IN LEVYING SERVICE TAX THERE SHOULD ALWAYS BE A NEXUS BETWEEN THE AMOUNT COLLECTED AND SERVICE RENDERED

[Mr. M. GOVINDARAJAN]

            The service tax is payable on all the taxable services rendered. Section 65(105) gives the meaning for taxable services.   Section 66 is a charging section which deals with the levy and collection of service tax. It prescribes the applicable rate of service tax which is to be levied on the value of taxable services. Section 65A provides the criterion to determine the category in which a service can be classified. Disputes are always there in classification of services and valuation of taxable services. It is used to add non taxable items to the valuation of taxable services. In 'Aditya College of competitive Exam. V. Commissioner of Central Excise, Visakhapatnam' - [2009 -TMI - 34639 - CESTAT, BANGALORE] the tribunal held that there should always be a nexus between the amount collected and service rendered. In this article the said case law is descussed in detail.

            In this case the appellants are imparting training to students appearing various competitive examinations. The services of the appellants are coming under 'Commercial Training and Coaching' and are liable to service tax with effect from 01.07.2003. The appellants collected certain amount from the students appearing for EAMCET for the year 2003 and the coaching duration was from April to July 2003. The Department alleged that the appellants deducted an amount of Rs.8,500/- towards the Mess charges out of the gross amount received. In view of the proceedings the original authority demand the service tax, interest Section 75 of the Finance Act, 1994, ('Act') penalty of Rs.100/- per day for delayed payment under Section 76 and penalty under Section 78 of the Act.

            The appellants being aggrieved with the order-in-original filed an appeal before Commissioner (Appeals). Before Commissioner (Appeals) the appellant put forth the following submissions:

            >>> For the amount received by the appellants prior to the introduction of service tax, namely 1.7.2003, the service tax is not leviable;

            >>> The service tax is not leviable on 'Mess Charges'

The Commissioner (Appeals) relying on the Board's Circular NO. 65/14/2003 dated 5.11.2003 gave a finding that the order of the lower authority is correct. The said circular indicates that where the value of taxable service has been received in advance for a service which become taxable service attributable to the relevant month/quarter which may be worked out on pro rate basis. The Commissioner (Appeals) held that though the payment of coaching was received before 01.07.2003, part of the coaching was provided after 01.07.2003. Therefore a service provider should pay service tax for the value of taxable service. As regards the mess charges, the Commissioner has reasoned that the service tax is liable to be paid on the gross amount and there is no provision made in the said section for claiming any abatement. The Commissioner (Appeals) upheld the order of original authority.

            Aggrieved against the order of Commissioner (Appeals) the appellant filed the present appeal before the Appellate Tribunal. The following points are put forth by the appellants:

            >>> The supporting legislation which creates tax liability cannot be retrospective. The Circular and Amending Rules are beyond the purview of the substantive Act and no operational guidelines should be introduced, which is contrary to the substantive legislation;

            >>> Including Mess charge is beyond he purview of the service tax provisions;

            >>> Section 65(105) (zzc) refers only to taxable services provided in relation to 'Commercial Training or coaching.  Mess charge is no way connected to coaching;

            >>> The show cause notice was received by the appellants on 27.05.2005 whereas the issue relates to July 2003 under Section 71(1) of the Finance Act, 1994 as a material time;

            >>> The Assistant Commissioner referred to Audit objection in para 4 of the order-in-original. It is well settled position that in any show cause notice issued on the basis of audit objection, extended period cannot be invoked;

            >>> The show cause notice does not have any evidence to show that the appellants had suppressed any information with an intention to evade payment of service tax;

            >>> Section 78 can be invoked only where there is suppression. Since there is no evidence for suppression, penalty is not sustainable;

            >>> It is well settled position that two penalties under Section 76 and 78 cannot be simultaneously imposed.

The Department reiterated the impugned order and the issue is covered by the Board's Circular dated 5.11.2003.

            The tribunal held the following:

            >>> The undisputed facts are the activities undertaken by the appellants came into service tax with effect from 01.07.2003;

            >>> The appellants had collected certain amount in May and June 2003 for the services rendered by them;

            >>> In terms of Section 67(3) of the Finance Act, 1994 which relates to the valuation of taxable service for charging service tax, the gross amount charged for taxable service shall include any amount received towards the taxable service before, during or after provision of such services, which was introduced for the first time by way of Explanation on 13.5.2005;

            >>> In the present case, the period is prior to even 1st July 2003, prior to the amendment of Section 67 with effect from 13.5.2005.   The said amendment cannot be applied retrospectively;

            >>> Even the Board's circular is dated Nov 5, 2003 which is after the impugned period in the present appeal. In any case, the said circular had been issued even prior to the amendment of Section 67. Without going into the maintainability of the said circular, we are of the firm view that the said circular  cannot be applied with retrospective effect;

            >>> All these changes had taken place only after the disputed period in the appeal. There is no provision for applying the said changes retrospectively;

            >>> By no stretch of imagination, the Mess charges collected can be considered as receipt for rendering the service of  'Commercial Training and Coaching';

            >>> The Commissioner has held that there is no provision for excluding the said charges. We would like to emphasis that there is no provision for inclusion of any amount whatsoever collected by the appellants;

            >>> There should always be a nexus between the amount collected and services rendered. The mess charges have been collected for availing the facility of mess. The mess is meant for providing food to the trainees. It cannot be brought under the category of receipt for 'Commercial Training or Coaching' and subject to service tax;

            >>> The show cause notice was issued on some audit objection. There is no justification for invoking the larger period;

            >>> The demand is not sustainable. Once the demand is not sustainable the imposition of penalty/demand of interest also cannot be upheld.

The tribunal set aside the order of the Commissioner (Appeals).