ST-3 for NIL liability

Is it mandatory for a service Provider, having NIL service tax liability, to file service tax return- a discussion

In this discussion Act means "Chapter V and VA of the Finance Act, 1994 i.e. Service Tax Act,1994", and Rules means "Service Tax Rules,1994".

In February,2013 a judgment of CESTAT, Kolkata Bench has come in case of Suchak marketing (P.) Ltd. V. Commissioner of Service Tax, Kolkata, according to which there is no requirement to file service tax return (ST-3) if no service is rendered by service provide, as he is not liable to pay any service tax. Relevant extract from order here below:

Heard the Id. A.R. for the Department and perused the records. Undisputedly, the appellants were registered with the service tax Department for providing taxable services. It is also not in dispute that during the period April, 2005 to March, 2008, they have not provided any service and also they have not filed any returns with the Department. They have filed six ST-3 Returns belatedly on 18-11-2008. I find that in view of the Board's Circular No.97/8/07-ST, dated 23-08-2007, in the event, no service is rendered by the service provider, there is no requirement to file ST-3 Returns. The ld. A.R. could not produce anything contrary to the said Circular. Besides, I find that as per Rule 7C of the Service Tax Rules, in the event, nil returns are filed, the Assessing Officer had the discretion to waive the late fees for filing the ST-3 Returns. In my view, it is a fit case to invoke the proviso to Rule 7C and waive the late fees relating to the nil returns filed by the appellant during the period April, 2005 to March, 2008. A similar view has been held by this Tribunal in the case of Amrapali Barter (P.) Ltd. v. CST [Order No.A-879-880/Kol/2012, dated 14-12-2012]. In these circumstances, the order of the ld. Commissioner (Appeals) is set aside and the appeal filed by the appellants is hereby allowed. Appeal is allowed.

Let us now see provisions under the statue regarding Service Tax Return (ST-3).

As per Sec-70 (1) of the Act- Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed.

Definition of "Person liable for paying service tax" has not been given under the Act but given in Rules according to which "Person liable for paying service tax is"-

   (i) Service recipient - in case of services for which 100% service tax is payable by service recipient;

   (ii) Service provider- where 100% service tax is payable by service provider; and

   (iii) Service provider and recipient both- where service tax is partly payable by recipient and partly by provider.

As per Rule 7(1) of the Rules-  Every assessee shall submit a half-yearly return in Form 'ST-3' or 'ST-3A', as the case may be, along with a copy of the Form TR-6, in triplicate for the months covered in the half-yearly return.

Definition of assessee is given in Sec- 65B (12)- "assessee" means a person liable to pay tax and includes his agent.

So person who required to file ST-3 is "PERSON LIABLE FOR PAYING SERVICE TAX". and tax is defined in Sec-65B (50) as "tax" means service tax leviable under the provisions of this Chapter. 

It is well settled that NIL rate of tax is also a rate of tax and NIL liability is a tax liability and accordingly all provisions of law must be applied. So person liable for paying service tax includes a person who is required to pay tax but liability is NIL.

The relied available to assessee in such our case is Circular No.97/8/07-ST, dated 23-08-2007 which is also base of order of CESTAT, Kolkata.

Now question arises that Can circulars issued by department conflicts provisions of law and provide relief to the assessee.

Generally in all statues the administering authority has been given power to issue Notifications, Orders, Circulars etc. for clarifications to remove ambiguity in compliance procedures. Lets us now see the binding effect of circulars for department.

Binding effect of circulars for department- 

On the basis of many case laws it is a well settled law that circulars are binding on the department. But question is up to what extend. 

Here are some case laws according to which department is bound by circulars issued by that even if it is inconsistent with a statutory provision.

Ranadey Micronutrients v. Collector of Central Excise 1996 Indlaw SC 204- It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings.

Mahavir Aluminium Ltd. v. Collector of Central Excise, Jaipur 1999- In view of this circular issued by the Board, we think that the Department ought to have allowed the claim of the appellant and they are bound by such circulars issued under Section 37B of the Central Excise Act.

Ellerman Lines Ltd vs C.I.T. West Bengal, Calcutta on 22 October, 1971- "It is clear that a circular of the kind which was issued by the Board would be binding on all officers and persons employed in the execution of the Act under section5(8) of the, Act. This circular pointed, out to all the officers that it was likely that some of the companies might have advanced loans to their share-holders as a result of genuine transactions of loans, and the idea was, not to affect such transactions and not to bring them within the mischief of the new provison." The directions given in that circular clearly deviated from the Provisions of the Act, yet this Court held that the circular was binding on the Income-tax Officer.

K.P. Varghese vs The Income Tax ... on 4 September, 1981- the Division Bench in this case held the circulars to be binding on the Revenue, even if they deviate from the statute, holding that fair market value must only be used in cases where consideration has been understated.

There are also some cases according to which circulars are binding only if not contrary to statute.

State Of Tamil Nadu & Anr. vs India Cements Ltd. & Anr. on 21 April, 2011- So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.

Bengal Iron Corporation v. C.T.O. 1993- as explained hereinbefore the power under section 42 cannot be utilised for altering the provisions of the Act but only for giving effect to the provisions of the Act.......In such a case, the government can not say, in exercise of its power under section 42 (2) that the levy created by the Act shall not be effective or operative. In other words, the said power cannot be utilised for dispensing with the levy created by the Act, over a class of goods or a class of persons, as the case may be.....


Concluding remarks

In view of the author a service provider who has not provided any service during any tax period and so his liability is NIL can take the benefit of the Circular No.97/8/07-ST, dated 23-08-2007 and the above mentioned decision CESTAT, Kolkata Bench.

Comments from readers/experts can enlighten the discussion and are welcomed.

In discussion above author has tried to summarize provisions related to service tax return filing obligation and binding effect of circulars of department. All the matter/details stated herein are for discussion purposes only and can not be used for legal purposes. While the author has taken due care while framing the discussion still there can be some unintentional error/ommissions. Readers are requested to please brought these in author's knowledge so that those can be corrected/rectified.