ST - Appellant in ST-3 declared the amount of PF and ESI on which no tax was shown to have been paid under the belief that reimbursement is not taxable - Demand time barred: CESTAT
By TIOL News Service
MUMBAI, OCT 11, 2017: THE appellants are engaged in providing manpower recruitment service and discharging the service tax.
It was observed that during the period 2005-2006 and 2006-2007 they had not paid the service tax on amount of provident fund and ESI of the amount collected from the service recipient.
SCN was issued and demand of differential service tax was confirmed.
In appeal before the CESTAT, the appellant submitted that as per the definition of manpower recruitment services, upto 15/06/2005, the supply of manpower was not covered under the definition, therefore, till this date no service tax demand is sustainable, consequently the demand on Provident Fund and ESI is also not payable. Reliance is placed on the Circular No. B1/6/2005-TRU dated 27/07/2005, Azur Cyber Pvt Ltd . - 2008-TIOL-2239-CESTAT-AHM, Seed Infotech Ltd . - 2014-TIOL-1690-CESTAT-MUM.
Moreover, as regards the amounts collected on account of provident fund and ESI since the same are reimbursement of actual amount which is deposited in the Provident Fund and ESI accounts, the same are excludible from the gross value of the service. In this regard, the appellant draws support from -
+ Circular No. 187/107/2010-CX.4 dated 17/09/2010
+ Bizsol India Services Pvt. Ltd. - 2013-TIOL-222-CESTAT-MUM
+ Shri Bhagvathy Traders - 2011-TIOL-478-CESTAT-BANG
+ Pharmalinks Agency (I) Pvt Ltd. - 2014-TIOL-1948-CESTAT-MUM
+ Intercontinental Consultants & Technocrafts Pvt. Ltd. - 2012-TIOL-966-HC-DEL-ST
+ Sercon India Pvt. Ltd. - 2013-TIOL-223-HC-DEL-ST
Furthermore, the demand is time barred as there is no suppression of facts; that the amounts of Provident Fund and ESIwere clearly declared in the ST-3 returns; that they were under bonafide belief that these amounts being a reimbursement is not taxable; that no penalty is imposable since there being no malafide .
The Bench observed -
"4. … We find that as per the fact, the case can be disposed of only on limitation. We find that the period of demand is 2005-2006 and 2006-2007, whereas the show-cause notice was issued on 21/10/2010. The appellant in their ST-3 return clearly declared the amount of provident fund and ESI on which no service tax was shown to have been paid under the belief that the reimbursement is not taxable. The department was not prevented from raising the issue that such amount is also liable to be taxed. However, no action was taken by the department on receipt of ST-3 return. As per the disclosure of the value towards provident fund and ESI in the ST-3 return, there is neither any suppression of fact nor any malafide intention on the part of the appellant. The appellants were otherwise discharging the service tax on the value other than the value representing the provident fund and ESI. As per this undisputed fact, in our considered view the demand is clearly time barred…."
In fine, the demand was set aside and the appeal was allowed only on limitation without going into the merits of the case.