay service tax on these services unless exempted or abated under law.

Issue 3 & 4: Applicability of Abatements and Split Liability under Notification 30/2012-ST

The appellant contended that they were entitled to avail abatements under Notifications 1/2006-ST, 26/2012-ST, and 30/2012-ST, which provide for reduced taxable value for Rent-a-cab services and other specified services. Specifically, Notification 30/2012-ST granted an abatement allowing service tax to be paid only on 10% of the value of Rent-a-cab services, exempting the balance 90%. For Manpower Supply Services, the appellant argued that only 25% of the service tax liability was payable by the service provider, with the balance 75% payable by the service recipient, as per statutory provisions.

The appellant relied on Supreme Court precedents, including the decision in State of Uttar Pradesh Vs Singha Singh & Ors., to support the contention that the demand should be proportionate and in accordance with statutory apportionment.

The adjudicating authority and first appellate authority, however, confirmed the demand on the entire value without proper consideration of these abatements and split liability provisions. The Tribunal found that these statutory benefits are mandatory and must be extended to the appellant if eligible, irrespective of whether a separate claim is made.

Issue 5: Exemption Claim for Services to Educational Institutions and Effect of Negative List

The appellant asserted a bona fide belief that services provided to Educational Institutions run as Charitable Trusts without profit motive were exempt from service tax, based on information from the institutions and the negative list introduced effective 01.07.2012. They relied on the Supreme Court decision in Uniworth Textiles Limited Vs CCE, which dealt with exemption claims in the context of charitable institutions.

The Tribunal noted that the adjudicating and appellate authorities did not address this exemption claim or the impact of the negative list on the appellant's liability. This omission was a significant procedural lapse, as the appellant's contention directly challenged the fundamental basis of the tax demand.

Issue 6: Cum-duty Basis for Service Tax Calculation

The appellant contended that since they had collected service tax from their customers but allegedly did not deposit the same with the exchequer, the demand should be calculated on a cum-duty basis under Section 67 of the Finance Act, 1994. This provision requires that when service tax is collected but not paid, the liability must be computed on the gross amount inclusive of the tax component.

Neither the adjudicating authority nor the first appellate authority discussed or applied this principle in their orders. The Tribunal emphasized that such statutory provisions must be considered during adjudication to ensure correct computation of tax liability.

Issue 7: Procedural Fairness and Consideration of Defenses

The Tribunal found that the adjudicating authority and the first appellate authority failed to consider the appellant's detailed replies and defenses raised in response to the Show Cause Notice, including the applicability of abatements, exemption claims, split liability, and cum-duty basis. The first appellate authority assumed that the appellant did not dispute the service tax liability except for abatement issues and thus did not examine other grounds.

This approach was found to be legally unsustainable as it denied the appellant a fair opportunity to have all their contentions adjudicated upon. The Tribunal held that the statutory authorities have a duty to extend all applicable statutory benefits to the assessee and to pass speaking orders addressing all relevant issues.

Conclusions and Directions

Given the procedural lapses and incomplete adjudication of the appellant's defenses and statutory benefits, the Tribunal set aside the orders of the adjudicating and first appellate authorities and remanded the matter for de novo adjudication. The Adjudicating Authority was directed to afford the appellant reasonable opportunity of hearing, consider all contentions including abatements, exemption claims, split liability, and cum-duty basis, and pass a speaking order within 60 days.

All contentions of both parties were left open for fresh consideration. The appellant was also directed to cooperate with the adjudication process.

Significant Holdings

"The question of abatements and cum-duty benefits are the statutory benefits which should be made available to an assessee when the assessee is otherwise eligible for the same and for this, there may not be any separate claims by assessee since it is the duty of the statutory authorities to extend all such statutory benefits to the assesses."

"The Commissioner (Appeals) has assumed that the Appellant did not dispute the service tax liability and that the only dispute was the split--up demand in terms of Notification No.30/2012 with regard to abatement. Apart from this, unfortunately, the First Appellate Authority has not discussed anything about the merits since, according to him, no other grounds was urged before him. Reply filed by the appellant to the SCN before the Original Authority has been conveniently ignored by both the authorities."

"The matter is remanded to the file of Adjudicating Authority who shall afford reasonable opportunities of being heard to the appellant and then pass speaking order as per law."

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