2025 (6) TMI 1174 - AT - Service Tax

Classification of services - Manpower Recruitment Agency and Supply Service or not - Storage and Warehousing and Cleaning Service - applicability of benefit under Sub-section (3) of Section 73 of the Finance Act 1994 - HELD THAT - In view of the fact that the show cause proceedings were issued only on the basis of the figure reflected in the Form 26AS vis - vis the ST-3 Returns filed by the appellants it is opined that the proper tax liability cannot be determined only based on the comparison between the two statements without referring to the factual aspect regarding actual provision of the taxable service whether should be classifiable under manpower recruitment as claimed by the appellants or under the taxable category of Storage and Warehousing and Cleaning Service as asserted by the department in the impugned proceedings. Assuming that the appellants contention is correct that they had already deposited the entire service tax amount then the benefit of sub-section (3) of Section 73 of the Act of 1994 should be available for non-initiation of any proceedings for recovery of the tax interest as well as the penalty amount confirmed in the impugned order. Therefore the matter is required to be again looked into by the original authority in its proper perspective to find out whether the adjudged demand can be confirmed on the appellants or otherwise. Conclusion - The adjudicating authority failed to properly consider the appellants evidence and submissions regarding discharge of tax liability and that this issue required fresh examination. The impugned order is set aside and the appeal is allowed by way of remand to the original authority for deciding the matter afresh - Appeal allowed by way of remand.

Summary

The core legal questions considered by the Tribunal in this appeal are:

• Whether the appellants, engaged in providing taxable service under the category of 'Manpower Recruitment Agency and Supply Service', had correctly discharged their service tax liability, given the split payment mechanism between service provider and service receiver under the applicable statute.
• Whether the classification of the service provided by the appellants as 'Storage and Warehousing' and 'Cleaning Service' by the department, rather than as 'Manpower Recruitment Agency and Supply Service', was justified.
• Whether the demand for service tax, interest, and penalties confirmed by the adjudicating authority was sustainable, particularly in light of the appellants' contention that the entire service tax liability had already been discharged.
• Whether the benefit under Sub-section (3) of Section 73 of the Finance Act, 1994, which provides protection from prosecution if the tax is paid before issuance of show cause notice, was applicable to the appellants.
• Whether the adjudicating authority properly addressed the factual and legal issues raised by the appellants before confirming the demand and penalties.

Issue-wise Detailed Analysis

1. Correct Discharge of Service Tax Liability under the Split Payment Mechanism

The appellants contended that the statute mandates a split payment of service tax liability on the gross value of the taxable service, with 25% payable by the service provider and 75% by the service receiver. They asserted that they had discharged their portion (25%) and that the service receivers had paid their respective share (75%) into the government account. The department's demand was based on a comparison of figures in Form No. 26AS (reflecting tax paid by the service receiver) and the ST-3 returns filed by the appellants, which allegedly showed a short payment of service tax by the appellants.

The Tribunal noted that the adjudicating authority had not adequately addressed the appellants' submission that the entire service tax liability had been paid, especially since the appellants had produced evidence of payment amounting to Rs. 1,26,42,082/- before issuance of the show cause notice, while the adjudicating authority appropriated only Rs. 1,18,52,594/-. The Tribunal emphasized that mere comparison of figures in tax returns and TDS certificates without a detailed factual inquiry into actual payments and liabilities is insufficient to determine tax liability.

Therefore, the Tribunal found that the adjudicating authority failed to properly consider the appellants' evidence and submissions regarding discharge of tax liability and that this issue required fresh examination.

2. Classification of the Service Provided

The department classified the service provided by the appellants under 'Storage and Warehousing' and 'Cleaning Service', whereas the appellants maintained that their activity fell squarely within the 'Manpower Recruitment Agency and Supply Service' category. The classification is crucial because it determines the applicable tax rates, valuation, and compliance obligations.

The Tribunal observed that the department had not specifically addressed why the service should not be categorized as claimed by the appellants. There was no detailed reasoning in the impugned order explaining the basis for reclassification. The Tribunal stressed that classification disputes require a thorough factual and legal analysis, including the nature of services rendered, contractual terms, and industry practice.

In the absence of such analysis, the Tribunal held that the department's classification could not be sustained without further inquiry.

3. Applicability of Benefit under Sub-section (3) of Section 73 of the Finance Act, 1994

This provision protects a taxpayer from prosecution and penalty if the tax due is paid before issuance of the show cause notice. The appellants claimed that since they had paid the entire service tax liability before the SCN was issued, they should be entitled to this benefit.

The Tribunal noted that if the appellants' claim of full payment before the SCN is correct, the benefit under Section 73(3) should apply, thereby precluding recovery of interest and penalties. However, the adjudicating authority did not properly consider or address this contention.

The Tribunal therefore directed that this issue be examined afresh, with due regard to the timing and completeness of tax payments.

4. Adequacy of Adjudicating Authority's Consideration of Appellants' Submissions

The Tribunal found that the adjudicating authority had not sufficiently dealt with the appellants' contentions regarding payment of service tax, classification of service, and applicability of statutory benefits. The impugned order lacked detailed reasoning on these points, which are fundamental to the determination of tax liability and penalties.

The Tribunal emphasized the necessity of providing an opportunity for personal hearing and a reasoned order addressing all material submissions before confirming demands and penalties.

5. Reliance on Form 26AS and ST-3 Returns Comparison

The department's initiation of proceedings was based primarily on discrepancies between figures in Form 26AS and ST-3 returns. The Tribunal held that such a mechanical comparison cannot substitute for a substantive inquiry into the nature of services, tax payments, and classification. The proper tax liability cannot be determined solely on this basis.

Conclusions and Directions

Given the foregoing, the Tribunal set aside the impugned order and remanded the matter to the original authority for fresh adjudication. The Tribunal directed that the authority:

• Conduct a detailed examination of the factual and legal issues, including classification of services and actual payment of service tax.
• Properly consider the applicability of Section 73(3) benefits if the tax was paid before issuance of the SCN.
• Provide the appellants an opportunity for personal hearing before passing a fresh order.
• Address all other issues raised in the appeal and grounds comprehensively in the fresh adjudication.

Significant Holdings and Core Principles Established

The Tribunal held:

"The proper tax liability cannot be determined only based on the comparison between the two statements, without referring to the factual aspect regarding actual provision of the taxable service, whether should be classifiable under 'manpower recruitment', as claimed by the appellants or, under the taxable category of Storage and Warehousing' and 'Cleaning Service', as asserted by the department in the impugned proceedings."

"Assuming that the appellants contention is correct that they had already deposited the entire service tax amount, then in our view, the benefit of sub-section (3) of Section 73 of the Act of 1994 should be available, for non-initiation of any proceedings for recovery of the tax, interest as well as the penalty amount confirmed in the impugned order."

"The department had not specifically addressed to the issue, as to why, the disputed service shall not be categorized under manpower recruitment service, as claimed by the appellants."

The final determination was that the impugned order confirming service tax demand, interest, and penalties was set aside, and the matter remanded for fresh adjudication consistent with the Tribunal's observations and directions.