Non-Charging Of Service Tax From Client Cannot Justify Non-Payment: CESTAT Ahmedabad

The Ahmedabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that non-payment of tax on the ground that the same was not charged by the taxpayer from its client cannot be a valid basis to claim bona fide belief, while also holding that commission agents, other than those dealing in agricultural produce, became liable to service tax from 9 July 2004.

A coram of Judicial Member Somesh Arora observed, "The statutory provisions are clear and leave no scope for interpretation. Non-payment of tax on the ground that the same was not charged cannot be considered a valid basis for claiming any bona fide belief." The bench also noted that "the only commission agents who remained exempted were those engaged in relation to the sale and purchase of agricultural produce."

The dispute arose from proceedings against Ashima Limited, a company engaged in providing taxable services including Business Auxiliary Service and transport of goods by road, after a CERA audit revealed that it had declared a lower taxable value in its half yearly returns compared to figures disclosed in its profit and loss account for the financial year 2004–05, leading to allegations of short payment of service tax.

A show cause notice dated August 7, 2009, was issued to the company which resulted in confirmation of the demand of Rs. 7.90 lakh along with penalties. The core issue raised by the company was limited to the period between July 9, 2004, and September 10, 2004, wherein it claimed that commission income became taxable only from September 10, 2004, and not earlier.

The assessee further argued that tax was payable only upon receipt of consideration and that accounting practices, including netting of receivables and payables with a related entity, led to apparent discrepancies between financial records and service tax returns.

It also contended that since all details were reflected in balance sheets and statutory filings, there was no intention to evade tax, and hence extended limitation could not be invoked.

The Department countered that Notification No. 13/2003-ST, which initially granted exemption to commission agents, was amended by another notification with effect from July 9, 2004, restricting exemption only to agents dealing in agricultural produce. Consequently, all other commission agents became liable to service tax from that date.

It further argued that the plea of bona fide belief was untenable in light of clear statutory provisions and that deferring tax payment until receipt of consideration reflected non-compliance.

Agreeing with the Department, the Tribunal held that the amended notification clearly brought non-agricultural commission agents within the tax net from 9 July 2004, leaving no scope for interpretational ambiguity.

The bench agreed with the department that bona fide belief cannot be pleaded by a person who chooses not to read the law or interprets it in a manner convenient to them, particularly when there is no scope for ambiguity or interpretation for any reasonable person.

On limitation, the tribunal agreed with the commissioner (appeals) that the extended period was rightly invoked.

It rejected the plea of bona fide belief and agreed with the findings of the Commissioner (Appeals) on invocation of the extended period.

Accordingly, the tribunal dismissed the appeal and affirmed the demand for the disputed period, holding that service tax liability on commission services (other than agricultural produce) arose from 9 July 2004.

For Appellant: Advocate Nirav Shah

For Respondent: Himanshu Nachane, Superintendent(AR)