CESTAT Mumbai Sets Aside Service Tax Demand Upheld Under Taxable Category Not Mentioned In Show Cause Notice

The Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has granted relief to a taxpayer by setting aside a service tax demand.

The tribunal held that once the Commissioner (Appeals) concluded that the services did not fall under the taxable category alleged in the show cause notice, the appeal ought to have been allowed instead of sustaining the demand under a different taxable entry.

A bench of Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban ruled in favour of Intertek Testing Services India Ltd.

The tribunal observed, "On reading of the above quoted paragraph from the impugned order, it is evident that the learned Commissioner (Appeals), upon analysis of the fact, has confirmed that the services provided by the appellant should not fall under the taxable entry of 'Business Auxiliary Service'. Thus, under such circumstances, the scope on the part of the learned Commissioner (Appeals) is confined only to allow the appeal filed by the appellant, instead of going through the other taxable entry for confirmation of the service tax demand. Since the learned Commissioner (Appeals) has held that the activities undertaken by the appellant shall not be categorized under the taxable entry of 'Business Auxiliary Service', the impugned order confirming the adjudged demands on altogether a new taxable service head i.e., 'Business Support Service' should not stand for the judicial scrutiny."

Intertek Testing Services India Ltd. provides Social Compliance Audit services to its clients. The services involve auditing the factories and premises of vendors or clients from whom the clients procure goods.

The tax department treated these services as taxable under the category of Business Auxiliary Service. It issued a show cause notice proposing recovery of service tax. The adjudicating authority later confirmed the demand.

The company challenged that order before the Commissioner (Appeals). While deciding the appeal, the Commissioner (Appeals) held that the services did not fall under the category of Business Auxiliary Service. Even so, the demand was sustained by classifying the same services under Business Support Service.

The tribunal held that the Commissioner (Appeals) could not confirm the demand under a different taxable entry that had never been proposed in the show cause notice. It observed that once the original classification was rejected, the appeal should have been allowed.

The tribunal relied on the Supreme Court's rulings in Precision Rubber Industries Pvt. Ltd. v. CCE, CCE v. Ballarpur Industries Ltd., Warner Hindustan Ltd. v. CCE and CC v. Toyo Engineering India Ltd.

Relying on those decisions, it held that a fresh show cause notice would have been necessary if the department intended to sustain the demand under a different taxable entry.

Holding that the demand confirmed by the Commissioner (Appeals) could not be sustained, the tribunal set aside the impugned order and allowed the appeal filed by Intertek Testing Services India Ltd.

For Appellant: Advocate Nikhil Gupta,

For Respondent: S.B.P. Sinha, Authorised Representative