By TIOL News Service

MUMBAI, FEB 19, 2019: THE dispute pertains to levy of service tax on mobile telephone services rendered by the appellant to their employees.

For the period 2008-09 and 2011-12, service tax demand of Rs.1,30,39,712/- had been determined against the appellant by the Commissioner vide o-in-o 18th August 2014. Penalty and interest was also held payable.

For the subsequent period April 2013 to March 2014, service tax has been held to be recoverable under section 73(1) of Finance Act, 1994 through the device of 'demand-cum-penalty' authorized by section 73(1A) of Finance Act, 1994. Reference - Demand cum Penalty notice no. 01/COMMR/2014-15 dated 23rd February 2015 of the Commissioner of Service Tax-IV, Mumbai.

The former o-in-o was challenged in separate proceedings and during its pendency before the CESTAT, the order impugned was issued.

Incidentally, in the matter of the said appeal filed by the appellant, the CESTAT had by its order dated 26 November 2018 held that 'free airtime usage given to employees is taxable' [See 2018-TIOL-3644-CESTAT-MUM].

Section 73(1A) inserted w.e.f 28 th May 2012 reads –

'(1A) Notwithstanding anything contained in sub-section (1) except the period of thirty months of serving the notice for recovery of service tax), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.'

The TRU vide letter F.No. 334/1/2012-TRU dated 16th March 2012 in the context of the Finance Bill, 2012 explained thus [Ref: C.1 General Changes, paragraph 4 ] –

'ii. A new sub-section (1A) is being inserted to save the botheration of retyping the same charges (and save paper) when follow-up demand is given for a period subsequent to the previous notice(s) on same grounds;'

After considering the submissions made, the Bench observed –

+ One puzzling aspect of the impugned order is that it combines both a final determination of the tax for the disputed period on the basis of a previous decision of the adjudicating authority and the affording of opportunity to contest the liability to penalty under section 76; considering the articulated finality of the former, the tentativeness of the latter is odd. The Tribunal, however, did, on the challenge to maintainability, did hold that this demand-cum-notice, issued under section 73(1A) of Finance Act, 1994 to be an adjudication order.

+ It is trite that a taxing statute, before proceeding to recover any tax that were short-paid, mandates notice supported by evidence, opportunity to respond in writing and in person before an adjudication. The present proceedings appears bereft of such and is, thus, tantamount to a notice for payment of the said taxes relying entirely on preceding adjudication for an earlier period. Obviously, the provision is to be invoked in restrictive circumstances and cannot, by any stretch, be a substitute for resorting to section 73(1) in each and every subsequent period.

+ Hearkening back to the impugned order, we find anomaly that the jurisdictional Commissioner has traversed beyond referring to the demand for the preceding period to record the changes effected in consequence of taxation in the negative list and has drawn upon the authority of Article 265 of the Constitution. This is clearly in excess of the circumstances contemplated in the newly incorporated artifice and sufficing to vitiate the impugned order.

After taking note of the order of the CESTAT dated 26th November 2018 (supra), the Bench further observed –

++ It has been held that the billing of the services in the name of the employees and the inability on the part of the employee to segregate the amount attributable to use on behalf of the appellant crystalised the tax liability.

++ In the present dispute it appears that the bills are raised in the name of the appellant themselves.

++ For the provisions of the Finance Act, 1994 to be applicable, service as defined in section 65B(44) therein must necessarily be transacted; such service can only be between two separate persons and a bill raised on oneself does not meet that requirement. Consequently, there is no service and no taxability.

++ The tax regime had altered since period covered by the order relied upon in the present 'demand-cum-penalty notice' and the impugned order goes beyond mere reference to the earlier order to adjudicate, without notice and opportunity, the applicability in the transformed tax regime.

Concluding that the facts and circumstances of the transactions themselves are vastly dissimilar; that section 73(1A) of Finance Act, 1994 is not in vokable and the deficiency in invoking section 73(1) of Finance Act, 1994 is irreparable, the impugned order was set aside and the appeal was allowed.

(See 2019-TIOL-524-CESTAT-MUM)