Custom, Excise & Service Tax Tribunal
Neo Structo Constuction Private ... vs Surat-I on 5 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
AHMEDABAD
REGIONAL BENCH, COURT NO. 3
SERVICE TAX APPEAL NO. 11560 OF 2014
[Arising out of OIO-SUR-EXCUS-001-COM-061-13-14 dated 09/01/2014 passed by
Commissioner of Central Excise, Customs and Service Tax-SURAT-I]
BILFINGER NEO STRUCTO PVT LTD Appellant
Sunny Side, East Block, Ground Floor, 8/17,
Shaffee Mohammed Road, Rutland Gate,
Off Greams Road, Chennai,
Tamil Nadu,
Vs.
COMMISSIONER OF CENTRAL EXCISE & SERVICE
TAX-SURAT-I Respondent
New Building...Opp. Gandhi baug, Chowk Bazar, Surat, Gujarat-395001 Appearance:
Shri Jigar Shah & Shri Amber Kumrawat, Advocates for the Appellant Shri Girish Nair, Assistant Commissioner (AR) for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER ( JUDICIAL ) HON'BLE MR. C. L. MAHAR, MEMBER ( TECHNICAL ) FINAL ORDER NO._11508/2024 Date of Hearing : 06.03.2024 Date of Decision : 05.07.2024 C. L. MAHAR The brief facts of the matter are that the appellant are engaged in providing taxable services in the category of (i) erection, Commissioning or installation (ii) maintenance and repair service (iii) good transportation by road service (iv) man-power recruitment supply agency service etc. During the course of audit it by the department of the appellant's financial records it was noticed by the department that appellant had received certain advanced payments from their prospective clients. The department was of the view that as per the explanation 3 provided under Section 67 of the Finance Act, 1994, the appellant should have discharged the service tax on gross amount charge for taxable service which as per the explanation 3 included amount Page |2 ST/11560/2014-DB received in advance towards taxable services before, during or after provision of such service. A show cause notice dated 18.09.2012 came to be issued demanding service tax of Rs. 2,81,05,210/- under section 73 (1) of the Finance Act, 1994 by invoking the extended time proviso, the provision interest under section 75 and penalty under section 76 and 78 of the Finance Act, 1994 have also been invoked. The matter had been adjudicating by the impugned order in origin dated 09.01.2014 whereunder all the charges as invoked in the show cause notice has been confirmed by the learned adjudicating authority.
2. The learned advocate appearing for the appellant had submitted that the appellant has entered into various contracts for undertaking work of erection, Commissioning, fabrications of / machineries etc. since the services to be provided by the appellant to his clients required heavy investment in capital goods. The appellant used to receive a lump sum amount as an advance from its customers wherein, the appellant has to provide a bank guarantee, to their clients from any schedule commercial bank recognized by the Reserve Bank of India.
2.1 The learned advocate submits that as far as the leviability of service tax on the advance received by the appellant is concerned the taxable event in this case is actually rendition of the service and receipt of any advanced payment in the form of loan is not the taxable event. The learned advocate has submitted that the advances, which were received by the appellant from its client are later on adjusted in the bills raised by them completion of various stages of the contract and therefore the advances in the nature of money are not liable to tax as at the time of receipt of such advance no service has been rendered by them. In support of above submission, the appellant has relied upon the decision of this tribunal in case of CCE Vs. Thermax Engineering Contraction Company Limited reported under 2017 (12) TMI 1191-Cestat Mumbai. The learned advocate has also cited decision Page |3 ST/11560/2014-DB of this tribunal in case of Commissioner of Central Excise Pune Vs. Thermal Engineering Construction Company Ltd reported under 2019 (22) G.S.T.L. 80 (Tri. Mumbai) as well as Gammon India Limited Vs. Commissioner of Service Tax (vi) Mumbai reported under 2021 (44) GSTL 373 (Tri. Mumbai).
3.3 The learned advocate has also contended that the impugned order in original has been issued in utter violation of principals of the natural justice as no personal hearing has been accorded to the appellant and the impugned order has been passed ex-parte.
3.4 The learned advocate has also argued that for the demand period 2010-11 to 2011-12, the show cause notice has been issued on 26th August, 2013 by invoking the extended time proviso under section 73(1) of the Finance Act, 1994. The learned advocate has submitted that the appellant have regularly been audited by the department and all the transactions are available in the books of accounts since, there is a complete transparency on the part of the appellant, The department had no any reason of invoking the extended time proviso for demanding the service tax under section 73 (1) of Finance Act, 1994 as the elements of any fraud, collusion, mis-statement or suppression of facts with an intend to evade service tax are not available in this case.
3. We have also heard the learned departmental representative Shri Girish Nair, Assistant Commissioner who has reiterated the findings has given in the order in origin.
4. Having heard rival submissions, we find that only issue which is to be decided by us is whether of an advance payment received by execution a particular contract can be considered as an advance payment towards rendering the service by the appellant. In this case, from the facts of matter we find that the entire amount of advance was received by the appellant in the nature of a loan for purchasing of necessary capital goods, which were Page |4 ST/11560/2014-DB required for execution of the service contract obtaining such advance/loan.
Same was backed by the appellant by providing bank guarantee of equal amount to the provider of such advance. i.e. service recipient.
We also find that subsequently, as per the contract between the appellants and its customers, the advances so received were adjusted towards supply of service charges. We agree with the submissions of the appellant that the advances are adjusted against the bills received on completion of stages of the contract and therefore same are in the nature of earnest money and not liable to tax at the time of receipt. We also agree that if contract does not materialize the advance has to be returned back to the customer. We also take note of the fact that advances were received prior to rendition of service and without specifying a particular stage of service. We therefore hold that no event of rendition of service took place and therefore no service tax can be levied on such amount of advance.
4.1 This tribunal in case of Commissioner of Central Excise Pune Vs. Thermax Engineering Construction Company Ltd reported under 2019 (92) G.S.T.L. 80 (Tri. Mumbai) as held similar view on the similar facts the relevant extract of the above mentioned decision are reproduce here below:
"2. Brief facts of the case are that M/s. Thermax are engaged in "Commercial & Industrial Construction Service" and are pay service tax on the same They were issued show cause notice, dated 22-10-2010 proposing demand on the ground that they have not net paid service tax on receipt of advance from their customer which were later adjusted against the bills received on completion of stages of the contract and tax was paid on 5th of the following month when the invoices for services were raised Thus liable to pay interest on same and are also liable to pay service tax on advance appearing in their books Further demand raised on the ground that M/s Thermax has availed full credit on the amount of service tax on their input services whereas they have retained certain portion of the total amount to be paid to vendors as safeguard against completion of their various projects in the form of retention amount is "retention amount and thus they were required to take proportionate credit The credit pertaining to inadmissible and in required to be paid along with interest. It was also alleged that M/s Thermax were sending their Engineers abroad for the supervision erection 3 commissioning as per the contract entered with M/s. Thermax Ltd. who paid remuneration to the appellant in Indian currency The consideration received for services rendered abroad does not amount to Export of Service and hence they are required to pay service tax on the consideration under the category Page |5 ST/11560/2014-DB of Consulting Engineers It was also proposed to impose penalty and charge interest on aforesaid demands.
6. We have carefully considered the submissions made by both the sides In case of Advance receipt from the customers we find that amount was received by the assessee as security/guarantee amount which spread over years, the service provider needs to have specific performance guarantee from their customer. The in turn of such security amount has issued Bank Guarantee amount obvious that for big contract Chettinand Cement Corporation Ltd, produced by the Appellant that it provides for Advance cum- security and in turn the to their customer. We find from the contract with assessee is liable for equal amount of performance security Bank Guarantee Thus the amount is guarantee from both the sides. Such amount cannot be considered as advance receipt since it is normal feature of contracts. Even the Hon'ble Supreme Court in case of Shri Hanuman Cotton Mills and Ors. v. Tata Aircraft Limited, AIR 1970 SC 1986 held that the amount is to be in case considered as earnest money if following principles are followed:
(i) It must be given at the moment at which the contract is concluded.
(ii) It represents the guarantee that the contract will be fulfilled or contract.
other words, "earnest is given to bind the
(iii) It is a part of purchase price when the transaction is came out.
(iv) It is forfeited when the transaction fall through by reason of failure of the purchaser.
(v) Unless there is anything to the contrary in the terms of the contract on default committed by the buyer, the seller is entitled to forfeit the earnest.
7. We find that in the appellant's case the above principles are equally applicable and hence there is no doubt to our mind that the advance cum- security bank guarantee to the assessee by the contract awarding party is in the form of earnest money. Thus the same is not liable to tax. x. It is also found from the certificate issued by the Chartered Accountant that the of such advances We thus find no reason to hold that the asseessee has discharged service tax liability on the entire amount said amount is liable to be taxed at the time of receipt. It became the part of consideration only when it was proportionately included in the stage-wise completion of work for which invoices were raised and service tax was paid by the assessee. Even if it is assumed that the said amount was not in the form of earnest money but was received as Advance. in that case also no service tax could have been demanded at the time of receipt as the same was not taxable in case of Mis. Thermax Instrumentation Ltd CCE. 2015-TIOL-2736-CESTAT-MUM 2015 42 5 19 (Tn. -Mumbai) the Tribunal held that advance cannot be considered as receipt towards taxable service as it is an ooligation on the part of the customer of the mutual commitment between the two parties to honour the contract Similarly in case of CCE Ludhiana v JR. Industries, 2009 Táj STR 51 (Tri. Del) it was held that when service was not provided the advance receipt cannot be taxed. We thus hold that there is no service tax liability on advance received by the assessee and set aside the demands and penalties confirmed against M/s Thermax.
8. As regard appeal filed by the department against dropping of demand on retention money and on Export of Service we find that though the amount against supply of services by the sub-contractors was retained by the assessee but the amount of service tax was paid in full to the supplier/vendor The amount was retained by the assessee in terms of understanding between Page |6 ST/11560/2014-DB the assessee and their vendors and not due to non-payment The same was agreed to by both the parties. The Tribunal in similar cases of CCE, Jaipur v. Hindustan Zinc, 2014 (34) S.T.R. 440 and Patel Airfreight v. Commissioner, 2014 (35) S.T.R. 529 (Tri.) has allowed the credit. Even the Board Circular No 122/3/2010-ST dated 30-4-2018 permits the credit where the amount of service tax has been paid in full to the provider of services or goods We thus do not find any reason to take a different view from the adjudicating authority and hold that the credit is available to the assessee in such circumstances.
9. Similarly in case of non-payment of service tax on Engineers sent abroad we find that it is not in dispute that the services were rendered abroad It is also not in dispute that the main contractor of the assessee received the consideration in foreign currency who in turn made payment to the assessee. In such case we find that the services rendered by the assessee falls under the Export of Service which is eligible for exemption from service tax. Our views are also based upon the orders in cases of Suprasesh General Insurance Ser. & Brokers P Ltd CEST 2015 TIOL-2225- HC-MAD HC 2016 (41) STR. 34 (Mad) Nipurna Services Lid v. CCE. CUS & ST. 2009 (14) STR 706 Paul Merchants Ltd v CCE, Chandigarh, 2012-TIOL- 1877 CESTAT DEL We thus hold that the assessee is not liable for payment of service tax on services rendered abroad."
4.2 Similar view has also been taken by this tribunal in case of M/s.
Gammon India Ltd Vs. Commissioner of Service Tax V, Mumbai reported under 2021 (44) G.S.T.L. 373 (Tri. Mumbai).
2. The demand is founded on the factual matrix of mobilization advance having been received by the appellant in pursuance of contracts entered into with recipients of services rendered by them applied to the legal framework established by amendments to Section 67 of Finance Act, 1994 in 2005, 2006 and 2008 the clarification issued in Circular No B1/6/2005-TRU dated 27th July with effect from 2005 of Central Board of Excise & Customs (CBE 1st June central Board &C and taxability of works contract service so rendered 2007 by the newly incorporated Section 55(105)(zzza) of Finance Act 1994 which according to the adjudicating authority overcomes the strenuous defence put forth by the notice.
4. Learned Authorized Representative places particular emphasis on Section 67(3) of Finance Act, 1994, the proviso to Rule 6 of Service Tax Rules, 1994 and the circular of Central Board of Excise & Customs (CBE &C). According to him, the decision of the Tribunal in Central Power Research Institute v Commissioner of Central Excise, Bhopal (2017-1101-2504- CESTAT DEL 2017 (6) G.S.TL. 42 (Tri Del)) has placed the decision in re Thermax instrumentation P. Lid to mobilization advance in the proper perspective and further urges us that the decision in Sunil Hi-Tech Engineers Lid v. Commissioner of Central Excise, Nagpur [Final Order Nos. A/88355- 88356/17, dated 13th July, 2017 disposing of Appeal Nos. ST/85373 & 85379/13] makes it abundantly clear that it was considered normal for all providers of works contract services to concede taxability of 'advance at the stage of receipt.
Page |7 ST/11560/2014-DB
5. Other than expansion of the taxpayers by incorporating more services within Section 55(106) of Finance Act, 1994, the tax mechanism has been guided by two guiderails: convenience of enforcement exemplified by deeming gross amount received by the service provider from the recipient, to be the taxable value and unjust retention which is premised on the inclusion of tax component in every payment. The construction placed upon statutory provisions, in the light of these, and the construing of every monetary transaction between recipient and the provider as consideration for taxable service are manifested in the several disputes between the tax authorities and assessees. It is of interest to note that, since the issue of the impugned order, several changes by statutory enactment and by judicial determination- have intervened to restrain the administration within the constitutional mandate of Article 265 of Constitution of India.
6. Much emphasis has been placed by the adjudicating authority, as well as by Learned Authorized Representative, on the unarguable implications of amendment to Sections 65 and 67 of Finance Act, 1994. The first of such was the incorporating of or to be provided in Section 67 to enlarge the reach of the taxable services and the insertion of Explanation 3 below by Finance Act, 2005 The second, effected in 2004, is the incorporation of Explanation below the proviso in Rule 5(1) of Service Tax Rules, 1994. The combined consequence. in the finding of the adjudicating authority, is that advance is payment of consideration for taxable services to be provided and, hence, liable to tax upon receipt. The explanation offered by the appellant of discharge of tax liability on the entire contractual value did not find favour with the adjudicating authority in the absence of details pertaining to the payment. On the other hand, we also do not find any evidence that is on record in the impugned order. of any tax liability remaining unpaid on the contracted value and the only finding that emanates from the impugned order is that the liability was not discharged on receipt. The consequence of such delayed discharge could only have been liability to interest. To that extent the impugned order is flawed and tangential 7. With the notification of Point of Taxation Rules, 2011, effective from 1 April 2011 there can be no doubt about the intention to collect tax on payment, received in advance of performance of service for which that, in part or wholly consideration, being made manifest. In the context of this dispute, in which the appellant claims to be compliant with the said Rules, the liability to tax on advance payment is the first issue for consideration Undoubtedly, the definition of taxable service and the value to be adopted for assessment, in accordance with Section 67 of Finance Act, 1994, incorporate to be provided and is not restricted to provided or 'rendered. Therefore, it can be construed that Point of Taxation Rules, 2011, though envisaging tax liability on consideration received an advance, cannot be perceived as the original expression of legislative intent as any comprehensive statutory instrument is bound to encompass the existing provisions, this is particularly so as the notification of the said Rules tax was levied on 'receipt basis and not on accrual basis. The recognition of this principle did not derogate from the inclusion of 'advance payments in the grouping of 'receipts that were always liable to tax. We are not convinced by the arguments put forth on behalf of Revenue, that the amendment to Rule 6(1) of Service Tax Rules, 1994 or the incorporation effected in Section 67 of Finance Act. 1994 were intended to tax all payments at the time of receipt. From a plain reading of the newly inserted Explanation in the Service Tax Rules 1994 it would appear that intent was to ensure the distribution of the said advances to the month, quarter or such other period to which the rendering of service could be attributed The Explanation in Section 67 of Finance Act, 1994, doubtlessly qualified the inclusions in gross amount Page |8 ST/11560/2014-DB which, owing to subsequent judicial pronouncements can only be assigned presently The decision in re Sunil Hi-Tech Engineers Ltd a very restricted frame and to which we shall turn our attention was not called upon to determine this issue but to decide if the proceedings could continue in the light of prompt payment of computed liability mere acceptance of a proposition of Revenue by one or more assessees is no measure of the sanctity of interpretation by the tax administration. In re Central Power Research Institute the taxability of the service for which payment was received in advance was not in dispute, therein, the security deposit sought from clients before undertaking the service to be rendered presented as a business model, and the claim of the appellant of the issue being limited to delayed payment of lax to be ascertained by the tax authority was
8. The Hon'ble Supreme Court in Union of India v intercontinental Consultants and Technocrats Pvt. Ltd (2018 (10) G.S.T.L. 40 (SC) has held that the latitude available in the commodity tax statutes pertaining of manufacture of import of goods for construing the valuation provision on its own is not extended to Finance Act, 1994 in which the charging provision controls Section 67 of Finance Act, 1994, consequently gross amount therein is not the entirety of receipts but only as is relatable to the service rendered impliedly a monetary transaction between two persons does not purport to be for taxable services alone and to the extent of attribution to a service that is not taxable is not liable for inclusion in the computation of tax liability Hence the consideration that is not attributable to taxable service cannot be presumed to be inclusive of t ax element and thereby to be subject to tax whether received an advance or subsequently.
9. The several contracts provide for the payment to be made at different, pro-determined stages of performance and are, generally, subject to evaluation of the work undertaken. It is payments, is not undertaken until after the execution of the work also seen that such appraisal, as a prelude to making in relation the contracts, while linking such measurable stages, provide for payment the work. The 'mobilization advance to the taxable service has commenced and that all of only 90% of contracted amount for the entirety of the work. The 'mobilization advance' is adjusted against the final payment due and is not linked to the work but as a pledge of the contract between the appellant and principal. It is also subject to furnishing of prescribed bank guarantee, there is no connection with the performance of the contract It is not in dispute that the 'mobilization advance, carrying interest, is granted to enable the contractor to prepare for undertaking the contracted work. The subsequent adjustment with the final payment due does not suffice to construe this as an advance payment for the work to be done merely because the recipient and payee happened to be the provider of service. The payment of 'mobilisation advance' is but a separate financial transaction within the contract for providing of service and, within the limits laid down by the Hon'ble Supreme Court in re Intercontinental Consultants and Technocrats Ltd., is not permitted to be included in the 'gross amount' envisaged in Section 67 of Finance Act, 1994 We may also like to emphasise here that the issue of 'mobilisation advance', especially in the examination of its nature, has not been considered in the decisions cited by Learned Authorised Representative.
10. For the above reason, and in view of absence of allegation that any part of the contracted value has not been levied to tax, we hold that the demand is not consistent with law and deserves to be set-aside."
Page |9 ST/11560/2014-DB Since, the facts of the matter at hand are similar to the one which has been decided by this tribunal in above cited cases, we follow the same and hold that the impugned order in original is without any merit and therefore we set aside the same.
5. Accordingly appeal is allowed.
(Order pronounced in the open Court on 05.07.2024) (RAMESH NAIR) MEMBER ( JUDICIAL ) (C. L. MAHAR) MEMBER ( TECHNICAL ) Dharmi