Custom, Excise & Service Tax Tribunal
Gayatri Hospitality And Realcon Ltd vs Ce & Cgst Noida on 26 June, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70353 of 2019
(Arising out of Order-in-Original No.03/Commissioner/Audit-II/Ghazibad/2017
dated 26/05/2017 passed by Commissioner of Central Excise & Service Tax,
Ghaziabad)
M/s Gayatri Hospitality And Realcon Ltd., .....Appellant
(H-133, Sector-63, Noida)
VERSUS
Commissioner of Central Excise &
Service Tax, Noida ....Respondent
(Commissionerate, Noida)
WITH
Service Tax Appeal No.71308 of 2018
(Arising out of Order-in-Original No.03/Commissioner/Audit-
II/Ghaziabad/2017 dated 26/05/2017 passed by Commissioner of Central
Excise & Service Tax, Ghaziabad)
Shri Hari Om Dixit .....Appellant
(H-133, Sector-63, Noida)
VERSUS
Commissioner of Central Excise & Service Tax, Noida
....Respondent
(Noida)
APPEARANCE:
Shri Dharmendra Srivastava, Chartered Accountant &
Shri Suhail, Advocate for the Appellant
Shri Manish Raj, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NOs.70352-70353/2024
DATE OF HEARING : 27 February, 2024
DATE OF PRONOUNCEMENT : 26 June, 2024
SANJIV SRIVASTAVA:
These two appeals are directed against Order-in-Original
No.03/Commissioner/ Audit-II/Ghaziabad/2017 dated 26/05/2017 of
Service Tax Appeal No.70353 of 2019 &
2 71308 of 2018
the Commissioner of Central Excise & Service Tax, Ghaziabad. By the
impugned order following has been held:
"ORDER
i) I confirm the demand of Service Tax amounting to Rs
3,34,71,375/- (Rupees Three Crore Thirty Four Lakh Seventy One
Thousand Three Hundred and Seventy Five only) inclusive of
Service Tax, Education Cess amounting & secondary and higher
education cess in terms of proviso to Section 73 (1) read with
Section 73 (2) of Finance Act, 1944. However, as the party has
already deposited the amount of Rs 1,01,09,282/-, I order for
appropriation of the same against the total demand.
ii) I order for recovery of interest under Section 75 of the Finance Act,
1994 on the Service Tax as confirmed and demanded above.
iii) I impose a penalty of Rs 20,000/- (Rupees Twenty Thousand only)
upon the party under Section 77 of the Finance Act, 1994.
iv) I impose a penalty of Rs 3,34,71,375/- (Rupees Three Crore Thirty
Four Lakh Seventy One Thousand Three Hundred and Seventy Five
only) upon M/s Gayatri Hospitality and Realcon Limited under
Section 78 of the Finance Act, 1994 for their various acts of
omission and commission as discussed in the preceding paras.
v) I impose a penalty of Rs 1,00,000/- (Rupees One Lakh only) upon
Shri Hariom Dixit, Director of M/s Gayatri Hospitality and Realcon
Limited under Section 78A of the Finance Act, 1994.
The dues adjudged above should be deposited henceforth."
2.1 Appellant I is registered with the department and is providing
services under the category of 'Construction of-Residential Complex'
and 'Preferential Location or External/Internal Development of
Complexes'. Appellant II is director with Appellant I
2.2 The premises of appellant were searched by the officers of
Directorate General of Central Excise Intelligence on the basis of an
information to the effect that Appellant I was not paying Service Tax
appropriately. Certain documents and information available in
electronic format was retrieved and resumed during the corse of
Service Tax Appeal No.70353 of 2019 &
3 71308 of 2018
investigations. Statements of various concerned persons were recorded
during course of investigation.
2.3 From the analysis of the above, the documents/ Information
obtained during investigation and statement recorded, it was observed
that :-
➢ Appellant I was engaged in construction of a multistory
residential apartment project 'Gayatri Aura'. They started taking
booking amounts from customers since September,2010 as
advance towards the-sale of residential units in the said project.
They neither filed any ST-3 returns nor paid any Service Tax till
the date of search i.e., 23.08,2012.
➢ They booking the flats for their customers under various
payment, plans - CLP, DP, Flexi & No EMI. However they did not
pay any service tax on the amounts that were to be received as
per the payment schedule against the said plans.
➢ Appellant vide their letter dated 14.03.2013 submitted service
tax deposit challans amounting to Rs. 1,01 09,282/- for the
period from September, 2010' to January, 2013. The tax was
deposited only in respect of amount received-and not as per
amounts due (as per payment plan/ allotment letters] as per the
Point of Taxation Rules, 2011.
➢ Appellant stated that they had not collected service tax
separately from their customer and the amount collected from
customer is deemed to be inclusive of service tax.
➢ Appellant I, willfully suppressed the taxable services provided
and amounts received, taxable amounts from the department- in
as much as they
○ did not submit any service tax return,
○ did not pay any service tax till the officers visit to their office
on 23.08.2012:
➢ Accordingly, quantification-of service tax, payable based on the
Point of Taxation Rules, 2011 was done as under:
Service Tax Appeal No.70353 of 2019 &
4 71308 of 2018
Service Differential ST payable Education SHE Total
taxable Value Cess Cess.
payable Payable
Construction of 48,93,76,078 3,18,60,522 637,210 318,605 3,28,16,337
Complex
Preferential 52,99,658 6,35,959 12,719 6360 6,55,038
location charges
Total 49,46,75,736 3,24,96,481 6,49,929 3,24,965 3,34,71,375
➢ The facts of provision of the services and actual income there
from was willfully suppressed from the department to evade
payment of service tax, even though Appellant I & II were in-
full knowledge of the facts.
2.4 Thus Appellant I & II have contravened the following provisions:-
➢ Sections 66, 66B (with effect from 01:07.2012); 66BA-(with
effect from01.07.2012), 67 and 68of Chapter V of the Finance
Act, 1994 inasmuch as they failed to pay Service Tax at the
appropriate rate on the appropriate value of taxable service.
➢ Section-70-of Chapter V of the Finance Act, 1994 read with Rule
7 of Service Tax Rule's, 1994 as they-failed to assess the tax due
on the service provided by them and file periodical in a prescribed
manner
2.5 Appellant I thus has rendered themselves liable to-penal
action under Section 76,77 and 78 of Chapter V of the Finance
Act,1994 and Appellant II be liable for penalty under section 78A of the
Finance Act, 1994
2.6 A show cause notice dated 20.10.2015 was issued to the
appellant I asking him to show cause as to why
(i) Service Tax amounting to Rs.3,34,71,375/- (Rupees three crore
thirty four lakh seventy one thousand three hundred and-seventy-five
only) (inclusive-of Service Tax amounting to Rs.3,24;96,481/-,
Education Cess amounting toRs.6,49,929/- & Secondary and Higher
Education Cess amounting toRs.3,24,965/-) not paid by them should-
not be demanded and recovered from them by invoking extended
period under proviso-to Section 73(1) of Chapter V of the Finance Act,
1994; and why the amount of Rs.1,01,09,282/- deposited by them
should not be appropriated against the demand confirmed.
Service Tax Appeal No.70353 of 2019 &
5 71308 of 2018
(ii) Interest at the appropriate rate should not be charged and
recovered from them under Section 75 of Chapter V of the Finance Act,
1994.
(iii) Penalty under Section 76,77 and 78 of Chapter V of the Finance
Act, 1994 should not be imposed upon them
2.7 Appellant II was also called upon to show as to why penalty may
not be imposed upon him under section 78A of the Finance Act, 1994.
2.8 The show cause notice has been adjudicated as per the impugned
order referred in para 1 above aggrieved appellant have filed this
appeal.
3.1 We have heard Shri Dharmendra Srivastava Chartered
Accountant and Shri Md Suhail Advocated for the appellants and Shri
Manish Raj for the appellants and Shri Manish Raj, Authorized
Representative for the revenue.
3.2 Arguing for the appellants learned Chartered Accountant submits
that,-
➢ The facts are not in dispute. They had launched the project
"Gayatri Aura" from September 2010 and were collectring the
booking amounts towards the sale of flats in the said project.
Customers were also offered various payment plans as per which
they were allowed to make payments of completion of various
stages of construction.
➢ For various disputes with regards to the allocation of the land for
the said project, the construction activities could not be
undertaken as per the schedule, and could only be started in
2014, after the decision of the Hon'ble Supreme Court in the case
of Savitri Devi [(2015) 7 SCC 21].
➢ They were not receiving any payments from their customers as
per the payment plans offered by them at the time of booking. In
some cases customers even op[ted out of the project and they
were refunded/ to be refunded the amounts collected by them at
the time of booking of the flats.
➢ They have discharged the service tax due on the payments
received by them towards the services provided by them.
Service Tax Appeal No.70353 of 2019 &
6 71308 of 2018
➢ Since during the period up to March 2014, the amounts were not
received as per the payment plan and no activities in relation to
construction were undertaken, they were not required to pay
service tax by application of Point of Taxation Rules, 2011.
➢ The amounts received by them are inclusive of service tax and
hence the benefit of cum tax price should be extended to them
while computing the taxable value.
➢ They have not suppressed any fact with intention to evade
payment of taxes hence extended period of limitation should not
be invoked for making this demand.
➢ As they had not contravene any provisions of Finance Act, 1994
with the intent to evade payment of tax penalties should not be
imposed upon them.
3.3 Learned authorized representative reiterated the findings
recorded in the impugned order.
4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of arguments.
4.2 Impugned order records the following findings:
39.1. I find that main contention of the Notice To Show Cause is
to demand service Tax on the receipt of advance and as per the
amount due as per the payment-plan opted/agreed to by the
prospective customer, considering -the same as taxable event in
terms of Point of Taxation Rules,2011. Whereas the party has
mainly contended that Service Tax was paid on raceipt basis as
construction could not be started due to litigation in the High
court as well as in the Apex Court.
39.2 In show-cause notice, it has been alleged that the party M/s
GHAR were engaged in construction-of a-multistory residential
apartment project 'Gayatri Aura' and they started-taking booking
amounts from customers. In September,2010 as advance for the
sale of residential units. Though M/s GHAR was registered under
Service Tax for 'Construction of Residential Complex' and
'Preferential Location or External/internal Development of
Complexes' but they neither filed any ST-3 returns nor paid any
Service Tax till the date of search i.e., 23.08.2012 as evident-
Service Tax Appeal No.70353 of 2019 &
7 71308 of 2018
from the statements of the persons and also from ST 3 for the
period April,2011 to Sep,2011 filed on 22.02.2013.
39.3 I observe that the party ie. M/s GHAR were recelving
booking under various payment plans -Flexi, CLP, DP-&: No EMl.
As per the RUD-9, under Flexi plan 15% amount of BSP is
received at the time of booking and further 25% is to be paid
within 45 days of the booking and remaining installments were to
be paid-at the different stages of the construction i.e. casting of
basement slab, on casting of 1st floor, on casting of 5th floor, on
casting of 7th floor on casting of 11th floor, on casting of 13th
floor, on casting of 15th floor etc.
39.4 The CLP Is short-form of Construction Linked Plan and under
this plan apart, from booking-amount-which is approx. 10%
amount of Basic Sale Price further 10% (approx.) was to be paid
within 45 days of the booking and remaining installments were to
be paid at the different stages of construction e.g- on casting of
foundation, on casting of 1st floor roof , on casting of 3rd floor
roof, on casting-of 5th floor roof slab, on casting of 7th floor-roof
slab, on casting of 10th floor roof slab, on casting of 13th floor roof
slab etc.
39.5 That under down payment plan 10% of BSP was-to be paid
by the- customer at the time of booking and 85%.of BSP to be
paid by the customer within 45 days of booking and remaining
5% of BSP and other charges at the time of -possession
39.6 t has been alleged in notice to show cause, that despite
being asked, no document in respect of 'No EMI' plan was
provided by the party, however in the payment-plan chart (RUD-
12 of the SCN`) CLP and Flexi plans show installments linked
with different stages of construction and it is only D.P. (Down
Payment) plan which has no installments, hence it appears
that."No.EMI plan is actually down payment (D.P ) plan.
39,7 In this regard, I observe that the party, during PH held on:
13.02.2017 has provided copies of their plans and under NO EMI
plan apart from registration/booking amount the customer has to
pay 22% of BSP within 45 days of booking or the date of project
Service Tax Appeal No.70353 of 2019 &
8 71308 of 2018
being bankable. Rest of the amount /remaining installments were
to be paid at the different stages of construction e-g. on casting-
of basement slab (8% of BSP), on casting of 1st floor roof (8%6
of E5P) , on casting of 3rd floor roof(8% of BSP), on: casting-of
5th floor roof slab (6% of-BSP), on casting of 7th floor roof
slab(6% of BSP), on casting of 9 th floor-roof slab (6%-of
BSP),etc. Thus, It is observed that NO EMI plan is a-construction
link plan and cannot be considered a DP (Down payment)-plan,
which is independent -of construction stage, as alleged in the
notice to-show cause.
39.8 It-has been-alleged that the service tax has been deposited
only in respect of amount received-and-not as per-amounts due
(as -per payment plan/ allotment letters) as- per the Point of
Taxation Rules, 2011.
40. Thus main question before me to decide is whether the
party is liable-to pay Service Tax on receipt of charges from
customers or the Service Tax becomes-due-when customer is
required-to-make payment, in terms of MOU/allotment letter for
plan-opted by the-customer and the builder is required to pay
Service- Tax accordingly. Rest of the issues i.e., leviability of
Interest and penalty on party and its' director is associated with
the answer to this question.
Taxability of Construction of-Complex Service
41 First I consider the relevant provisions regarding taxability of
the service provided by the party. .....
41.1 Whereas with effect-from 01.07,2012 ....
41.2 .....
41.3 The party has contended that they initiated a project
wherein the potential buyers were Initially allotted the flats on
provisional booking amount, however the approved land on
which the construction was to be undertaken, could not
commenced due to unrest of the farmers followed by stay
granted by the Hon'ble High Court of Allahabad on 21.10.2011 till
2012-when stay was lifted as communicated: vide letter
Service Tax Appeal No.70353 of 2019 &
9 71308 of 2018
reference 'No.GRENO/Builders/2012/485 dated 09:10.2012 of
Greater Noida Industrial Development Authority. Hence no
construction activity took place as the appointed land became
under litigation and hence there was no land for construction and
moreover the allotment letters with the potential buyers-also
automatically stood terminated on the basis of the High Court's
stay order.
41.4 Though as above the party has contended that the allotment
letters with the potential buyers also automatically stood-
terminated on the basis of the High Court's stay order, however
has-not submitted any documentary evidence of Informing the
potential buyers to the effect that the agreement with them was
terminated due to non-initiation of construction. In thIs-regard, I
specifically would like to reproduce the para 20 of their reply
dated 13.02.2017 as 'That without prejudice to the above
contention , It Is also submitted that the company was re-allotted
only 36002.95. sq. mtrs, in the month of August 2013, and there
was no revised agreement made with any-of the-potential
buyers, hence in any case, the Point of Taxation Rules,2011,
could not be followed by the company and the payment-of
Service Tax is being made as when the amount if being realized
by-the company."
41.5 As above, contrarily I observe that the party did not cancel,
terminated the MOU/allotment entered by them prior to Stay
order granted by. the High Court Allahabad but also did not
refund the advance so received, the same remained with the
party. In addition to that from perusal of RUD-8 of the SCN, I
observe that the party further continued to accept the booking
and receiving the advances for their proposed residential
complex in as much as the Party vide allotment letter dated
11.05,2012 has allotted one flat at Gayatri Aura to Mr. Arvind
Singh. Vide Ann-6-of the said agreement, it has. been mentioned
that Rs.2,74,250/- had already been received and Rs.822760/-
was required to. be paid within 45 days. Likewise in another
agreement dated 13.08.2012, the party have allotted one flat to
Service Tax Appeal No.70353 of 2019 &
10 71308 of 2018
Mrs. Mamta Bhargava . In Ann- V of-the said agreement, it is
evident that Rs.305000/- has-already been received by the party
and Rs.303494/- was-to be paid to the party by the buyer, within
45 days of the agreement. There-are many other evidence in
RUD 8 of the SCN such as Chart showing that the party was
allotting their flats and accepting the-advances even after the
land was in dispute due to stay granted by the High Court of
Allahabad. Hence, party's this plea is not based on facts, hence
not-acceptable as such and liable to be rejected.
41.6 l observe that even though-the construction could not be
started, the advances received from the potential buyers do
represent consideration against proposed construction of
complex service, therefore, the party was under obligation to
follow the relevant provision of the Act.
Whether Point of Taxation Rules, 2011 is applicable and
any demand if arise can be paid only on realization basis.
42. I observe that in show cause notice, the Service Tax demand
has been proposed for the disputed period. By computing
demand on due basis or realization basis whichever is higher.
That-the department has alleged that the company has not paid
due Service Tax as per Rule 3 of POTR,2011 in as much-as the-
Company has discharged their service tax liability on receipt basis
only and not as per the payment plan/ payment- schedule,
finalized in their agreements entered with the buyers ,Whereas
the party has contended that no construction. took place as. the
allotted land came under litigation, hence payment schedule
based on which the demand is raised cannot be treated as
completion of an event in terms of a contract for the purpose of
determination-of-point of taxation as in reality no construction
work was undertaken at that time, henceforth proviso (i) to sub-
clause a &b-of Rule 3 of Point of Taxation Rules,2011 should not
be treated as applicable to their case.
42:1 To examine the above contention it is essential to examine
the relevant Rule 3 of the Point of Taxation Rules, 2011 which
reads-as under-
Service Tax Appeal No.70353 of 2019 &
11 71308 of 2018
'RULE 3:Determination of point of taxation. - For the purposes of
these rules, unless-otherwise provided, "point of taxation" shall-
be,-
(a) the time when the invoice for the service provided or
agreed to be provided is issued: Provided that: where.
the involce is not issued within the time-period specified
in-rule 4A of the Service Tox Rules,1994, the point of
taxation shall be the date of completion of. provision of
the service,
(b) In a case, where the person providing the service,
receives-a payment before the time specified in clause
(a), the time, when he receives such payment; to the
extent of such payment:
Provided that for the purposes of clauses(a) and (b),-
(l) In case of continuous supply of service where the
provision. of the whole or part of the service is determined
periodically on the completion of an event-in terms of a
contract, which requires the receiver of service to make any
payment to service provider, the-date of completion of each
such event as specified in the contract shall be-deemed to-be
the date of completion of provision of service;
42.2 l observe that sub rule (a) of Rule 3 of POTR provides for
point of taxation shall be the time when the invoice for the service
provided or agreed to be provided. is issued, to the present case,
this clause is relevant in cases of demand notes issued to-customers
on, the completion of an event, in terms of a contract between the
buyers and the-party. However in the instant case the customer first
books the residential unit/ flat. By depositing an amount called
advance. As the-party receives-the advance-for booking, hence
provision of sub-rule(b) of rule 3 of POTR will prevail and the point
of taxation- shall be the time, when he receives such payment, i.e.
time-of receipt of advance, Since the party is paying service tax on
such receipt, I do not-feel necessary to elaborate this aspect for the
sake of brevity.
Service Tax Appeal No.70353 of 2019 &
12 71308 of 2018
42.3 Further as the construction of residential complex is a time
taking process, takes- a long time which may be- running from a
few months-to few years. and customers in general do not pay total
amount in advance. For this purpose, in practice the prospective
customer enters in a Memorandum of Understanding, (MOU) with
the builder to clearly specify the payment schedule to ensure that
sufficient working capital is available in the hand of builder for
construction and timely completion: of project. In. present case too,
the party has entered in MOUs with prospective buyers specifying
the terms and payment plan refer RUD-9.
42.4 Whereas the 'continuous supply of service' is defined vide Rule
2(c) of POTR as- "continuous supply of service means any service
which is provided, or-agreed to be provided continuously or on
recurrence basis, under a contract , for a period exceeding three
months with the obligation for payment periodically or from time-to
time, or where the-central. Government, by a notification in the
official gazette, prescribes provision of a particular service to be
continuous supply of service, whether or not subject to any
condition." I observe in the present case too, the construction of
multistory-residential complex takes a long time in-completion and
customers in general are required to pay after. completion of a
certain stage of construction. Accordingly, I hold-that "there is no
doubt that this is a case of continuous supply of service where the
provision of the whole or part of the service is determined
periodically on the completion of an event in terms of a contract.
42.5 Thus as above, for construction services, for leviability and
payment of service tax by the service provider, the completion of an
event in terms-of-a contract is significant and crucial Thus-only the
terms of contract between the customer and-the party car decide-
the point of taxation under referred POTR. Therefore, if the payment
terms is dependent on completion of particular construction stage,
party's contention to the effect no construction took place as the
allotted land only came under litigation, hence payment schedule
based which the demand is raised cannot be treated as completion
Service Tax Appeal No.70353 of 2019 &
13 71308 of 2018
of an event in terms of a contract for the purpose of determination
of polnt of taxation has force,
42.6 However, if the payment 'terms is not dependent on
completion of particular construction stage e.g. in Down payment
plan, in terms of above provisions of rule 3 of POTR, the completion
of an event in terms of a contract is when the customer is required
to pay the agreed amount. Hence, party's contention to the effect no
construction took place, hence payment schedule based which the
demand is raised cannot be treated as completion of an event-in
terms of a contract is not supported by provisions of rule 3 of POTR.
Therefore l hold that for payment schedules/ terms, independent of
stage of construction, the service tax becomes due when customer
is required to make payment in terms of MOU for such plan and the
builder party is required to pay service tax accordingly.
42. 7 Further I observe that for the purpose of collection of Service
Tax and determination of rate-of Service Tax, the point of Taxation
Rules,2011 was formed. Under these rules the phrase "point of
taxation" has defined so as to mean the point in time when a
service shall-be deemed to have been provided, Thus, for Down
payment plan service shall be deemed to-have been provided as and
when customer is required to make payment in terms-of MOU for
such plan.
42.8 Thus the party has to pay-due Service Tax-as per Rule 3 of
POTR as per-the-payment plan/ payment schedule finalized in the
agreement and by paying Service Tax liability on receipt basis, the
party has violated the said provisions as discussed above.
42.9 As above, except for construction link plans, I find that MOU/-
Allotment letter are legal documents fixing the plan and relevant
payment schedule, accordingly, as-per Rule-3 of POTR, the due
date-of completion of service is to be decided based on the dates
mentioned in the allotment letter. The terms of MOU/ Allotment are
legally enforceable documents and if the buyer does not pay as per
the schedule, the customer can be made or is required to pay
Interest for such delayed payment. Therefore, I find it also
immaterial whether a bill or Invoice is raised to customer by. the
Service Tax Appeal No.70353 of 2019 &
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builder for scheduled due amount, the party is required to pay
service tax on the amount which becomes due as per MOU/
allotment letter.
Liability in respect of construction related plans.
43. Now I consider party's contention that no construction. activity
took place till March 2014 as the land was under litigation, hence no
taxable service was provided .under Construction of complex service
and thus no tax is leviable on the amount received from potential
buyers. As discussed above, the party's contention cannot be
applied for all payment plans opted by-customers and is true for
the-plan where the. customers are required to pay according to-
stage of construction: e.g. CLP plan.
43.1 For continuous supply of service, as per rule 3 of POTR, 2011,
for leviability and payment of service tax by the service provider, the
completion of an event in terms of a contract is the criteria for
determining the taxable event. In cases of MOU/ contract enabling
the party to recover prefixed amount from customer on the basis of
completion of certain stage of construction e.g. casting of basement
slab, casting of any floor or possession etc, the completion of event
as per contract/MOU shall be the date of completion of construction
of casting of basement/ Nth floor or possession etc. Thus, as per
referred rule, in such cases the demand of service tax can only be
made after completion of construction stage as decided in
MOU/agreement, Therefore, I find that if the-payment terms are
dependent on completion of particular construction stage, service
tax cannot be demanded without completion of specified
construction stage.
Whether demand In SCN is as per POTR-
44. Now I consider party's contention to the effect, no construction
took place as the allotted-land only came under litigation, hence-
payment schedule based which- the demand is raised cannot be
treated as completion of an event in terms-of a contract for-the
purpose of determination of point of taxation.
Service Tax Appeal No.70353 of 2019 &
15 71308 of 2018
44.1 The party's main contention is that the demand of service tax
in captioned notice is made-without considering the construction
stage based on MOU/agreement or the demand has been. In this
regard, I observe that in his-statement of Shri Vinod Kumar Gupta,
Chief Executive Officer of the party dated 28.09.2015, refer RUD-20
to the SCN , Shri Gupta submitted a chart of Income from booking
and installment amounts received, for the period 23.08.2012 to
31.03.2013, 2013-14 and April to September,2014 (RUD-21 of the
SEN ) payment plans in two sheets (RUD-22-of the SCN) covering
the-whole period from 2011 to September, 2014. In his statement,
he had deposed that after restructuring; excavation was started in
six towers (A to F) in August, 2013 and construction activities in the
project were started in April, 2014 and till September, 2014
basement slab was erected in four towers (A,B,E &- F). Shri Gupta
further stated that they were collecting PLC (preferential location
charges), Lease rent, FMS: from their allottees who booked flats
upto December, 2013 - these charges became payable under CLP
plan on excavation and that only 25% of the amount of PLC and
other charges became payable by the buyers that they have
received these charges.
44.2 From party's reply, it is evident that construction activity could
not take place until the party got: approved the revised plan-map-
from GNIDA-on 20.08:2013.Though the party was not been able to
construct the residential complex, however perusal of the annexure
1A, 1B, 2,.3 & 4, for the period 01.07.2010 to September,2014 of
SCN, it is evident that they continued -to booking the flats and
receiving the advances as per the payment plans refer RUD-22 to
the.SCN , I observer that the prevailing plans prior to 2013-14.and
w.e.f. 2013-14 are as-under-
PAYMENT PLANS -2011
........
44.3 further observe that the Service Tax liability on the party, as summarized in Annexure- A of SCN based on different Annexure:
1 A, 1B, 2, 3 & 4, for the period 01.07,2010 to September,2014.
....
Service Tax Appeal No.70353 of 2019 & 16 71308 of 2018 44.9 On the basis of these annexure for different period the service tax payable has been quantified as-the Point of Taxation Rules,2011. I observe that in no case gross value is based on-any stage-of construction which is not completed till that period. I observe that for construction link plan during 2011-12 and 2012- 13 gross value consists of amount of booking and on due- amounts due after 45 and accordingly the service tax has been worked out. Thus, no amount of service tax-has been demanded which is any linkage with non-completion of any stage of construction, hence-party's contention that during this period no construction was done has no bearing on demand of gross amount from customers. Accordingly, the provisions of POTR, 2011 are rightly applied.
44.10 Further I observe that for the period after the start of excavation started in August, 2013 and stating of construction/raft stage in April,2014, the gross amount chargeable as per MOU/agreement for CLP (RUD-22) plan includes amount; payable on account of I) Booking (10%of total cost), II) within 45 days of booking (10%of total cost), III) On casting of foundation ( 25%-of PLC, 25% of LR & 25% of CP). Further as per the revised plan effective from 2014 the construction link plan (RUD-22)-Includes-amount-payable on account of i) Booking (10%of total cost), ii)within 45 days-of booking (10%of total cost), iii) On casting of foundation(10%of total cost), iv) on casting of raft (10%of total cost), Thus from the referred annexure it is evident that amount due from customers has been calculated only to the extent the construction has-been taken place.
44.11 From the discussion held above, I find that in all plans whether construction link or otherwise, the due amount has been calculated on the basis of the completion of event as per contract/MOU. As discussed in previous para, as per Rule 3 of POTR, the date of starting of construction and the terms of MOU are enforceable and completion of service is to be decided accordingly. Thus when the construction started and later on Service Tax Appeal No.70353 of 2019 & 17 71308 of 2018 attained different stages of completion as per MOU, allotment letter, services shall be the deemed to have been provided. Therefore, I find that with effect from the date of starting the construction or completion of pre-defined stages of construction for CLP plan too, the party is required to pay service-tax on the amount which becomes due as per MOU/allotment letters. I find that in such cases the-date of completion of event is correctly determined on the basis-of amount due as per the contracts /MOUs.
44.12 I further observe that they have further contended that, (refer para 20-of additional reply 13.02.2017) , that the company was re-allotted only 36002.95-sq. mtrs. in the month of August 2013, and there was no. revised agreement made with any of the potential buyers, hence in any case Point of Taxation Rules,2011, could not be followed by them and the payment of service tax is being made as when the amount was being realized by the party from their buyers As such, the party- themselves has admitted non-compliance of provisions of POTR,2011 and as the non- availability of land has not affected the completion of event in terms-of POTR. Accordingly party's contention that no construction activity took place till march,2014 being land under HC/SC litigation, hence no taxable services was provided has no legal backing in terms .of provisions of said POTR,2011 and payment of service tax only on realization-basis is in violation of provisions of said POTR,2011.
45. Now I consider party's - submission-that demand-on due basis up to 01st July 2011 is not sustainable. I observe that-vide notification no.18/2011-ST dated 1.3.2011, Point of Taxation Rules, 2011 were made applicable with effect from 13 of April, 2011. Further, these rules were amended vide notification no.25/2011-ST dated 31st Mar,2011 and Rule 9 of Transitional Provisions provides that-services for which provision is completed on or before 30th day of June 2011 or where the invoices are issued up to the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the Service Tax Appeal No.70353 of 2019 & 18 71308 of 2018 payment is received-or made as the case may be. As such, the taxpayer was given an option to pay service tax on receipt basis till June 30th, 2011, Thus instead-of paying service tax on billing or due basis as the case may be w.e.f. from April 1 st , 2011, the assessee had an option to pay service tax on receipt basis is there till June 30th,2011.
45.1 Thus, as above I find that as per provisions. of POTR with effect from 1st of April,2011 though service tax has to be paid on billing or due basis, as per transition rules, the party had option to pay-service tax on receipt basis up to 1st, July 2011. Accordingly, I find force in the party's contention that demand on due basis prior to period 01st July, 2011 is not sustainable. However, it is important that all the demand due up-to June 30th ,2011 is to be taken into account as on 01st of July,2011, thus it does not make any difference in the proposed demand in SCN.
45.2 From ......
46. In the Notice to Show Cause, the service tax has-been demanded on CLP/basic amount charged/ demanded-on due basis from the customers. Whereas-the party has submitted that service-tax has not been collected in any project from the customers as against the allegation by the department and the service tax demand has been, computed incorrectly by the department-that the department has failed to provide cum tax benefit while computing service tax liability.
46.1 In this regard I observe that the party had issued demands wherein service tax had been charged-separately refer RUD-24 of the SCN. I further observe that as per the allotment letter service
-tax-shall be- payable by the customer in addition to the consideration-prior to handing over physical possession of the said house/ flat and it is also mentioned in the allotment letters that "Allotment letter shall prevail over all the other terms and conditions, specification etc. given in the Brochures, Advertisements, Price List and any-other sale document. In addition to that the following facts are also considerable to decide this aspects.
Service Tax Appeal No.70353 of 2019 & 19 71308 of 2018 46.2 ....
46.3 Section 67 of the Finance Act, 1994 provides where service tax is not separately collected from the service recipient the grass amount charged shall be treated as inclusive of service tax and service tax shall be calculated taking cum-tax benefit. However, since the SCN had relied on party's document; inasmuch as that party collected Service tax separately, accordingly provision of section 67(2) will not prevail for arriving at the taxable value of the service and Service tax is deductible from the gross amount charged 46.4 In this regard t have gone through the case law relied by the party and as discussed above since-the party have charged Service Tax separately, the facts and circumstances of the case referred are different from the party's case , hence, cannot. be applied to-present case:
47. Now I take up the party's contention that the demand is time barred. It has been contended that the extended period of limitation cannot be invoked and therefore the demand is time barred. It has been-submitted that in the present case, the period covered by the Impugned notice is-from 01-07-2010 to 31-03-2014 and Show cause notice is issued as on 20.10.2015 and therefore, the demand for the extended period is-time barred in terms of section 73(1) of FA,1994. Whereas the Show Cause Notice has sought to invoke the extended period of limitation on the ground that the company had suppressed the material facts with intention to evade payment of duty/ tax.
47.1 It has been further submitted that the party has never suppressed or misrepresented any fact relating to the:
nonpayment of Service Tax from the Department in as much as , they were accounting for all financial transactions in-books of accounts as per accounting principle. Recording of all transactions on regular basis shows bonafide intention of company and their Intention is further strengthen from the facts that no remark has been recorded in impugned proceedings-that any transaction has been detected beyond-books of accounts by the enquiring Service Tax Appeal No.70353 of 2019 & 20 71308 of 2018 officers. The party further submitted that they did not have any reason to have intent to evade the payment of Service Tax or to suppress any fact from the:department. The Impugned notice has alleged that they. have suppressed. the facts with an intention to evade payment of Service Tax without any evidence.
They were under the bonafide impression that Service Tax was not payable by them. The Impugned SCN has not brought on record any evidence to the effect that they were aware of their liability and yet deliberately suppressed the facts or misstated anything In order to Intentionally evade. payment of Service- Tax. Therefore, imposition of penalties is not Justifiable.
47.2 l observe that as per Section 73 of the Act ibid, in a normal case, a SCN can be issued at any time within eighteen months from the relevant date. Proviso to Section 73(1) of the Act ibid provides that SCN can be issued at any time within 5 years from the-relevant date, if tax was not paid or levied by reason of fraud or collusion or willful mis-statement or suppression. of facts-or- contravention of any of the provisions.of the Act or Rules-with intent to evade-payment of such tax. Thus, the extended period of limitation is applicable only if any of the ingredients specified in the proviso exist.
47.3 observe that-the party started receiving the booking amount from prospective buyers since September,2010. Though the party was registered under Service Tax under the heads 'Construction of Residential Complex' and 'Preferential Location or External/internal Development of Complexes' but the company neither filed any ST-3 returns nor paid any Service Tax till the date of-search ie., 23.08.2012 . This fact has also been admitted by Shri Arvind Kumar Modi in his statement recorded on 23.08.2012.
47.4 Further the party vide their fetter. dated 14:03.2013 (RUD- 7 to the SCN ) informed Service Tax has been: deposited amounting to Rs,1,01 ,09,282/- for the period from September, 2010 to January, 2013-by them. I observe that.the service tax has been deposited only in respect of amount received and not as Service Tax Appeal No.70353 of 2019 & 21 71308 of 2018 due.from them in terms-of provisions of the Point of Taxation Rules, 2011, as-discussed above:
47.5 In this-regards, 1 wish to recall the party's submission that even otherwises there is an unreasonable delay in issuing the show cause notice: Even-assuming that extended period of limitation is applicable, as the department first summoned the director of the appellant Company as on 23-08-2012, issuing a-
show cause notice nearly three years and two.months is vitiated by unreasonable delay. lf something is within the knowledge of department the department must act within a reasonable period in issuing show cause notice and cannot rely on five year period on the ground that the alleged suppression was within five years period.
47.6 I find that-the party again and again called-for supply of required-documents-but by hook or crook, they were-avoiding- the same and Shri Hariom Dixit , Director appeared only on 23:08.2012 and after that Shri Shyaam Upadhayay, Authorized representative appeared for statement with one or another plea for non-filing required documents/information. I also want to rely on the decision quoted by the party in their defense:-
Gammon India LImited Vs, Commissioner of Central Excise, Goa- 2002 (146) E:L.T.173 (TRI) - Mumbai) wherein It was held that "We find that In the judgment In-the case of J.S.L Industries Ltd. v.CCE, Ahmedabad - 1999 (109) E.L.T. 316 (T): 1998 (25) RLT 779 the Tribunal had discussed the effect of delay in issuing the show cause notice on the plea of limitation. The Tribunal took cognizance of the earlier judgments in which it was held that the delay between the knowledge of the department and the issue of show cause notice was fatal to the argument that there was suppression. In the case before the Tribunal, the information was sought in 14. August, 1987 which was supplied by the assessee within 4 days. The show cause notice however, was issued in September, 1989, In this situation, although the period of demand was within 5-vears from the date of show cause notice, the Tribunal held the plea of limitation would sustain.
Service Tax Appeal No.70353 of 2019 & 22 71308 of 2018 47.7 But when situation is that the party did not provide required information in time, they do nor appear for tendering their statement in one go, the department has not recourse except delay in issuance of the SCN 47.8 Therefore, I am of the view that the party have willfully suppressed the taxable services provided and amounts received towards taxable. services from the department in as-much as they did not submit any Service Tax-Return from Sep,2010 to 2013 and did not pay any Service Tax till:] the officers visited-to.
their office on 23,08.2012. Thus, t hold that it is-beyond doubt established facts that the party was providing taxable services, receiving amounts towards booking amount, car parking charges, PLC etc. but not discharging their-Service tax liability in terms of the provisions of POTR, 2011, moreover, they had not disclosed the amount received or likely to be received by them against taxable services provided or to be provided to-their buyers, from the department till the date of search, i.e.23:08.2012. I observe that even in the ST3-returns filed after 23.08.2012 correct value of taxable services had not been shown as per the Point of Taxation Rules, 2011.
47.9 Thus it is evident that the facts of provision of the services and actual value of taxable services provided by them , have been willfully suppressed , concealed from the knowledge of the department with intention to evade payment of Service Tax which clearly indicate malafide intention of the-party-and resulted in non-payment of service tax due from them. Though -the party- were in knowledge of the all facts, relevant provisions-of the Act,1994, still-they avoided payment of Service Tax-as per POTR,2011. I further-observed that during investigation started on 23.08.2012, however could be concluded only on 28.09.2015 due to non co-operation from the party in providing the desired information, repeatedly non appearing in response to-the Summons. In view of-these facts, I am of the considered opinion that the party's Intention was malafide and they were willingly suppressed the-fact of rendering service which were liable for Service Tax Appeal No.70353 of 2019 & 23 71308 of 2018 payment of Service tax, by way of not furnishing. any periodical returns such-as. ST-3 required to be filed with the service tax department till February, 2013. They have suppressed these vital facts with intention to evade payment of Service tax only.
47.10 Further the party did not show-amount received against- PLC in their ST-3-returns. Had the officers of the Directorate General of the Central' Excise intelligence, Lucknow not initiated an Inquiry against them, the said adhoc payment of Service Tax would have not been unearthed. I further observe that party's action-as narrated above, the value of taxable service provided by them had escaped-self-assessment-at the end of party, as required under Section 70 of FA,1994 Thus all action at. the: end of party leads that they did so with intent to evade payment of Service Tax only and hence the provisions of sub-section (1) of Section 73 of the Finance Act, 1994. for the. extended period of limitation, has rightly been invoked and I confirmed the applicability of the provisions of the extended period of limitation in this.case.
47.11 It has-been further submitted by the party that they had no intention to act dishonestly and-have acted according to the legislative provisions in as much as everything is on record and the Service Tax has not been paid on the bonafide belief that they were not liable to pay Service Tax:
47.12 I observe that non-payment of Service Tax and non-filing of-statutory return despite having Service Tax registration, doi not show.bonafide at their end . Therefore, the allegation that the company has-suppressed the facts with an: intention-to-evade payment has substance and. accordingly sustainable In law..and the extended-period of limitation has been rightly invoked.
47.13 In view of above proposed demand of Service Tax amounting to Rs.3,34,71 ,375/- (Rupees three crore thirty four lakh seventy one thousand three hundred and seventy five only) (inclusive of Service Tax amounting to Rs.3,24,96,481/-, Education Cess amounting to Rs.6,49;929/- & Secondary and Higher- Education Cess amounting to Rs.3,24,965/-), I confirm Service Tax Appeal No.70353 of 2019 & 24 71308 of 2018 the said demand under the proviso to Section 73(1) of the Finance Act,1994."
4.3 From the facts and findings as recorded in the para of impugned order reproduced above it can be inferred that the entire demand has been confirmed against the appellant by application Rule 3 of Point of Taxation Rules, 2011. There seem to be no dispute on the aspects of leviability of Service Tax on the services provided by the appellant under the category "Construction of Complex Services" and the "Preferential Location Charges Services". Appellant do not dispute that service tax is leviable on the services provided by them under the said categories.
4.4 Admittedly the demand in the present case is made in respect of one project undertaken by the appellant named as "Gayatri Aura". It is also not in dispute that the appellant had launched the project in September 2010, and had started booking the flats for their customers in the said project against booking amounts and by offering various payment plans which have been discussed in the impugned order. It is also not in dispute that the said project could be launched immediately for the reason of ongoing litigation in relation to the allocation of land and the compensation to be paid to owners against the land acquired.
The issues were finally settled by the decision of Hon'ble Supreme Court in case of Savitri Devi, supra and the construction activity in respect of this project could be undertaken only after the receipt of revised plan map from Greater Noida Authority on 20.08.2013.
4.5 It is the claim of the appellant that the demand has been made against them by application of Point of Taxation Rules, 2011, read with the payment plans which were offered by them to their customers at the time of booking of the flats in the said project. However in view of the ongoing litigation in respect of land the payment schedules were not being strictly followed by the customer's and appellants had not received the payments as per the said payment schedule. They had discharged the service tax payable on the basis of the payment received in respect of the flats sold under the said project.
4.6 Point of Taxation Rules, 2011 do not create any service tax liability but only determine the due date of provision of service. In Service Tax Appeal No.70353 of 2019 & 25 71308 of 2018 explanatory memorandum (Pink Book) - explaining the changes made at the time of introduction of Finance Bill, 2011 following has been stated:
"VII. POINT OF TAXATION RULES, 2011 The Point of Taxation Rules, 2011 have been framed and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided."
4.7 By D.O.F.No. 334/3/2011-TRU dated 28.02.2011, Joint Secretary (TRU) clarified as follows:
"6. Point of Taxation Rules, 2011 6.1 Point of Taxation Rules, 2011 have been framed vide notification 18/2011-ST and made effective from 01.04.2011. These rules determine the point in time when the services shall be deemed to be provided. The general rule will be that the time of provision of service will be the earliest of the following dates:
i. Date on which service is provided or to be provided ii. Date of invoice iii. Date of payment 6.2 Consequential changes have also been made in the Service Tax Rules, 1994 to alter the payment of service tax from receipt of payment to provision of service and also to permit adjustment of tax when service is not finally provided."
4.8 Hon'ble Madras High Court has in case of Firm Foundations & Housing Pvt. Ltd. [2018 (16) G.S.T.L. 209 (Mad.)] held as follows:
"11. Before me, two legal issues arise for determination :
(i) relevance of the P and L accounts of the petitioner in the determination of point of rendition of service and the method of quantification of receipts in respect thereof; and
(ii) the application of Rule 3 itself in the admitted facts and circumstances of the present case.
Service Tax Appeal No.70353 of 2019 & 26 71308 of 2018
12. Rule 3 specifically provides clarity on the determination of point of taxation. Had the respondent merely applied the said Rule to determine taxability of the services rendered by the petitioner, the basis of assessment would have been perfectly in order. The flaw, as I see it, arises from reliance by the respondent upon the entries in the P and L account to determine the point of taxation of the services rendered and quantification thereof.
13. Before going to the basis of the SCN and impugned order, I extract the basis of finalization of the P and L account itself. Admittedly, the financials, including the P and L account have been prepared on the basis of the Accounting Standards (in short „AS‟) issued by the Institute of Chartered Accountants of India (in short ICAI). In the present case, the petitioner states unambiguously in the reply to the SCN that the basis of preparation of financials as far as the income from the building project is concerned is the „Project Completion method‟.
14. AS 7 deals with the recognition of income from building projects on the basis of the „Project Completion Method‟ and I extract the relevant portions of AS 7, in so far as it is relevant to this writ petition, hereunder :
....
Recognition of Contract Revenue and Expenses
21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35.
22. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: Construction Contracts 73(a) Service Tax Appeal No.70353 of 2019 & 27 71308 of 2018 total contract revenue can be measured reliably; (b) it is probable that the economic benefits associated with the contract will flow to the enterprise; (c) both the contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates.
23. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) it is probable that the economic benefits associated with the contract will flow to the enterprise; and (b) the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.
24. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed. This method provides useful information on the extent of contract activity and performance during a period.
25. Under the percentage of completion method, contract revenue is recognised as revenue in the statement of profit and loss in the accounting periods in which the work is performed.
Contract costs are usually recognised as an expense in the statement of profit and loss in the accounting periods in which the work to which they relate is performed. However, any expected excess of total contract costs over total contract revenue for the contract is recognised as an expense immediately in accordance with paragraph 35.
26. A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are Service Tax Appeal No.70353 of 2019 & 28 71308 of 2018 recognised as an asset provided it is probable that they will be recovered. Such costs represent an 74 AS 7 amount due from the customer and are often classified as contract work in progress.
27. When an uncertainty arises about the collectability of an amount already included in contract revenue, and already recognised in the statement of profit and loss, the uncollectable amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense rather than as an adjustment of the amount of contract revenue.
28. An enterprise is generally able to make reliable estimates after it has agreed to a contract which establishes: (a) each party‟s enforceable rights regarding the asset to be constructed;
(b) the consideration to be exchanged; and (c) the manner and terms of settlement. It is also usually necessary for the enterprise to have an effective internal financial budgeting and reporting system. The enterprise reviews and, when necessary, revises the estimates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily indicate that the outcome of the contract cannot be estimated
29. The stage of completion of a contract may be determined in a variety of ways. The enterprise uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include: (a) the proportion that contract costs incurred for work performed up to the reporting date bear to the estimated total contract costs; or (b) surveys of work performed; or (c) completion of a physical proportion of the contract work. Progress payments and advances received from customers may not necessarily reflect the work performed.
30. When the stage of completion is determined by reference to the contract costs incurred up to the reporting date, only those contract costs that reflect work performed are included in costs Service Tax Appeal No.70353 of 2019 & 29 71308 of 2018 incurred up to the reporting date. Examples of contract costs which are excluded are :
(a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and
(b) payments made to sub-contractors in advance of work performed under the sub-contract.
....
15. AS 7 thus provides for a detailed methodology for the reporting and determination of the percentage of income from the contract over the term of the project and sets out the mode of computation for arriving at the same. The basis of such recognition and reporting is the apportionment of the income earned and expenditure incurred over the tenure of the project. This is entirely different and distinct from the scope, object and application of the Point of Taxation Rules that seeks to set out a methodology for determination of when the service was rendered and consequently when the receipt of income from such rendition be taxed.
16. The emphasis and thrust of each methodology is in alignment with the different purposes that they bear reference to
- AS 7, in the context of the preparation of financials, addresses the „how much‟ of the transaction over the term of contract whereas Rule 3 of the Rules addresses the „when‟ in relation to the rendition of service for computing taxability under the Finance Act, 1994.
17. The basis of the addition by the respondent is clear from the SCN wherein he states that „further, on verification of the profit and loss account of the assessee for the financial years 2012-13, 2013-14 and 2014-15 along with Service Tax Payment shown in the ST3 returns, it appears that the assessee have not Service Tax Appeal No.70353 of 2019 & 30 71308 of 2018 paid the appropriate Service Tax.‟ Despite the explanation offered by the petitioner to the effect that it is the Point of Taxation Rules that would govern the determination of time of rendition of service and consequent accrual of receipt and liability to tax thereof, and not the P and L accounts of the petitioner, the respondent persists in adopting the financials for the determination of service tax liability as well.
18. The foundation of the assessment is thus, in my view, flawed. The SCN calls upon the assessee to produce material in support of its stand and, at paragraph No. 11, states that the audited balance sheets for the financial years 2012-13, 2013-14 and 2015-16, statement recorded from the VP of the petitioner, worksheet and written submissions are the basis of issuance of the SCN. By way of replies, the petitioner on 22-9-2016, 28-2- 2017 and 11-4-2017 explains yet again that the P and L account cannot be the basis of the assessment. The impugned order is passed notwithstanding the objections raised, and negating the same.
19. Clause (i) of the proviso to Rule 3 specifically provides for determination of the point of taxation in cases of continuous supply as in the case of the petitioner herein.
20. The petitioner enters into agreements with customers for the construction of apartments. The agreement provides for demarcated activities, described stage-wise (in short „landmarks‟) upon the completion of which, payments are to be released by the customer. The rendition of the service results in the accrual of the receipt of consideration in respect thereof.
21. The relevant clause in the construction agreement dated 30-12-2014 (provided as a sample) reads thus :
.....
1. The party of the Second Part shall pay the party of the First Part a sum of Rs. 1,75,43,320/- (Rupees One Crore Seventy Five Lakhs Forty Three Thousand Three Hundred And Twenty Only) Service Tax Appeal No.70353 of 2019 & 31 71308 of 2018 for the construction of a Three Bed Room Flat measuring 2055 sq. ft. as per the specifications mentioned in Schedule B and Schedule C in the following manner :
At the time of booking - Rs. 25,43,320/- On completion of Basement work - Rs. 26,00,000/- On completion of Ground Floor Roof - Rs. 18,00,000/- On completion of First Floor Roof - Rs. 18,00,000/- On completion of Second Floor Roof - Rs. 18,00,000/- On completion of Third Floor Roof - Rs. 18,00,000/- On completion of Brick Work - Rs. 18,00,000/- On completion of Internal Plastering - Rs. 18,00,000/- On completion of Tile Laying in your flat - Rs. 12,00,000/- On Handing Over Possession of your flat - Rs. 4,00,000/-.
2. The Party of the Second Part has paid a sum of Rs.
87,43,320/- (Rupees Eighty Seven Lakhs Forty Three Thousand Three Hundred And Twenty Only) by way of cheque No. 049006 drawn on ICICI Bank, dated 5-11-2014. to the Party of the First Part as Advance, the receipt of which sum, the party of the First Part hereby acknowledges.
3. The Party of the Second part shall pay the Balance Sum of the Rs. 88,00,000/- (Rupees Eighty Eight Lakhs Only) to the Party of the First Part as specified in Clause 1 of this Agreement.
Service Tax Appeal No.70353 of 2019 & 32 71308 of 2018
4. Payment shall be made by the Party of the Second Part without default to the Party of the First Part.
.....
22. Rule 3(a) provides for a situation where the accrual of service is predicated upon the raising of an invoice. In the present case, the admitted position is that the petitioner does not raise invoices as and when a particular landmark is reached and the accrual of the consideration stage-wise is occasioned automatically upon completion of the stage of construction set out in the agreement itself.
23. It is the specific case of Mr. Prabhakar that the customers have remitted, in advance, the consideration relating to several of the initial landmarks as a lump sum and that the said amount has been offered to tax. It was then incumbent upon the respondent to have, in the light of the stand adopted by the petitioner in its Service Tax Returns, to have examined whether the receipts offered to tax correspond and cover the stages in respect of which consideration has accrued as per the agreement with the customer.
24. Rule 3(a) and (b) provides for the point of taxation to be either the point of raising of invoice [Rule 3(a)] or in a case where the service provider has received the payment even prior to the time stipulated in the invoice, upon receipt of such payment [Rule 3(b)]. In the present case, no invoice is said to have been raised. However, the petitioner confirms that it has, in fact, received lump sum advances corresponding to several initial landmarks in the contract, even prior to the achievement of such landmarks. As per the provisions of Rule 3(b), the entire sum received thus becomes taxable upon receipt and according to Mr. Prabhakar, has been offered to tax.
25. Instead of such determination by application of the provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not Service Tax Appeal No.70353 of 2019 & 33 71308 of 2018 been offered for service tax. The reporting of income in the P and L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous.
26. It is a well settled position that when a statutory provision or rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision.
31. The petitioner is, admittedly, recognizing revenue under the „Project Completion Method‟ in terms of AS-7 issued by ICAI. We need not, in the present case, concern ourselves with the method followed for the preparation of financials as the same has no impact upon the Point of Taxation Rules. Suffice it to state that the AS provides a certain methodology for the computation of income from projects that is at variance with the method set out under Rule 3.
32. Insofar as Rule 3 sets out a specific modus operandi in this regard, it assumes priority and is the only relevant factor to be taken into account in the determination of point of rendition and accrual of services for the purpose of imposition of service tax. The first issue is answered accordingly.
33. As far as the application of Rule 3 is itself concerned, Mr. Sundar insists that the materials in support of the petitioners‟ stand have not been produced and relies upon the finding in the impugned order to this effect at paragraph 13.5 thereof (extracted earlier). The petitioner has, admittedly, produced the agreements setting out the slabs for payment and an annexure tabulating the receipts, upon completion of each stage of completion of the project before the authorities. It was for the respondent to have looked into the same and called for further information if necessary to assess the receipts in line with Rule 3 of the Rules. Admittedly this has not been done and the Service Tax Appeal No.70353 of 2019 & 34 71308 of 2018 respondent merely adopts the income reflected in the P and L account as the receipts for the purpose of service tax which is contrary to the method set out in Rule 3 for the determination of point of taxation and the quantification thereof.
34. In the light of the discussion above, the impugned order of assessment dated 21-4-2017 is set aside and the matter remitted to the file of the respondent to be re-done de novo strictly in accordance with the provisions of Rule 3 of the Rules and in the light of the observations made in this order after affording due opportunity to the petitioner, within a period of three (3) months from date of receipt of this order."
4.9 In the present case, impugned order proceeds to confirm the demand of tax made by invoking the provisions of these rules, ignoring and even without verifying the fact of payment of service tax by the appellant in respect of the flats sold by the appellant in this project. Appellant have claimed that they have paid the service tax against all the sales made by the under this project on receipt of payment against the sale of flat, which is not strictly as per the payment schedule as per the plan opted by the customers at the time of booking of the flat. The claim made by the appellant in this regards needs to be verified and if the entire amount of tax due in respect of the sale of flats by the appellant in this project, is found correct then the confirmation of demand by invoking the provisions of Point of Taxation Rules, 2011 would amount to double taxation and same would be contrary to Article 265 of the Constitution of India.
4.10 In case of Shubh Labh Reality Ltd. [2021 (52) G.S.T.L. 415 (Tri.
- Del.)] Delhi Bench has held as follows:
"12. The Department has confirmed the interest liability based on the fact that service tax liability arise on the date of sale deed only and as such any amount received subsequently the interest is payable. The relevant provision for adjudicating the same is Rule 3 of Taxation Rules, 2011 which talks about determination about point of taxation. It reads as follows :
Service Tax Appeal No.70353 of 2019 & 35 71308 of 2018 "3. Determination of point of taxation. - For the purposes of these rules, unless otherwise provided, „point of taxation‟ shall be, -
(a) the time when the invoice for the service provided or agreed to be provided is issued :
Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service.
(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment :
Provided that for the purposes of clauses (a) and (b), -
(i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service;
(ii) wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).
Explanation. - For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provision of taxable service, the point of taxation shall be the date of receipt of each such advance."
13. Perusal of this provision, make it abundantly clear that the point of taxation will either be the :
Service Tax Appeal No.70353 of 2019 & 36 71308 of 2018
(a) The time when the invoices issued; or
(b) When invoices not received, the date of completion of provision of service; or
(c) If advance is received then the date when such advance amount is received.
It is observed that the appellant herein has issued the receipt of installment as and when the installment was received no invoice was ever issued by the appellant. The sale deed is a legal documents of the title of property hence cannot be termed as invoice. Also the date of completion of service will be the date when possession of the property is given to the purchaser which shall only be after receipt of sale consideration and the date of receiving final instalment, therefore, later will be the relevant date for determination of point of taxation. The calculation placed on record reveals that the service tax liability has been discharged as and when the payment of requisite instalment has been received by the appellant. Above all, there is no evidence produced by the Department to the contrary. The burden to prove the allegations was upon the Department. Accordingly, I am of the opinion that there is no late payment of service tax by the appellant as is alleged by the Department. Imposition of interest on the ground of late payment is not sustainable."
4.11 In respect of penalty imposed under Section 78 of the Finance Act, 1994, we find that in similar situation where the assessee was paying service tax on the receipt basis and not in accordance with the point of taxation of Taxation Rules, 2011, Ahmedabad Bench has in the case of the Gujarat Power Development Corporation Ltd [Final Order No A/11392/2022-WZB/AHD dated 18.11.2022 ] extended the benefit of Section 80 of the Act, ibid, observing as follows:
"8.3 It is seen that the appellant was paying service tax on the receipt basis and could not have possibly avoided payment of these amounts of service tax. The appellant would have in normal course paid the service tax at the time of receipt of consideration. Invoking Section 80 of the Finance Act, 1994, we are of the opinion that Service Tax Appeal No.70353 of 2019 & 37 71308 of 2018 penalty imposed under Section 78 on this count needs to be set aside. Appeal on this count is partially allowed. The order is upheld except for penalty under Section 78, which is set aside."
This order of the Ahmedabad Bench has been upheld by Hon'ble Supreme Court as reported at [2023 (78) G.S.T.L. J11 (S.C.)]. In the present case we find that the payment of service tax could not have been made as per the Point of Taxation Rules, 2011, for the reason of ongoing litigation in this respect and hence the benefit of Section 80 needs to be extended to the appellant for setting aside the penalties imposed.
4.12 In view of discussion as above we do not find any merits in the penalties imposed on Appellant II and set aside the same.
5.1 Appeals are allowed and the matter remanded to original authority for verification of the fact that appellant has in fact discharged the service tax liability in respect of the flats sold under the project "Gayatri Aura" on receipt basis.
5.2 As the matter is substantially old, adjudicating authority should cause the necessary verification and finalize the matter within three months from the date of receipt of this order.
(Pronounced in open court on-26 June, 2024) Sd/-
(P.K. CHOUDHARY) MEMBER (JUDICIAL) Sd/-
(SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp