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TMI Blog2018 (8) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... cafe, Advertisement, Franchisee, 'Business Auxiliary Service', etc. . Based on reports that the respondent is not paying appropriate service tax, their office was inspected. Investigations conducted revealed that the respondent is calculating their service tax liability based on the collection report for each month taking the total collection as the cum-tax value and are working the service tax backwards. It was noticed that the accounting system did not provide for the capturing of the amount of Tax Deducted at Source (TDS) recovery made by their clients from their invoices for the calculation of their service tax liability. For example, when an invoice is raised for say, X amount, their clients have been making payments less TDS for the purpose of Income tax, say Y amount, in respect of certain services thereby making a net payment of X-Y, say amount Z. Respondent has been taking this amount Z as the cum-tax amount and were calculating the service tax liability which was based only on the collections made during the month. The TDS was never reflected in their collection reports was never made a part of the reckoning for the purpose of service tax. The respondent did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing service tax on collections. Further, while accounting the receipts we may not be aware even the customer has deducted money either for TDS or for deficiency in services. In the absence of such information it is absolutely not possible for us to assume and discharge service tax on TDS account. Further, submission of TDS certificate from the customer is basic criteria for getting the benefit. This will be normally issued after closure of the financial year and we file Income Tax returns in the month of October. The fate of TDS certificates submitted will be known after 2 years when the Income Tax Department finalises the Income Tax Assessment of our company. Question No. 11: Please see the collections report produced by you for November 2005 and March 2006. The service tax payable shown therein does not match with service tax paid column in your remittance report. Please explain for the deferences. Answer No.11: I have seen and signed the said collections reports for November 2005 and March 2006. The reason for the differences- as I said earlier while calculating service tax on advances will carry in the system unapplied status. Any receipt applied to an invoice and later ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the payment deducting the TDS it tantamounts to the entire bill having been realized and SIFY ought to have included the amount of TDS in their calculations for the payment of service tax which they have failed to do so. The contentions of the assessee that the benefit TDS would accrue only after the admission of the TDS certificates by the IT Department appears to be not tenable for the reason that the Rule 6 of the Service Tax Rules clearly specify that the tax is to be paid once the invoice value is realized. In the instant case, when the charges minus the TDS is made by the clients, it would tantamount to realization of the taxable value and TDS amount will form part of their taxable value. The amount of TDS on which the service tax has not been paid and the service tax payable is shown in the Annexure I to this notice based on the figures furnished by SIFY in their Income Tax returns and the figures furnished by them for the year 2006-2007. As the assessee is unable to produce the month wise details of the TDS the applicable/enhanced rate of tax is reckoned each year for the purpose of working out the service tax liability. 8.From the foregoing it appears that SIFY have su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report generation is computerized with minimal manual interference. It is the ERP accounting system which did not provide for the capturing of the TDS recovery made by their clients from their invoices in the computation of service tax liability. 4.6. In such circumstances, a system program error resulting in short remittance cannot be construed as a wilful suppression by the Noticee in discharging the service tax liability. The Noticee had the opportunity to find the lapse only during the present system migration and paid the differential service tax liability along with applicable interest. In such a situation, the issue of show cause notice is unwarranted an may be set aside. 4.7. The Noticee submits that the entire mistake appears to have arisen on account of the provisions in the Service Tax Rules, which require payment of service tax not on the amount billed but on the basis of the amounts realized from the customers. As there was no documentation or record as to the details of outstanding amounts from the customers pertaining to TDS collection, such amounts escaped scrutiny. 4.8. It is submitted that the fact of TDS collection becomes known to SIFY only at the end of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case was not one of simple omission or failure, but there was wilful suppression of fact. The authority held that assessee has enjoyed financial accommodation of more than 10 crores of rupees for more than 5 years and that even the payment of interest does not cover the entire financial accommodation enjoyed by them. The adjudicating authority therefore held that the assessee is liable to pay penalty under Section 78 of the Finance Act, 1994.. He, however, gave a concession on the penalty imposed by directing that since the entire amount of service tax had been paid the penalty would be reduced to 25% service tax demanded if the penalty under Section 78 is paid within 30 days of the communication of the order. 9.The respondent challenged the order by filing an appeal before the Appellate Tribunal, South Zonal Bench at Chennai. It was contented by the respondent that the short deposit was due to system program error. It was further contented that when it come to know that this part of the gross receipt is also taxable, it has discharged the liability there on. It was therefore contented that non payment of service tax on the amount with held by the client on account of TDS but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CEAC No.27 of 2017 reported in 2018-TIOL-988-HC-DEL-CX. 12. The learned counsel for the assessee / Respondent contented that the appellant by paying the service tax on the basis of the amount collected in the month, which was the invoice raised minus the amount TDS withheld by the customer was due to the software which was used and was programmed to calculate tax on the basis of the amount received and this resulted in short computation of service tax and there was no intention to evade payment of service tax. 13.The learned counsel for the Respondent pointed out several judgments of the Tribunal to substantiate his contention that if there is a confusion regarding applicability of law, penalty should not be levied. According to him, the question as to whether service tax can be paid on the net amount received by the service provider was pending before various Tribunals and some Tribunals had infact approved that payment of service tax on the net amount received by the service provider. 14.The relevant portion of provisions of Finance Act, 1994, which are applicable to this case are Sections 67,73,78 and 80 of the Finance Act, 1994 they read as under:- "Section 67:- "67.Val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section." Section 78:- "78. Penalty for suppressing value of taxable service.-- If the Central Excise Officer in the course of any proceedings under this Chapter is satisfied that any person has, with intent to evade payment of service tax, suppressed or concealed the value of taxable service or has furnished inaccurate value of such taxable service, he may direct that such person shall pay by way of penalty, in addition to service tax and interest, if any, payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of service tax sought to be evaded by reason of suppression or concealment of the value of taxable service or the furnishing of in accurate value of such taxable service; Provided that if the value of taxable service (as determined by the Central Excise Officer on assessment) in respect of which value has been suppressed or concealed or inaccurate value has been furnished exceeds a sum of twenty -five thousand rupees, the Central Excise Officer shall not issue any direction for payment by way of penalty without the previous approval of the Collector of Central Excise." Section.80:- "80.penalty not to be imposed in certain ..... X X X X Extracts X X X X X X X X Extracts X X X X
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