SULEKHA BEEVI C.S.

1. The appellant is engaged in providing ‘Chartered Accountant Service’ and are registered with the Service Tax Commissionerate. During the audit of accounts of the appellant such as ST-3 returns, balance sheet, list of outstanding debtors etc., it was found that the appellant had shown certain amounts as negative balance i.e., negative debtors by indicating the amount in “(..…..)” for the period from 25.09.2007 to 31.03.2012. On being asked, the appellant, replied it was nothing but advance payment received from their customers. In normal course of accounting the amount received as advance has to be shown as advance received from customers in the balance sheet, separately and specifically, so as to work out the tax liabilities. The appellant had shown these amounts as negative debtors, in their list of outstanding debtors. According to department, this resulted in negative balance amount not being subject to levy of service tax even though these are advance payments. Thus, appellant had short paid the service tax for the period October 2008 to March 2012. The SCN dated 28.08.2014 was issued for the above period proposing to demand the short paid Service Tax along with interest and for imposing penalties. After due process of law, the original authority confirmed the demand, interest and imposed penalties. Aggrieved, the appellant is now before the Tribunal.

2. The Ld. Counsel Shri Harish Bindumadhavan appeared and argued the matter. The impugned Order has found that the negative items under the head “Debtors” recorded by the Appellant in their accounts pertains to advances received by the Appellant from its customers on which Service Tax has not been discharged.

Accounting of expenses charged by network firms:

2.1 It is submitted that the above finding is erroneous as the fact is that the negative items pertain to the expenses charged by the network firms of the Appellant for the services provided by them.

2.2 It is submitted that the Appellant receives services from and provides services to their network firms. As per the accounting practice of the Appellant, the amounts owed by the network firms to the appellant for services provided by the Appellant are shown as debts under the head “Debtors” and the amounts which the Appellant owes to the network firms for services provided by network firm to appellant is shown as negative items under the head “Debtors”, thereby adjusting the liabilities of the Appellant against the debts. The Appellant maintains current account with the network firms.

2.3 It is submitted that all the entries made under the head of “Debtors” are backed by invoices/ debit notes. On these invoices/ debit notes, Service Tax is being duly discharged. It is pertinent to submit that Service Tax has been paid already by the network firms on the transactions which are mentioned as negative items under the head “Debtors” and which have been treated as advance payments in the impugned Order. Further, the Appellant has also availed CENVAT Credit on the said transactions, which has not been disputed by the Department.

2.4 In support of the above, the Appellant has submitted the following documents:

Invoice/ Debit Notes-wise correlation with respect to approximately 90% of the demand – Exhibit - F

CENVAT Credit register – Exhibit –O

Accounting of advances received from customers:

2.5 It is submitted that the Appellant maintained books of accounts on the basis of cash system as prescribed by Institute of Chartered Accountants of India and the same is also accepted by the Central Board of Direct Taxes, for Income Tax purposes.

2.6 It is submitted normally the payment for services are received by the Appellant only after completion of the services. However, if the terms of engagement provide otherwise, advances are received but only against invoices, in which Service Tax is charged as well. Such advances are specifically accounted and booked in the client code with Service Tax entries.

2.7 It is submitted that no advance payment is received without any corresponding invoice.

2.8 Service Tax is regularly paid on the advances received during the regular course of business.

2.9 In view of the above submissions, it is submitted that the negative items under the head “Debtors” are not advances received from the clients on which Service Tax is payable but are expenses charged by network firms.

B. Show Cause Notice is vague:

2.10 It is submitted that the SCN is vague and lacking in detail. It merely refers to the entries in the financials of the Appellant and the charging and valuation provision under the Finance Act for Chartered Accountant services and held that the said entries pertain to advance received towards the Chartered Accountant services provided by the Appellant which attract Service Tax.

2.11 The SCN does not refer to the specific transaction which is sought to be taxed, the relevant invoices, the specific service provided by the Appellant, the manner in which the value is arrived at and the recipient of service.

2.12 It is submitted that for the above reason itself SCN shall be held to be not sustainable in Law and the demand shall be found bad in Law as the SCN being the foundation of the case and being vague, lacking details and/ or unintelligible. In the instant case, the Show Cause Notice is merely based on assumptions and lacks details on what service/ transaction it specifically seeks to demand Service Tax on and how the valuation of the service is arrived at in the absence of reference to any invoice. Therefore, the same is not sustainable. In this regard, reliance is placed on the case of Commissioner of C.Ex. Bangalore v. Brindavan Beverages (P) Ltd., 2007 (13) ELT 487 (SC).

2.13 It is further submitted that bland allegation in the Show Cause Notice that a service under a particular head is provided without any substantiation to how the said service falls under the particular head as done in the instant case makes the SCN vague and the demand unsustainable in Law. In this regard, reliance is placed on the case of Gujarat Power Corporation Ltd. v. CCE & ST, Ahmedabad, STA No. 10193 of 2017 – CESTAT Ahmedabad

C. Burden of proof has not been discharged by the Department:

2.14 It is submitted that the Department has not discharged burden of proof to show how Service Tax is attracted in the instant case. It is submitted that the burden is on the Department to bring a transaction to charge. The Department is required to discharge the burden to prove that there has been a service provided, consideration received and service recipient who has received the service to attract Service Tax. The same has not been done in the instant case. In this regard, reliance is placed on the case of Commissioner of Cus. (Imports), Mumbai v. Dilip Kumar & Co., 2018 (361) E.L.T. 577 (S.C.).

2.15 The SCN and the impugned Order merely refer to entries in the books of accounts and the charging provision and state that the amount specified in the entries shall be treated as advances for services which are subject to Service Tax. Neither the SCN nor the impugned Order show if the entries in the Books pertain to any particular transaction/ service, if the entries actually pertain to advances received, who the service recipient is, etc.

2.16 Therefore, it is submitted that the Department has not discharged burden of proof and therefore the demand is unsustainable in Law.

D. Service Tax liability cannot be confirmed solely on the basis of entries in books of accounts:

2.17 It is submitted that the SCN and impugned Order have been issued merely on the basis of entries made by the Appellant in the books of accounts without analyzing if the said entries actually pertain to advances received by the Appellant by referring to the Bank Statement submitted by them and if there are underlying services provided by the Appellant for which the said advances are received. The whole proceedings have been initiated and carried out on the basis of assumptions without identification of the transactions or services provided on which the Service Tax is sought to be levied and also without any identification of who is the service recipient.

2.18 It is settled position of Law, that demand of Service Tax cannot be raised merely on basis of entries in books of accounts without proving service rendered, consideration received and existence of service recipient. Therefore, the demand in the instant case is not sustainable in Law. In this regard, reliance is placed on the following cases:

• M/S Futura Polyester Ltd. v. Commissioner of Central Excise, 2013 (1) TMI 658 – CESTAT CHENNAI
• M/S KJS Cement Ltd. v. Commissioner of CGST, 2023 (12) TMI 903 – CESTAT NEW DELHI
• Indian Machine Tools Manufacturers Association v. Commissioner of Central Excise, Panchkula, (2023) 11 Centax 213 (Tri.-Chan)
• Synergy Audio Visual Workship P. Ltd. v. Commissioner of S.T., Bangalore, 2008 (10) S.T.R. 578 [LQ/CESTAT/2008/326] (Tri.-Bang.)
• M/S. Go Bindas Entertainment Pvt. Ltd. v. Commissioner of Service Tax, 2019 (5) TMI 1487 – CESTAT ALLAHABAD

E. Rebuttal to the findings in the impugned Order:

i. Letter dated 08.03.2014 and 03.04.2014 are not contradictory:

2.19 It is submitted that in the letter dated 08.03.2014, the Appellant stated that the amount pertains to amount owed to creditors. In the second letter dated 03.04.2014, it was stated that the amount are expenses incurred by the Appellant which is to be paid to network firms. It is submitted that a conjoint reading of the two letters brings out the clear position that the amounts in the negative items under the head “debtors” are expenses incurred and to be paid to network firms who are the creditors. It is submitted that when expenses are incurred, such amount of expenses are debited as expenses in financials and the account of the vendor would be credited in the financials, as done in the instant case. It is therefore submitted that the statement with respect to creditors in the first letter and with respect to expenses incurred by the Appellant are two legs of the same transaction. Therefore, it is submitted that the two letters cannot be said to be contradictory to each other.

ii. The debits notes/ invoices submitted by the Appellant correlate with the excel sheet and the same is not made-up:

2.20 It is submitted that the excel sheet provided by the Appellant is not made-up and it correlates with the list of debtors and the sample debit notes/ invoices submitted by the Appellant vide letter dated 03.04.2014 and in response to the SCN.

2.21 It is submitted that had the department considered the information properly, they could have found that the information given in the excel sheet matches with the debtors list and the debit notes/ invoices. The Audit team removed debit entries from the list given at the time of audit and claimed credit entries as advance receipts. It is because of this that upon a bare reading, it may seem that the excel sheet does not match with debtors list. However, a proper study would show that it does.

iii. Undisputed CENVAT Credit is relevant:

2.22 It is submitted that on service tax paid on the expenses incurred towards services from network firms and which are accounted as negative items, the Appellant has availed CENVAT Credit. This CENVAT Credit has not been disputed by the Department and even at the time of Audit, the CENVAT Credit availed on the said expenses has not been flagged/ disputed.

2.23 Therefore, it is submitted that this fact is relevant to show that the expenses accounted by the Appellant as negative items under the head of “Debtors” are towards services received by the Appellant on which Service Tax has been paid to the Government.

2.24 In this regard, the Appellant has relied upon the CENVAT Register and sample correlation statement (Exhibit-O).

iv. There can be no comparison with the three payments for which payment of Tax was made by the Appellant:

2.25 It is submitted that the impugned Order has erred in comparing the payment of Service Tax made by the Appellant on payments received by them from the client with the expenses charged and accounted as negative item under the head “debtors”. It is submitted that such comparison is contrary to facts and absurd.

2.26 It is submitted that in Para 7 of the Audit Report No. 68 (S.T.)/2013- 14 dated 13.02.2014, three bills were pointed out towards which the Appellant had received payment directly from client without information from them. In the said para, the Appellant was required to make payment of Service Tax. Since the payments were received from client, the Appellant made due payment.

2.27 However, the instant demand pertains to observation in Para 8 of the Audit Report which discusses all negative balances under the head “debtors” which includes expense charged by networks firms. Therefore, there can be no comparison between Para 7 and Para 8 and the Appellant cannot be fastened with liability of Service Tax on the expenses charged on them merely because they have paid Tax on the amounts actually received by them for services.

F. Extended period of limitation could not have been invoked in the instant case:

2.28 It is submitted that the entire demand has been raised and confirmed by invoking extended period of limitation upon alleging that there was suppression with intention to evade payment of Tax by the Appellant.

2.29 It is submitted that there is no suppression by the Appellant as the Appellant was not required to disclose the expenses incurred by them towards services provided by the network firms. The network firms disclosed the same and also paid Service Tax on the same. It is submitted that the Appellant has disclosed the services provided by them duly and also remitted Tax with respect to the same.

2.30 Without prejudice to the above, even assuming without admitting that the Appellant is liable to pay Service Tax in the instant case, the nonpayment or non-reporting of the same in returns would not automatically show that the Appellant has willfully suppressed information with intention to evade payment of Tax.

It is submitted that the information during Audit has been obtained from the financials of the Appellant only and not from anywhere else. This clearly shows that the Appellant had no intent to suppress any information.

It is submitted that merely because Audit was conducted and information was obtained, it would not automatically mean that there was suppression with intention to evade payment of Tax. It is submitted that all the details/ information were matter of the Appellant’s record. It was for the Department to scrutinize the returns and records, and assess the Tax, which has not been done in the instant case. Therefore, it is submitted that the extended period of limitation cannot be invoked merely on the ground that information was obtained by way of audit when in fact the information could have been gathered even during the normal period of limitation upon scrutiny by the Department. In this regard, reliance is placed on the following cases:

• M/S Kalya Constructions P. Ltd. v. Commissioner, 2023 (12) TMI 1211 – CESTAT NEW DELHI
• M/s. Raghuvar (India) Ltd. v. Commissioner, Central Excise, 2023 (1) TMI 932 – CESTAT NEW DELHI
• Rohan Builders India Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Pune-I (2018-TIOL-3826-CESTAT-MUM)

2.31 Further, it is submitted that the allegations that the Appellant did not disclose details at the time of Audit is unfounded and baseless as the Appellant had submitted all documents sought and the department has itself stated that the information was obtained during Audit.

2.32 It is further submitted that willful suppression cannot be alleged merely because there is non-payment of Tax/ non-reporting in ST-3 returns without any evidence brought on record showing that there is suppression with intention to evade payment of Tax. In this regard reliance is placed on the case of Uniworth Textiles Ltd v. Commissioner of Central Excise, 2013 (1) TMI 616 – SUPREME COURT.

2.33 In view of the above it is submitted that extended period of limitation could not have been invoked in the instant case and therefore the demand is time-barred.

For the above reasons, it is submitted that the Appeal of the Appellant be allowed and the impugned Order be set aside.

3. The Ld. AR M. G. Rayka appeared and argued for the department. The findings in the impugned order was reiterated.

4. Heard both sides.

5. The issue to be decided is (i) whether the demand of Service Tax alleging that appellant has received advance payment from their clients (and accounted under the head ‘debtors’ indicating negative) is sustainable or not. (ii) whether the extended period is invocable.

5.1 The allegation in the SCN is that appellant received advance payments from their clients and did not discharge Service Tax on these amounts. The Ld. Counsel for appellant has submitted that the department has proceeded with the investigation and issued SCN on a wrong understanding of the manner by which the appellant had maintained the accounts due to the format of the SAP accounting system. It is submitted that the period is prior to 2011 during which period the Service Tax was to be paid on receipt bases. It is explained that the amounts shown in negative are in respect of transactions with their network firms. To understand the issued better Annexure-D of the Audit report is extracted as under:

DHS Baroda

Analysis of High value unallocated credits as per Annexure D of the Audit Para

From the above table it can be seen that the appellant has shown the amounts as outstanding with the negative marking. In the accounts maintained by appellant these figures are accounted under the head ‘debtors’. Although the department alleges that these are advances received from their client and Service Tax has not been discharged on these amounts, the SCN does not mention any details as to the transactions of receiving such alleged advance payments. The impugned order also does not mention about the details of the alleged advances which has escaped tax. If the department alleges that these amounts are received from clients and suppressed by the appellant, then the department had to give the date & receipt of advance, the services for which such advance received, the clients from whom such advance was received documents for payment of advance to appellant etc. There is no evidence put forth by department in this regard except for the allegation that appellant received advance payments and did not discharge Service Tax on such advances.

5.3 The appellant has explained that prior to 2011 when the Service Tax was payable on receipt basis they adopted an accounting system by which the amount to be paid by appellant to their network firms for services provided to appellant was shown as negative figures under the head ‘Debtors’. This is because, the amount to be paid by network firms to the appellant was shown as debts under the head ‘Debtors’. This helped adjusting the liabilities of the appellant against debts.

Appellant----Network firms [-Debtors]

Network firms--- Appellant [Debtors]

5.4 The appellant maintained a current account with the network firms and by issue of debit notes they were able to make adjustments of the amount to the paid and to be received by them in respect of network firms. It is seen that the network firms have raised invoices on the appellant collecting the Service Tax from the appellant. For the payments along with Service Tax made to network firms the appellant has availed credit of such Service Tax as input service and there is no dispute in this regard.

5.5 The statement of Shri Yogesh G. Shah partner of the appellant was recorded on 14.08.2014. It is stated by him as answer to question no.12 that whenever an advance is taken, an invoice is raised on the client collecting the Service Tax. To the question no. 28 ‘why figures showing as in bracket in the list of outstanding debtors as on 31.03.2012’ the said partner has replied as under:

“in reference to our letter dated 03.04.2014, we have already provided the rationale for the figures showing in brackets for an amount aggregating to Rs.36.22 crores out of the total amount of Annexure-D aggregative to Rs.39.66 crores. We are submitting the same letter again for your kind reference. It can be seen from the information provided along with letter that the amount shown as negative in brackets in the report is actually the amount payable by us to our associate concerns/networking firm with whom we maintain current account. It may additionally be brought to your notice that on all invoices produced with letter, Cenvat Credit was availed during the respective period and which was subject to audit. In the audit no specific observation disallowing these credits was raised and hence it can be construed that department has allowed us the credit on these invoices wherein we are availed the services from out associate concerns. The Cenvat ledger for the period January, 2011 to March, 2011 is being provided for your verification, which is in consonance with the letter submitted on April 03, 2014. We may add that this letter was submitted to highlight and clarify major items of negative balances such as debit notes for rendering of services, recovery of expenses and others which we can substantiate as and when required."

5.6 From the above it is clear that appellant has availed Cenvat Credit of the Service Tax collected from them by network firms. This means the net work firms have collected Service Tax from appellant and discharged their liability. The department has no dispute on the Cenvat Credit availed by appellant in this regard. So also there is no dispute that appellant has not discharged Service Tax on the payments received for providing services. The allegation is that they did not discharge Service Tax on advance payments. As already stated, there is no evidence of any transactions of receiving advance payment which has escaped payment of tax. The accounting of amount under the head negative debtors is assumed by department as advance payments.

5.7 The appellant has explained the reason for accounting under the head 'debtors' and 'negative debtors'. Though we may say that this is not a normal practice of accounting, we have to say that since all these amounts have suffered tax, there is no situation of revenue loss. The department has not been able to correctly establish the basis of demand and has raised the demand on a suspicion of the accounting done under the head Debtors with negative marking. We therefore find that the demand cannot sustain. The issue on merit is answered in favor of appellant.

5.8 The Ld. Counsel has argued on the grounds of limitation also. It is seen that the demand has been raised pursuant to audit verification. The audit report dated 17.02.2014 at para 8 shows the objection raised by the audit team of non payment of Service Tax due to the peculiar accounting system of the appellant. The appellant has issued series of reply, explaining why they happened to show 'debtors' as negative balance. The SCN dated 28.08.2014 is issued for the period from 10/2008 to 3/2012. It is seen that prior to this an audit for the period April 2004 to March 2010 was conducted. The final audit report for this period has not objected to the accounting system or raised an query in this regard. This audit was conducted on 09.03.2011 and 11.03.2011. Later, for the period 2010-2011 audit was conducted on 30.01.2012, 31.01.2012 and 07.02.2012. The final audit report for this period also does not raise any objection as to the accounting method adopted by the appellant. Much later, after audit report dated 13.02.2014, this SCN has been issued alleging suppression of facts. All the transaction and figures are mentioned by appellant in the accounts and financial statements. As already stated, apart from vaguely alleging that appellant received advance payments on which Service Tax is alleged to be not paid, there is no evidence adduced by department as to what are the details of transactions of such advance payments. We find that department has failed to establish any positive act of suppression on the part of the appellant. The demand raised invoking the extended period is therefore not sustainable. The appellant succeeds on the issue of limitation also.

6. In the result, the impugned order is set aside. The appeal is allowed with consequential reliefs, if any.