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

1. ISSUES PRESENTED and CONSIDERED

- Whether the appellants have discharged their service tax liability correctly under the category of 'Manpower Recruitment Agency and Supply Service' by paying tax on 25% of the gross value and the service receivers paying on the remaining 75%, as mandated by statute.

- Whether the service tax demand confirmed by the adjudicating authority, which classified the appellants' service under 'Storage and Warehousing' and 'Cleaning Service' instead of 'Manpower Recruitment Agency and Supply Service', is justified.

- Whether the service tax demand can be confirmed solely on the basis of discrepancies between figures in Form No. 26AS (TDS certificates) and ST-3 Returns filed by the appellants, without examining the factual classification of the service provided.

- Whether the appellants are entitled to the benefit of Sub-section (3) of Section 73 of the Finance Act, 1994, which provides relief from recovery proceedings if the tax has already been paid.

- Whether the original adjudicating authority properly addressed the appellants' contention regarding full discharge of service tax liability and the classification of the service.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correct Discharge of Service Tax Liability under 'Manpower Recruitment Agency and Supply Service'

The appellants contended that they had discharged service tax liability on 25% of the gross value of the service provided, while the service receivers paid tax on the remaining 75%, as required under the statutory provisions applicable to this service category. This arrangement reflects the statutory mandate that the tax burden is shared between service provider and service receiver in specified proportions.

The Court noted that the appellants claimed full payment of service tax liability, supported by submissions and evidence of payment amounting to Rs. 1,26,42,082/- prior to issuance of the Show Cause Notice (SCN). However, the adjudicating authority appropriated only Rs. 1,18,52,594/- against the confirmed demand of Rs. 1,90,16,916/-, without adequately addressing the discrepancy or the appellants' claim of full payment. The Court observed that such submissions were not properly considered, indicating procedural lapse.

The relevant legal framework includes the Finance Act, 1994, particularly provisions governing service tax liability and payment mechanisms for manpower recruitment services. The appellants' argument rests on compliance with these provisions and the statutory sharing of tax liability.

The Court emphasized that mere comparison of figures in Form No. 26AS and ST-3 Returns is insufficient to establish short payment without examining the substantive compliance and payment records.

Issue 2: Classification of the Service Provided

The department classified the appellants' service under 'Storage and Warehousing' and 'Cleaning Service' categories, thereby disputing the appellants' claim of providing 'Manpower Recruitment Agency and Supply Service'. This classification directly impacts the tax liability and the applicable rate or payment mechanism.

The Court found that the department failed to specifically address why the service should not be classified under manpower recruitment service as claimed by the appellants. The factual aspect of the service provided was not examined or adjudicated upon in the impugned order. The Court held that classification is a critical issue that cannot be resolved solely on documentary comparison but requires a detailed factual and legal examination.

Relevant precedents emphasize that classification of service should be based on the nature of service rendered and the contractual and operational realities, not merely on technical or clerical data discrepancies.

The Court directed that the original authority must revisit this issue and determine the correct classification after due inquiry and hearing.

Issue 3: Reliance on Form No. 26AS vs. ST-3 Returns for Determining Tax Liability

The show cause proceedings were initiated based on discrepancies between TDS certificates/Form No. 26AS and ST-3 Returns filed by the appellants. The department treated this discrepancy as evidence of short payment of service tax.

The Court opined that such a comparison is insufficient and improper without corroborating evidence or examination of the actual service transactions and payments made. The Court stressed that tax liability determination requires factual and legal scrutiny beyond mechanical document comparison.

This position aligns with principles of natural justice and procedural fairness, requiring that tax demands be based on substantive proof rather than mere data mismatches.

Issue 4: Applicability of Sub-section (3) of Section 73 of the Finance Act, 1994

Sub-section (3) of Section 73 provides that if the tax has been paid before the issuance of the show cause notice, no recovery proceedings for tax, interest, or penalty shall be initiated.

The appellants asserted that they had fully discharged their service tax liability before the SCN issuance and thus are entitled to protection under this provision.

The Court noted that the original authority did not properly consider this contention, as only part of the deposited amount was appropriated against the demand. The Court held that if the appellants' claim of full payment is substantiated, they are entitled to the benefit of non-initiation of recovery proceedings under the said provision.

This interpretation safeguards taxpayers who have complied with tax payment obligations from unwarranted penalties or interest.

Issue 5: Procedural Fairness and Proper Adjudication by the Original Authority

The appellants contended that their submissions, including payment proofs and service classification, were not adequately addressed by the adjudicating authority.

The Court agreed, observing that the impugned order failed to deal with critical contentions and evidence presented by the appellants. This omission undermines the fairness and completeness of the adjudication process.

The Court emphasized that the original authority must grant an opportunity of personal hearing and consider all relevant submissions and evidence before passing a fresh order.

3. SIGNIFICANT HOLDINGS

- "We are of the considered opinion 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 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 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."

- The Court set aside the impugned order and remanded the matter to the original authority for fresh adjudication, directing that personal hearing be granted and all issues, including classification and payment of service tax, be properly addressed.

- The Court kept open other issues raised by the appellants for consideration during the denovo adjudication.