1. The facts of the case are that appellant is a proprietor of M/s. K.S. Ranganath Architecture and providing Architecture services which was taxable from 16.10.1998. Appellant had registered with the service the department under Architect Services only in June 2004. It emerged that appellant had been rendering taxable services and collecting consideration from their clients. It was alleged that appellant was charging and collecting service tax from the clients but had not remitted the same to the department. Hence show cause notice invoking extended period of limitation was issued to appellant proposing demand of an amount Rs. 10,90,730/- towards service tax, amount of Rs. 3,91,375/- towards non-remittance of collected service tax along with interest thereon besides, imposition of penalties under various provisions of law. On adjudication, original authority vide impugned order dt. 09.05.2007 confirmed the tax demand, interest and also imposed penalties under Section 76, 77 & 78 of the Finance Act, 1994. In appeal, Commissioner (Appeals) vide impugned order dt. 15.1.2010 upheld the decision of lower authority to invoke extended period under proviso to Section 73(1) of the Finance Act. He set aside penalties under Section 76 & 78 of the Act. However, he directed the adjudicating authority to rework the demand in respect of Annexure II (list of invoices raised, the value of which is not reflected in the professional receipt) and Annexure-III to SCN (list of invoices where service tax was charged). Aggrieved, appellants are before this forum.
2. Today when the matter came up for hearing, on behalf of the appellant, Ld. Advocates Ms. Asmita A. Nayak and Shri J. Surender made the following oral and written submissions which can be broadly summarized as under:
i) The Constitutional validity of the levy of Service Tax on Architects was challenged by various associations and Writs were filed in various High Courts and hence there was no clarity about the applicability of service tax on Architect Services and various Architects had not taken registration. The dispute was finally settled by the Hon'ble Supreme Court of India vide Civil Appeal No. 7128 of 2001 as reported in : 2007 (7) S.T.R. 625 (SC) and therefore the charge of suppression etc. is totally misconceived as the disputed period is prior to 2007 i.e. 2001 to 2006.
ii) When the Appellant started charging Service Tax, his clients were not ready to pay the requisite tax and he was also being underpaid his professional fees. After the Appellant started getting service tax collections from his clients, he got himself registered under the Service Tax Department in 2004.
iii) Moreover, on account of the confusion regarding applicability of Service Tax, the Appellant was facing a lot of accounting and technical discrepancies, as a result of which, the accounts were not kept properly and the Appellant had also not filed his Income Tax returns for the year 2004-2005 due to badly kept accounts.
iv) The Appellant has only two bank accounts and whatever professional fees has been received in these two accounts have already been voluntarily remitted by the Appellant and there is no proof by the Department that any fees outside these bank accounts had been received which is supported by Chartered Accountant Certificate.
v) In most of the Invoices disputed by the Department, the Appellant have been underpaid the fees billed and no cum-tax benefit has been granted by any of the lower authorities while computing the alleged service tax demand. In the Invoices where it has been disputed by the Department that Service Tax has been collected, the Appellant submits that, owing to the confusion regarding the leviability of service tax, the Appellants were not paying the same in spite of the same been mentioned in the Invoices and hence this allegation is baseless. The Department has demanded Service Tax on many invoices which are duplicate and hence the demand liability has to be re-worked and the cognizance of which has been taken by the Commissioner. (Appeals). In many cases, the Invoices have been raised but the fees has been realised later and those Invoices have not been amended or re-raised. In many invoices, TDS has been deducted and hence no Service Tax can be levied on such amounts. The Appellant has entered into many Contracts with L & T as a Sub-Consultant and during the disputed 2001-2006, it was a legally settled principle that Sub-consultants need not discharge Service Tax where the Main Contractor has discharged the Service Tax and hence those Invoices should not be included while computing the Service Tax. The Appellant has entered into many Contracts with C-WET and in those Contracts it has been clearly mentioned about reimbursable expenses and it is a settled legal principle that reimbursable expenses do not form part of assessable value and hence those Invoices should not be included while computing the Service Tax. The Appellant has voluntarily computed its Service Tax liability based on the amounts received against the invoices raised by it and has in toto remitted Rs. 8 lacs and the same has been certified and corroborated by its Chartered Accountant.
vi) The Commissioner (Appeals) has not considered the contention with respect to tax liability discharged by the sub-contractor and also has not considered their contentions regarding non taxability in respect of reimbursable expenses incurred by them.
vii) For the same reasons, Ld. Advocate contended that imposition of penalty was unwarranted.
5. On the other hand, Ld. A.R. supports the impugned order. He submits that the Commissioner (Appeals) has made a reasoned order and has also directed to rework the demand on the basis of some of the contentions raised by the appellant. Ld. A.R. also pointed out that although appellant had taken registration in 2004, he failed to file mandatory tax returns till the department conducted the detailed investigations and uncovered the details, hence suppression of facts was very much involved.
6. Heard both sides and have gone through the facts.
7. We find that the issue of taxability of Architect Services was mired in litigation till it was finally settled by the Hon'ble Supreme Court in the landmark judgment of All India Fedn. of Tax Practitioners Vs. Union of India : 2007 (7) STR 625 (SC). It is also noted that this judgment was a resultant of the Civil Appeal No. 7128/2001 which was decided on 21.08.2007. This being so, there definitely was lack of clarity on the taxability of the impugned services during the period of dispute. In the circumstances, we do not find any justification for imposition of the penalty under Section 76, 77 & 78 of the Act upheld by the lower appellate authority and they are set aside. So ordered.
In regard to the demand of service tax, it is submitted by the Ld. counsel that the sub contractor has discharged service tax and that the appellant is not required to pay. It is also argued that the reimbursable expenses are not to be included in the total value of taxable services as settled in the decision of Sangamitra Services. These issues require reconsideration by the adjudicating authority.
8. At the same time, Ld. Advocate has contended that the allegation of having collected service tax from their clients but not paid up the same to the Government is incorrect since although they had charged service tax in their bills, the clients had refused to pay the same. In our opinion, these rival contentions concerning collection or otherwise of service tax from the clients can also be best settled in de novo proceedings
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by the adjudicating authority. Hence it is ordered that in addition to the directions for reworking of the demand of Annexure-II & III, as ordered by the Commissioner (Appeals), the de novo adjudicating authority will also look into other contentions of the appellant that they have in fact not collected any tax from their clients that as per the settled law, there cannot be any service tax liability in respect of tax already discharged by the sub-contractor and also in respect of reimbursable expenses. All these issues should be therefore dealt in the de novo proceedings. Needless to say, appellant should be given sufficient opportunity of personal hearing including submission of additional evidence, if any. Appeal is therefore partly allowed and partly remanded on above terms. (operative part of the order pronounced in court.)