Gross Contract Value Alone Cannot Prove Service Tax Collection From Customers: CESTAT Bangalore

On 23 October, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at Bangalore held that receipt of the gross contract amount does not, by itself, establish that a service provider collected service tax from its customers, particularly when the services were exempt from tax.

A Bench comprising Judicial Member P.A. Augustian and Technical Member R. Bhagya Devi set aside the order rejecting the refund claim of Skilltech Engineers and Contractors Pvt. Ltd. on the ground of unjust enrichment and remanded the matter for verification of the relevant documents. The Tribunal observed:

“As per the evidence on record, when demand was made for the previous period, as an abundant precaution and to avoid interest and penalty, appellant had paid the amount and once the first Appellate authority held that the Appellant is not liable to pay service tax as per the exemption notification, no presumption can be drawn that the Appellant had collected the service tax while collecting the gross amount from the service recipient.”

The case concerned a refund claim of Rs. 20.80 lakh filed by Skilltech Engineers and Contractors, which provided erection, commissioning and installation services for electricity distribution projects undertaken by government authorities.

The company claimed that its services were exempt from service tax under Notification No. 25/2012-ST. However, the tax authorities rejected the refund claim on the ground that the company had already collected the tax from its customers and could not recover it again through a refund.

The Commissioner (Appeals) accepted that the company was eligible for the exemption but upheld the rejection of the refund claim on the ground of unjust enrichment.

Before the Tribunal, the company argued that it had not separately collected service tax from its customers and that the contract price was inclusive of applicable taxes.

The Bench noted that the documents produced by the company did not establish that it had collected service tax from its customers. However, as the original authority had not examined these documents, it held that further verification was necessary to determine whether the refund claim was barred by unjust enrichment.

Accordingly, the CESTAT remanded the matter to the original authority to examine only the issue of unjust enrichment and directed the company to submit the necessary documents along with a Chartered Accountant's certificate.

For the Appellant: S.K. Venugopala Rao, Chartered Accountant.

For the Respondent/Revenue: Vinod Kumar Garhwal, Superintendent (Authorised Representative)