Service Tax Not Leviable on Invoices Issued Before Completion of Service: CESTAT Allahabad

March 30, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has held that service tax cannot be levied merely on the basis of invoices raised prior to completion of services, particularly where the services were never ultimately rendered. The Tribunal allowed the appeal filed by APN Infra Pvt. Ltd., setting aside the service tax demand along with consequential relief.

The Bench comprising P.K. Choudhary (Judicial Member) and P. Anjani Kumar (Technical Member) was adjudicating an appeal against an Order-in-Appeal dated 09.07.2024, which had reduced the demand to ₹27.47 lakh while setting aside certain penalties.

APN Infra Pvt. Ltd., engaged in works contract services, had issued invoices amounting to ₹2.32 crore to the Amrapali Group during the financial year 2016–17. However, the amounts were never realised as the service recipient became insolvent and ceased operations. The outstanding dues were subsequently treated as bad debts in the appellant’s financial records. Based on third-party data obtained from income tax filings and non-filing of service tax returns, the Department issued a show cause notice proposing service tax demands for the financial years 2015–16 and 2016–17. The adjudicating authority confirmed the demand along with interest and penalties, which was partly modified in appeal, leading to the present proceedings.

Before the Tribunal, the appellant contended that no service tax could be levied since the services were never completed due to the financial collapse of the Amrapali Group. It was submitted that invoices were raised in anticipation of payments that never materialised and that all transactions were duly disclosed in the books of account and income tax returns, negating any allegation of suppression or intent to evade tax.

The Tribunal examined Rule 4A of the Service Tax Rules, 1994, and observed that issuance of an invoice is contingent upon completion of service or receipt of payment. It held that completion of service is an essential pre-condition for issuance of a valid invoice. In the present case, due to the closure of the service recipient’s business, the services could not be completed, and therefore the invoices issued could not be treated as valid invoices for the purpose of levy of service tax. It categorically held that service tax is not chargeable on invoices issued before completion of work.

The Tribunal further noted that under Section 65(44) of the Finance Act, 1994, “service” means any activity carried out by a person for another person. Since no effective activity was carried out due to the collapse of the project, no taxable service came into existence. It also observed that under Section 66B, service tax is chargeable only on the value of services actually rendered, and in the absence of any completed service, no tax liability could arise. Reliance was placed on the decision in Credence Property Developers Pvt. Ltd., where it was held that no service tax is payable when services are not rendered.

On the issue of limitation, the Tribunal found that the appellant had duly disclosed all transactions in its financial statements, which were audited and available to authorities. In such circumstances, there was no suppression of facts or intent to evade tax, and invocation of the extended period was not sustainable. It was further observed that once the demand itself is not sustainable, imposition of penalties does not arise.

Accordingly, the Tribunal set aside the impugned order and allowed the appeal with consequential relief.