Innovative and Technological Learning Services Pvt Ltd. Vs Commissioner of CGST (CESTAT Mumbai)
Demand based on audit without any further investigation is liable to be set aside on this count alone
The appellant is a service provider. It provides services to a educational trust. It paid service tax. It suffered huge losses. As result of which, the appellant company got merged with the trust (service recipient). The CERA conducted audit. Show cause notice was based on audit. Order came to be passed on the same basis. Hence, appeal before CESTAT.
The Hon’ble CESTAT, Mumbai set aside the order and allowed the appeal.
It held: (i) demand based on audit without any further investigation is liable to be set aside on this count alone; (ii) independently on merits, it is held that service tax cannot be demanded on expenses incurred by the service provider. Service provider can suffer losses; (iii) there is no allegation, let alone evidence, of suppression of value or undervaluation of services; (iv) Services provided in terms of the agreement have to looked at as such only and subsequent turn of events is not relevant in deciding the issue under the agreement; (v) service tax can be demanded on “value” under section 67 which is the gross amount charged for the service and no addition thereto can be made.
FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT MUMBAI
This appeal is directed against Order-in-Original No. 77/CGST-NM/Commr/KV/2018-19 dated 27.03.2019 of the Commissioner of CGST & Central Tax, Navi Mumbai. Vide the impugned order, following has been held:
“ORDER
I. I confirm the demand and order recovery of Service Tax totally amounting to Rs. 4,13,83,070/- (Rupees Four Crore Thirteen Lacs. Eighty Three Thousand Seventy Only) under Section 73(2) of the Finance Act, 1994.
II. Interest at the appropriate is demanded and ordered to be recovered from them under Section 75 of the Finance Act, 1994.
III. Penalty of Rs. 10000/-(ten thousand) is imposed upon them under the provisions of Section 77 of the Finance Act, 1994.
IV. Penalty of Rs. 4,13,83,070/- (Rupees Four Crore Thirteen Lacs Eighty Three Thousand Seventy Only) is imposed upon them under the provisions of Section 78 of the Finance Act, 1994.”
2.1 Appellant is engaged in providing service under the category of Commercial Training or Coaching Service, Brand Promotion, Marketing, Advertisement, Business Support Services, Business Auxiliary Service, Legal & Professional Services etc
2.2 During the course of audit conducted by CERA (Central Excise Receipt Audit) on the noticee’s records for the period 2013-14 to 2015-16, it was observed that: “M/s. Universita Commerciale “Luigi Bocconi”, Italy, a company of Italy made an arrangement to provide foreign degree courses in India and for this a trust namely ‘Knowledge Revival and Expansion Trust’ (KRT) was formed which is situated at Hiranandani IT Park, Powai, Mumbai. Further, to provide services to KRT, a company namely ‘Innovative and Technological Learning Service Pvt. Ltd.’ (ITLS) was established in the same premises. ITLS entered into an agreement with KRT on 1st October, 2012 for providing various services mentioned in Annexure A of the Agreement. However, the arrangement was made in such a way that entire student fees was shown as income in KRT books of account and entire expenses except a few like rent of the premises and salary of some staffs etc. was booked in the books of ITLS. ITLS in turn charged KRT only for faculty fees and offered service tax on the same. ITLS was not charging any fees for providing other services like brand promotion, marketing, advertisement, business support services, business auxiliary services, security services, housekeeping services legal and professional services, chartered accountant service etc. and this was the reason that even paying service tax through CENVAT account, company had huge closing balance of unutilised CENVAT credit. This arrangement was the main reason that’s why the company was in continuous loss from beginning. In December, 2015, a decision was taken to close the trust and transfer entire asset and liability (only through mutual agreement) of the trust to the company. Since then whole business was run only through company i.e. ITLS. Here, the company was formed to provide services to the Trust only and the company was actually doing the same as seen from annual accounts, however, raising bills / invoices only for faculty fees was nothing but undervaluation of services.”
2.3 Revenue was of the that entire expenses booked in the noticee company were to be considered as value of service provided to the Trust & not only the faculty fees; that omission to consider the entire cost as consideration was contrary to the principles of valuation of taxable service in accordance with Sec 67 of the Finance Act, 1994 r/w Rule 3 of the Service Tax (Determination of Value) Rules, 2006 which resulted in short levy of service tax to the extent of Rs. 4,13,83,070/- (during the period 2012-13 to 2015-16) as indicated in the table below:
