No Service Tax On Invoices Issued Before Completion Of Work: CESTAT Allahabad

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 30 March held that service tax is not payable on invoices issued before completion of work.

A Bench comprising Judicial Member P.K. Choudhary and Technical Member P. Anjani Kumar allowed an appeal by APN Infra Pvt. Ltd., observing:

“Invoice is required to be issued within 30 days after completion of the service or on receipt of payment towards value of taxable service.”

APN Infra, a works contractor, had issued invoices worth over Rs. 2.32 crore to the Amrapali Group during FY 2016-17. The builder subsequently went bankrupt, leaving the amounts unpaid, which were later treated as bad debts.

Based on third-party data and non-filing of service tax returns, the Department issued a show cause notice proposing tax demands for FY 2015-16 and 2016-17. The Commissioner (Appeals) dropped part of the demand on limitation and reduced the liability. APN Infra challenged the remaining demand before the Tribunal.

The Tribunal noted that the appellant had disclosed all transactions in its books of accounts, balance sheet, and income tax returns, with no suppression or intent to evade tax. It further observed that the services could not be completed due to the financial collapse of the service recipient, which was undergoing proceedings before the NCLT.

Examining Rule 4(A) of the Service Tax Rules, 1994, the Bench held that issuance of a valid invoice is contingent upon completion of service or receipt of payment. Since neither condition was met, invoices raised before service completion could not form the basis for levying service tax. The Tribunal stated:

“Due to business closure of M/s Amrapali Group of Companies, the services provided by the Appellant could not be completed. So, invoices issued by the Appellant cannot be treated proper invoice in terms of Rule 4(A) of the Service Tax Rules, 1994. For issuance of invoice, completion of service is an essential condition, which has visibly not taken place in this case. So, we are of the considered view that no service tax is chargeable on the basis of invoice which was issued before completion of work.”

It further emphasised that service tax is chargeable only on services actually rendered. Since no service was ultimately provided due to project failure, no taxable event occurred:

“As per Section 65(44), service means any activity carried out by a person for another person. In this case no activity was carried out because of the fact that the business of service recipient was closed. As per Section 66(B) of the Finance Act, 1994, service tax was chargeable on the value of services. As there was no service, service tax was not chargeable on the Appellant.”

Accordingly, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.

For Appellant: Abhinav Kalra, Advocate

For Respondent: Santosh Kumar, Authorized Representative