Custom, Excise & Service Tax Tribunal
Ganpati Infrastructure Development ... vs Cgst & Ce Agra on 15 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD
REGIONAL BENCH - COURT NO.I
Service Tax Appeal No.70774 of 2016
(Arising out of Order-in-Original No.AGA-Excus-000-Com-0002-16-17 dated
29/04/2016 passed by Commissioner of Customs, Central Excise & Service
Tax, Agra)
M/s Ganpati Infrastructure
Development Company Ltd., .....Appellant
(Ganesh Plaza, 31/472, C/1,
First Floor, Sultanganj Bye Pass Road, Agra)
VERSUS
Commissioner of Central Excise &
Service Tax, Agra ....Respondent
(113/4, Sanjay Place, Agra)
WITH
Service Tax Appeal No.70775 of 2016
(Arising out of Order-in-Original No.AGA-Excus-000-Com-0002-16-17 dated
29/04/2016 passed by Commissioner of Customs, Central Excise & Service
Tax, Agra)
Shri Nikhil Agarwal, Director, .....Appellant
(M/s Ganpati Infrastructure Development Company Ltd.,
Ganesh Plaza, 31/472, C/1,
First Floor, Sultanganj Bye Pass Road, Agra)
VERSUS
Commissioner of Central Excise &
Service Tax, Agra ....Respondent
(113/4, Sanjay Place, Agra)
APPEARANCE:
Shri Dharmendra Srivastava, Chartered Accountant &
Muhd. Suhail, Advocate for the Appellants
Shri Sandeep Pandey, Authorised Representative for the Respondent
CORAM: HON'BLE MR. P.K. CHOUDHARY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NOs.70418-70419/2024
DATE OF HEARING : 15 March, 2024
DATE OF PRONOUNCEMENT : 15 July, 2024
Service Tax Appeal Nos.70774-70775 of 2016
2
SANJIV SRIVASTAVA:
These two appeals are directed against Order-in-Original
No.AGA-Excus-000-Com-0002-16-17 dated 29/04/2016 passed
by Commissioner of Customs, Central Excise & Service Tax,
Agra. By the impugned order following has been held:-
"ORDER
1. I hereby confirm the demand of Service Tax (including
Education Cess and Sec. & Higher Edu. Cess) amounting to
₹87,65,199.00 (Rupees Eighty Seven Lakhs Sixty Five
Thousands One Hundred Ninety Nine only) (1,35,689.00
(Club or Association Service) + 86,29,510.00 Construction
of Complex Service)] against M/s Ganpati Infrastructure
Development Company Limited, Ganesh Plaza, 31/472,
C/1. First Floor, Sultanganj Bye Pass Road, Agra under
Section 73(1) of the Finance Act, 1994. As the noticee has
already deposited Service Tax amounting to 3,02,701.00,
the same is appropriated against the said confirmed
demand of Service Tax. I drop the demand of Service Tax
amounting to 21,99,154.00 (Rupees Twenty One Lakhs
Ninety Nine Thousand One Hundred Fifty Four only)
against the noticee.
2. I also confirm the demand of interest at appropriate
rates as applicable from time to time till the deposit of
demanded amount of Service Tax from said M/s Ganpati
Infrastructure Development Co. Ltd., Agra under Section
75 of the Finance Act, 1994.
3. I hereby impose a penalty of ₹1,697.00 for the period
from 01.07.2010 to 7th April 2011 (100% of the Tax
evaded) and 43,81,751.00 for the period from 8th April
2011 to 2013-14 (50% of the Tax evaded) total amounting
to ₹43,83,448.00 (Rupees Forty Three Lakhs Eighty
Three Thousand Four Hundred Forty Eight only) upon said
Service Tax Appeal Nos.70774-70775 of 2016
3
M/s Ganpati Infrastructure Development Co. Ltd., Agra
under Section 78 of the Finance Act, 1994, as discussed
above.
4. I also impose a penalty of ₹10,000.00 (Rupees Ten
Thousand only) upon M/s Ganpati Infrastructure
Development Co. Ltd., Agra under Section 77 of the
Finance Act, 1994.
5. I also impose a penalty of ₹1,00,000.00 (Rupees One
Lakh only) upon Shri Nikhil Agarwal, Director of M/s
Ganpati Infrastructure Development Co. Ltd., Agra under
Section 78A of the Finance Act, 1994."
2.1 Appellants premises was searched by the Officers of DGCEI
on 15.03.2013. The said search was conducted in presence of
Shri Anil Agarwal, Director of the Appellant-I. In his statement
recorded on the spot his stated that
Appellants are developing residential complexes namely-
Ganpati City, Ganpati Kings County, Ganpati Classique and
Ganpati World; that Ganpati City Project was almost
completed and delivered, while other 3 projects were
under construction.
In Ganpati City Project they
o bifurcated the amount into two components namely
cost of land and construction cost;
o do not pay any Service Tax on the cost of land
components;
o pay service tax on the component of construction
cost after availing abatement of 67%;
o on whatever amounts are received during the month
they pay service tax in respect of the amount
received.
Regarding all other projects they pay service tax on the
gross amount received during any particular month after
availing 75% abatement.
Service Tax Appeal Nos.70774-70775 of 2016
4
As per the payment plans in installments they first charge
the preferential location charges, covered car parking
charges and club membership charges.
They have not paid service tax after December, 2012
2.2 Subsequently they deposited amount of Rs.6,55,847/- vide
e-payment on 15.03.2013 and Rs.7,24,223/- vide e-payments
made on 18.03.2013 and 20.03.2013. These payments were
reflected by them in their ST-3 returns for the relevant period.
2.2 Further investigations were also made and it was
concluded as follows:-
(i) The notice have not paid service tax as per the Point
of Taxation Rules, 2011 in as much as in his statement
dated 15.03.2013 Shri Anil Agarwal, Director of the noticee
stated that they pay Service Tax on the gross amounts
received during any particular month after availing
abatement.
(ii) The noticee was providing club or association service.
They were charging club membership charges for providing
various facilities. They had also collected amounts under
this head but no Service Tax was paid on the same. The
noticee was also not registered for club or association
service. Shri Nikhil Agarwal, Director of the noticee in his
statement dated 21.01.2014 agreed that till 15.03.2013
they had not paid Service Tax on club membership
charges.
(iii) Shri Nikhil Agarwal stated in his statement dated
05.12.2014 stated that in lieu of club membership fee the
buyers of the flat/houses get the facility of Gymnasium.
Community Hall and other common facilities; that club
membership fee have been charged and received over and
above the price of the plot and construction; that they had
not paid Service Tax on club membership fee received
prior to 31.03.2013 but later on the same amounting to
78,342.00 (ST- ₹57,477,00 + interest- 20,865.00) has
been deposited and intimated vide letter dated
30.09.2014; that all the receipts from customers are
Service Tax Appeal Nos.70774-70775 of 2016
5
considered inclusive of Service Tax and it is paid after
reverse calculation: that the noticee undertook all assets
and liabilities of M/s Ganpati Group of Industries in April,
2012.
(iv) Shri Nikhil Agarwal, Director of the noticee in his
statement dated 21.01.2014 stated that the noticee had
taken up projects - Ganpati City, Ganpati Kings County,
Ganpati Classique, Ganpati World and Ganpati Wonder
City: that all projects are residential; that Ganpati Group
of Industries was a partnership firm which has been
converted into M/s Ganpati Infrastructure Development
Company Limited.
(v) The Noticee vide letter dated 28.08.2014 provided a
summary of CMC (Club Membership Charges) receipts in
Ganpati City- Row House project during 2013-14 alongwith
copies of bank challans for payment of Service Tax
amounting to 78.213.00. However, no interest was
deposited on the late payment. A chart of club
membership fees received by them before 31.03.2013 and
GAR-7 showing payment of Service Tax amounting to
78,342.00 were attached with the letter 30.09.2014 of the
noticee.
(vi) The noticee vide letter dated 13.09.2014 submitted a
chart showing comparison of receipts as per the balance
sheet and ST-3 returns and deposited 277,172.00 and
68,975.00 towards Service Tax short paid for the period
upto March, 2013. They have thus, admitted short
payment of Service Tax, on Construction of Residential
Complex Service."
2.3 Accordingly, liability of service tax was worked out as
detailed in table bellow:-
Category of Service Tax Education Secondary Total
Service Cess & Higher
Education
Cess
Construction 1,05,13,226 2,10,265 1,05,133 1,08,28,664
of Residential
Complex
Service
Club or 1,31,737 2,635 1,317 1,35,689
Service Tax Appeal Nos.70774-70775 of 2016
6
maintenance
Service
1,06,45,003 2,12,900 1,06,450 1,09,64,353
2.4 Alleging various contraventions show cause notice dated
31.03.2015 was issued to Appellant-I asking them to show cause
as to why:-
"(i) Service Tax amounting to ₹1,09.64.353.00 (Rupees
One Crore Nine Lakhs Sixty Four Thousands Three
Hundred Fifty Three only) (i.e. Service Tax amounting to
1,06,45,003.00, Education Cess amounting to 2.12,900.00
and Secondary & Higher Education Cess amounting to
₹1,06,450.00) not paid by them should not be demanded
and recovered from them by invoking extended period
under proviso to Section 73(1) of the Finance Act, 1994;
and the amount of ₹3.02.701.00 (deposited by the noticee
towards Service Tax along with interest thereon) should
not be appropriated towards confirmed dues:
(ii) Interest at the appropriate rate should not be charged
and recovered from them under Section 75 of the Finance
Act, 1994;
(iii) Penalty under Section 76, 77 and 78 of the Finance
Act, 1994 should not be imposed upon them."
2.5 Appellant-II was also issued with a show cause notice,
asking them to show cause, why penalty should not be imposed
on them under Section 78A of the Act.
2.6 These show cause notices were adjudicated as per the
impugned order referred in para-1 above.
2.7 Aggrieved appellants have filed these two appeals before
the Tribunal.
3.1 We have heard Shri Dharmendra Srivastava, Chartered
Accountant alongwith Mohammad Suhail, Advocate appearing for
the appellants and Shri Sandeep Pandey, Authorised
Representative appearing for the revenue.
3.2 Arguing for the Appellants learned Counsel submits that-
The demand made in respect of club and membership fees
should not have been made at all, as the entire demand of
Service Tax Appeal Nos.70774-70775 of 2016
7
Rs.1,35,689/- of service tax due alongwith due interest of
Rs.20,865/- for the Financial Year 2012-13 was deposited
much before the issuance of show cause notice then
invocation of extended period of imposition of penalty in
respect of this demand could not be sustained.
In respect of demand under the category of „Construction
of Residential Complex Service‟ it is submitted that in the
Financial Year 2010-11, 2011-12 2012-13 & 2013-14 the
demands have been made without allowing the cum tax
benefit whereby the taxable value has been computed for
making the demand contrary to the provisions of Section
68 of the Finance Act, 1994.
For the March 2013 and F Y 2013-14 the value of taxable
services in respect of Ganpati City project has been
determined on the basis of gross value without allowing
any abatement. The services provided would be classifiable
as QWork Contract Service and the taxable value should
be determined after allowing abatement of 40% as per
Rule 2A of Service Tax (Determination of Value) Rules,
2006 in case of original works..
Even if the benefit of the said notification is not admissible,
they can avail the benefit of abatement of 67% under
Notification No.1/2006-ST dated 01.03.2006. Such
abatement has been admitted to and accepted by the
Department till February, 2013.
For the Financial Year 2013-14, wrong taxable value has
been taken from ST-3 return. For the said period the total
value of services provided as per ST-3 return
Rs.11,05,12,885/- whereas the value taken is
Rs.9,33,88,359/-. The deferential amount should be
reduced while demanding the taxable value on which tax
was to be demanded.
In the Wonder City Row Houses project the appellant‟s
receipts consist of two components i.e. land receipts and
construction receipts. Construction receipts undisputedly in
lieu supply of material and hence classifiable as work
Service Tax Appeal Nos.70774-70775 of 2016
8
contract and thus, taxable value can be computed by 40%
of construction receipts in accordance with Rule 2A of
Service Tax (Determination of Value) Rules, 2006.
Revenue has clubbed the two receipts and computed
taxable value as 25% of the total, which is without any
basis.
Therefore, taxable value of all the projects for the Financial
Year from 2010-11 to 2013-14 and accordingly the service
tax liability on basis of which demand is confirmed needs
to be re-determined.
If the benefit as claimed by them are allowed the demand
made of Rs.87,65,199/- will be reduced to Rs.18,98,880/-.
Even otherwise, no service tax demand can be made on
the appellant, as the demands are being computed on due
basis, whereas appellant has been maintaining accounts
and depositing service tax on receipt basis. As appellant
has been discharging service tax liability on receipt basis
i.e. as and when the installments were received from the
customers. Therefore, in the successive period when the
installments (which have become due earlier) are actually
received, service tax liability on such is duly discharged by
the appellant. Thus, there is no short payment of tax
liability on the part of appellants. The only demand that
can be made in the present case of interest on late
payment of service tax.
Extended period of limitation cannot be invoked and
penalty could not have been imposed.
Penalty on appellant-II under Section 78A cannot be
upheld for the reason that for imposition of penalty under
this section the Director must be knowingly engaged in
contravention of Act which is not true in the present case.
3.3 Learned Authorized Representative appearing for the
revenue reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned orders along with the
submissions made in appeal and during the course of argument.
Service Tax Appeal Nos.70774-70775 of 2016
9
4.2 Though the appellant have specifically stated that the
search was not proper, in absence of any reasonable belief, we
do not find any merits in the said submission. It is for the officer
issuing the search warrant to make such reasonable belief on the
basis of material placed before him and issue the search
warrant. The reasonable belief entertained by the officer duly
empower to issue such search warrant could not be questioned
by the party searched, unless and until he is in position to show
perversity in issuance of such search warrant. We do not find
any perversity being alleged or established on the basis of
cogent evidences.
4.3 Undisputedly, in respect of Club or Maintenance Services
appellants have discharged the entire amount for service tax
duty (Rs.1,35,689/- along with interest of Rs.20,865/-) much
prior to issuance of show cause notice. That being so even if it is
on the basis of being pointed out during the search operation the
benefit of Section 73 (3) could not have been denied to the
appellant. This amount should have been appropriated towards
the demand made and matter closed by the revenue authorities.
As this amount was to be settled in terms of the said provision,
penalties imposed in respect of this demand needs to be set
aside. Accordingly, penalty amount of Rs.67,845/- imposed
under Section 78 of the Finance Act is set aside.
4.4 In respect of demand under the category of Construction
of Complex Services, we find that appellant have disputed the
composition of taxable value. The relevant findings recorded in
the impugned order are as follows:-
Determination of Taxability under 'Construction of
Residential Complex Service/ Work Contract Service'
In respect of various residential construction
projects undertaken by Noticee from 01.07.2010 to
2013-14.
42. I find that the Department has also raised demand of
Service Tax under the category of Construction of
Residential Complex Service for the entire period covered
Service Tax Appeal Nos.70774-70775 of 2016
10
under the Show Cause Notice (01.07.2010 to 2013-14), as
per provisions contained under Section 65(105) (zzzh)
[Definition of 'taxable service of 'Construction of
Complex']: Section 65(300) [Definition of 'Construction of
Complex']: Section 65(91a) [Definition of 'Residential
Complex'] and declared service of 'Construction of
Complex' w.e.f. 01.07.2012 under Section 66E(b) of the
Act. However, for some part of financial year 2012-13 and
for 2013-14 the noticee has claimed that some of their
construction projects would fall under the category of
declared service of 'Work Contract' and claimed the
abatement on gross amount received in terms of Rule 2A
of the Service Tax (Determination of Value) Rules, 2006 as
amended w.e.f. 01.07.2012 vide Notification No. 24/2012-
ST dated 06.06.2012. In view of the dispute in the
classification of service provided by Noticee, there is need
to discuss the taxability of service and determine the
amount of Service Tax financial year-wise.
Period-01.07.2010 to 31.03.2011
42.1 The Department has calculated the Tax liability for
the period, in the Annexure-A of the SCN, as under:
Project-wise Income from 01.07.2010 to 31.03.2011 (Amount
in Rs.)
Period Name of Project Total
Ganpati Classique Ganpati Kings County Ganpati City
Gross 2963530 40664812 27835211 71463553
Receipts
%age as 25% 25% 33%
Taxable Value
Taxable 740883 10166203 9185620 20092705
Value
Taxable Value declared in ST-3 and Differential
Service Tax liability
(Amount in Rs.)
Gross Value of Taxable Taxable Service Tax payable (Differential)
Receipts Taxable Value Value
Service declared suppressed Service Edu. Sec. &
in ST-3 Tax Cess High. Total
Returns @10% @2% Edu.
of ST Cess@
1% of
ST
71463553 20092705 20046229 46476 4648 93 46 4787
Service Tax Appeal Nos.70774-70775 of 2016
11
42.1.1 Noticee accepted the nature of service i.e.
Construction of Complex Service, however, noticee
pleaded that the Department has rightly calculated the
taxable value shown in ST-3 as ₹2,00,76,229.00 in the
Annexure-A (6/6) but while calculating differential Tax
liability, the figure is taken as ₹2,00,46,229.00. The
noticee further stated that in respect of Ganpati City
Project, the Department has erroneously taken the gross
receipts inclusive of Service Tax and thus the taxable value
excluding Service Tax should be 88.83,664.00 instead of
291,85,620.00.
42.1.2 I find that on going through the taxable value
declared by Noticee in the ST-3 Returns filed for the
financial year 2010-11, the taxable value declared for the
period from 01.07.2010 to 31.03.2011 is ₹2,00,76,229.00
and while calculating the differential Tax liability the figure
has been inadvertently taken by the Department as
₹2,00,46,229.00, thus the suppressed taxable value
calculated to be ₹16,476.00 (2.00,92,705.00-
22,00,76,229.00). I also find that the Director of the
noticee has admitted in his statement dated 05.12.2014
that they undertook 5 residential projects namely Kings
County, Ganpati Classique, Ganpati World, Ganpati City &
Wonder City and they collect Service Tax over and above
the basic sale price and other charges forming cost of
house/ flat. I have also perused the details in respect of
Ganpati City Project provided by the noticee vide their
letter dated 13.09.2014 and find that in the said details,
the noticee has calculated the difference between the
gross receipts shown in Balance Sheet and declared in the
ST-3 Returns in respect of said project and also admitting
the Tax liability on differential amount so calculated
deposited Service Tax amounting to ₹77,172.00 and
68,975.00 vide e- payment Challan Nos. 90057 & 90058
both dated 08.05.2014 respectively for the period from
Service Tax Appeal Nos.70774-70775 of 2016
12
2010-11 to 2012-13. Thus the claim of the noticee that the
gross receipts for the Ganpati City Project are inclusive of
Service Tax is not tenable and cannot be accepted, I find
that Service Tax on differential taxable value of
₹16,476.00 is demandable from the noticee along with
interest for the period from 01.07.2010 to 31.03.2011.
Financial Year 2011-12
42.2 The Department has calculated the Tax liability for
the period, in the Annexure-A of the SCN, as under:
Project-wise Income for F.Y.2011-12 (Amount
in Rs.)
Period Name of Project Total
Ganpati Ganpati Kings Ganpati City
Classique County
Apr.‟11-Jun.‟11 3217500 12701962
Jul.‟11-Sep.‟11 30807239 16079262
Oct.‟11-Dec.‟11 17266387 18731462
Jan.‟12-Mar.‟12 21504834 13141287
Gross Receipts 72795960 60653973 37123168 170573101
%age as Taxable 25% 25% 33%
Value
Taxable Value 18198990 15163439 12250645 45613129
Taxable Value declared in ST-3 and Differential
Service Tax liability
(Amount in Rs.)
Gross Value of Taxable Taxable Service Tax payable (Differential)
Receipts Taxable Value Value
Service declared suppressed Service Edu. Sec. &
in ST-3 Tax Cess High. Total
Returns @10% @2% Edu.
of ST Cess@
1% of
ST
170573102 45613129 11680886 33932243 3393224 67864 33932 3495021
42.2.1 As far as nature of service i.e. Construction of
Complex is concerned, there is no dispute, however,
noticee argued that due to limitation of online return filing
utility, they could not file complete ST-3 Returns and after
taking advice from ACES Helpdesk and local Range Officer,
they filed online Return only for one project le.. Ganpati
City showing faxable value as ₹11,60.886.00 only.
However, they also filed manual ST-3 Returns in the
Department for the said period showing total taxable value
of ₹3,30,01,895.00. For this period also, the noticee
Service Tax Appeal Nos.70774-70775 of 2016
13
pleaded that the gross receipts in respect of Ganpati City
Project is inclusive of Service Tax and thus the taxable
value for this project should be ₹1,18,47,934.00 instead of
₹1,22,50,645.00. The noticee has also submitted copies of
various e-mails sent to ACES Helpdesk and copies of
manually filed ST-3 Returns with copies of e-filed ST-3
Returns and coples of Challans evidencing deposit of
Service Tax.
42.2.2 I find that Noticee was availing benefit of
Notification No. 01/2006-ST dated 01.03.2006 for the
purpose of abatement and calculation of the taxable value
under the Construction of Residential Complex Service.
The noticee has claimed that they were availing abatement
as per Sl. No. 10 & 10(a) of Notification No. 1/2006-ST
dated 01.03.2006 for the projects where the cost of land is
separately recovered from the buyer and where the cost of
land is included in the gross receipts respectively. The
relevant provisions of said notification are re-produced
below:
S. Sub-clause Description of Conditions Perc
No. of clause taxable enta
(105) of service ge
Section 65
(1) (2) (3) (4) (5)
"10. [zzzh] Construction This exemption shall not apply in 33
of Complex cases where the taxable services
provided are only completion and
finishing services in relation to
residential complex, referred to in
sub-clause (b) of clause (300) of
section 65 of the Finance Act.
Explanation- The gross amount
charged shall include the value of
goods and materiah supplied or
provided or used for providing the
taxable service by the service
provider.
10 [zzzh) Construction This exemption shall not apply in 25
(a) of Complex cases where the taxable services
provided are only completion and
finishing services in relation to
residential complex, referred to in
sub-clause (b) of clause (30a) of
section 65 of the Finance Act.
Explanation- The gross amount
charged shall include the value of
goods and materials supplied or
Service Tax Appeal Nos.70774-70775 of 2016
14
provided or used for providing the
faxable service by the service
provider.
This exemption shall not apply in
cases where the cost of land has been
separately recovered from the buyer
by the builder or his representative.
42.2.3 In the case of Ganpati City Project, the noticee was
charging cost of land separately and the same is not
included in the gross receipts of Construction of Residential
complex, therefore, noticee was paying Service Tax on
33% of gross receipts in terms of Sl. No. 10 of Notification
No. 1/2006-ST dated 01.03.2006 and in respect of other
projects, they were paying Service Tax on 25% of gross
receipts in terms of Sl. No. 10(a) of the said notification.
Noticee pleaded that due to problem in filing of online ST-3
i.e. non-acceptance of claim of abatement under Sl. No. 10
& 10(a) by online utility, the noticee has referred the
matter to ACES Helpdesk through e-mails dated
23.11.2011 & 26.11.2011 and also dated 24.04.2012 and
in response the ACES helpdesk replied vide e-mail dated
28.11.2011 to contact Local Range Officer. I find that the
period of 2011-12 was Initial phase of online filing of ST-3
and there were fair possibilities of problems in e-filing of
ST-3 Returns, therefore, the noticee has filed both online
as well as manual ST-3 Returns for both the half-years of
2011-12. The noticee submitted copies of both types of
ST-3 Returns with coples of Challans and copies of
forwarding letters of submission of ST-3 Returns duly
acknowledged by the Department. The details of gross
amount, taxable value and Service Tax paid for the
financial year 2011-12 in respect of abatement claimed
under Sl. No. 10 of Notification No. 1/2006-ST dated
01.03.2006 is same in both e-filed and manually filed ST-3
Returns and in manually filed ST-3, in addition to Sl. No.
10. details of services of Construction of Resi. Complex
under which abatement claimed under Sl. No. 10(a) are
also shown, which are detailed below:
Service Tax Appeal Nos.70774-70775 of 2016
15
(Amount in Rs.)
Period Gross Abatement Taxable Service Tax payable/Paid
Receipts Sl. No. of Value Service Edu. Sec. &
Notfn. Tax Cess High. Total
No.1/2006- @10% @2% Edu.
ST dated of ST Cess@
01.03.2006 1% of
ST
Apr.‟11-Jun.‟11 9098144 10 3002387 300239 6005 3302 309246
Jul.‟11-Sep.‟11 10012440 10 3304105 30411 6608 3304 340323
Oct.‟11-Dec.‟11 7862966 10 2594779 259478 5190 2595 267263
Jan.‟12-Mar.‟12 8423075 10 2779615 277962 5559 2780 286301
Apr.‟11-Jun.‟11 9349257 10(a) 2337315 233732 4675 2337 240744
Jul.‟11-Sep.‟11 18086961 10(a) 4521739 452174 9043 4522 465739
Oct.‟11-Dec.‟11 36370471 10(a) 9092617 909262 18185 9093 936540
Jan.‟12-Mar.‟12 21477343 10(a) 5369336 536934 10739 5369 553042
120680657 33001893 3300192 66004 33002 3399198
42.2.4 find that the noticee has declared the taxable value
as ₹3,30,01,893.00 in the ST-3 Return filed manually and
paid the Service Tax accordingly under the Construction of
Residential Complex Service during the financial year
2011-12, as evident from the copies of e-payment challans
shown in the Returns as well as submitted the copies
thereof, therefore, I accept the taxable value declared in
the manually filed ST-3 Return. Further, plea of Noticee
regarding cum-tax value in respect of Ganpati City Project
has already been discussed in above Para and needs no
further discussion. I thus find that service tax on
differential taxable value of Rs.1,26,11,236.00
(Rs.4,56,13,129.00-Rs.3,30,01,893.00) is demandable
from the noticee along with interest for the financial year
2011-12. The demandable tax, thus comes to
Rs.12,98,957.00; as under:
(Amount in Rs.)
Gross Value of Taxable Taxable Service Tax payable (Differential)
Receipts Taxable Value Value Service Edu. Sec. &
Service declared suppressed Tax Cess High. Total
in ST-3 @10% @2% Edu.
Returns of ST Cess@
1% of
ST
1 2 3 4 5 6 7 8
170573102 45613129 33001893 12611236 1261124 25222 12611 1298957
Financial Year 2012-13 & 2013-14
Service Tax Appeal Nos.70774-70775 of 2016
16
43. The Department has calculated the Tax liability for
the period, in the Annexure-A of the SCN, as under:
Project-wise Income for F.Y.2012-13 (Amount
in Rs.)
Period Name of Project Total
Ganpati Ganpati Ganpati Kings Ganpati City
World Classique County
Apr.‟12 0 2013050 8265687 2670927
May‟12 293125 1858350 4300950
Jun‟12 0 1799525 4094625
Jul‟12 293125 5046762 7170950
Aug‟12 0 3127556 4277900
Spe‟12 0 5133050 2618250
Oct‟12 596300 4212812 18654732
Nov‟12 298652 0 6059775
Dec‟12 5217890 7099216 4190650
Jan‟13 5102067 13440412 21391382
Feb‟13 6458737 2705677 5998662
Mar‟13 2646000 744800 15100382 31139038
Total 20905896 47181210 102123945 33809965 204021016
%age as Taxable 25% 25% 25% 33%(upto
Value Feb.‟13) and
100% w.e.f.
01.03.2013
Taxable Value 5226474 11795303 25530986 32020444 74573207
Project-wise Income for F.Y.2013-14 (Amount
in Rs.)
Period Name of Project Total
Ganpati Ganpati Ganpati Ganpati Wonder City Wonder
World Classique Kings City (G+2) City-Row
County Houses
Apr.‟13 40308388 23482711 8096312
May‟13 4455711 4851875 5881600
Jun‟13 3177787 926100 4914170
Jul‟13 3481077 9116654 9213307
Aug‟13 22747463 16934851 0
Spe‟13 2141375 21220314 6125975
Oct‟13 0 9986979 1577170
Nov‟13 0 5768725 0
Dec‟13 900838 17105791 4939025
Jan‟14 18018127 1498446 0 11215342 8141897
Feb‟14 0 17387282 3024700 31090041 5736139 4229876
Mar‟14 9310816 23989612 8299100 2180822 1927866
Total 104541582 165779340 52071359 31090041 28845964 25355296 407683582
%age as 25% 25% 25% 100% 25% 25%
Taxable
Value
Taxable 26135396 41444835 13017840 31090041 7211491 6338824 125238426
Value
Taxable Value declared in ST-3 and Differential
Service Tax liability
(Amount in Rs.)
Financial Gross Value of Taxable Taxable Service Tax payable (Differential)
Year Receipts Taxable Value Value
Service Tax Appeal Nos.70774-70775 of 2016
17
Service declared in suppressed Service Edu. Sec. &
ST-3 Tax Cess High. Total
Returns @10% @2% Edu.
of ST Cess@
1% of
ST
2012-13 204021016 74573207 47128327 27444880 3293386 65868 32934 3392187
2013-14 407683582 125238426 93388359 31850067 3822008 76440 38220 3936668
Total 611704598 199811633 140516686 59294947 7115394 142308 71154 7328855
43.1 The noticee pleaded that Department has not
considered refunds made by them due to cancellation
during the period from May'12 to Dec.'12 in Ganpati City
project; 100% of gross receipts has been taken as taxable
value from March 13 onwards in respect of Ganpati City
Project; gross receipts has been considered as exclusive of
Service Tax in respect of Ganpati City. Wonder City Row
House & Wonder City G+2 and Department has on their
own added the Land Receipts with the Construction
Receipts to work out faxable value in respect of Wonder
City RH project. The noticee admitted that they were
engaged in the construction of residential complex in all
the projects mentioned in the above Tables including
Ganpati City and Wonder City RH, but the construction
receipts of Ganpati City Project after 01.07.2012 and
Wonder City Row House Project should be treated under
Work Contract and the taxable value should be 40% of
gross Construction Receipts (excluding value of land)
under the provisions of Rule 2A of the Service Tax
(Determination of Value) Rules, 2006.
43.2 I find that no dispute has been raised by Noticee as
far as project under Ganpati World, Ganpati Classique,
Ganpati Kings County are concerned.
43.3 I also find that noticee was paying Service Tax in
respect of services of Construction of Residential Complex
in Ganpati City on taxable value calculated @33% of the
gross receipts in terms of Sl. No. 10 of Notification No.
1/2006-ST dated 01.03.2006, since starting of
Service Tax Appeal Nos.70774-70775 of 2016
18
construction of the project because they were not including
value of land in the amount charged, however, after
introduction of Negative List Regime from 01.07.2012, said
Notification No. 1/2006-ST dated 01.03.2006 was
rescinded and a new Notification No. 26/2012-ST dated
20.06.2012 (w.e.f. 01.07.2012) was issued wherein at St.
No. 12 percentage of taxable value is determined as 25%
for Construction of Residential Complex Service, with the
condition of non-availment of Cenvat on inputs and value
of land to be included in amount charged from service
receiver. As the noticee was not including the value of land
in the amount charged in respect of Ganpati City Project,
therefore, the benefit of the Notification No. 26/2012-5T
dated 20.06.2012 was not available to the noticee against
the receipts of this project. To cope with the new situation
aroused due to rescinding of Notification No. 1/2006-ST
dated 01.03.2006 and issuance of new Notification No.
26/2012-ST dated 20.06.2012. the noticee claimed that
henceforth i.e. from 01.07.2012, the project of
Construction of Residential Complex of Ganpati City shall
be a Work Contract. Similarly, in the case of Wonder City
project (started in 2013-14), the noticee is engaged in the
construction of two types of residential complex i.e. Row
Houses or Independent Houses (RH) and Ground + 2
Floors (G+2) and in respect of Row Houses, the noticee
claimed that the services provided are Work Contract and
claimed abatement accordingly under Rule 2A of Valuation
Rules, whereas, for project under G+2, the services
claimed as Construction of Resi. Complex, I find that
provisions relating to Construction of Residential Complex
Service are contained under Section 65(105) (zzzh)
[Definition of 'taxable service of 'Construction of
Complex']: Section 65(300) [Definition of 'Construction of
Complex']; Section 65/91a) [Definition of 'Residential
Complex'] prior to 01.07.2012 and declared service of
'Construction of Complex w.e.f. 01.07.2012 under Section
Service Tax Appeal Nos.70774-70775 of 2016
19
66E(b) of the Act and the same has already been defined
in the broad heading of Brief Facts of Case of this order,
and for the sake of brevity 1 am not reproducing the same
here again. However, to understand the declared service of
Work Contract, it is necessary to go through the statutory
definition of Work Contract as defined under Section
658(54) of the Act as.
"Works Contract means a contract wherein transfer
of property in goods involved in the execution of
such contract is leviable to tax as sale of goods and
such contract is for the purpose of carrying out
construction, erection. commissioning, installation,
completion, fitting out, improvement, repair,
renovation, alteration of any building or structure on
land or for carrying out any other similar activity or a
part thereof in relation to any building or structure
on land."
43.4 Thus as per the definition of Work Contract, there
must be a Contract wherein transfer of property in goods
involved is there. I also find that Government has also
made provisions of interpretation of specified descriptions
of services in Section 66F of the Act and the relevant
provisions thereof are reproduced below:
"66F. Principals of interpretation of specified
descriptions of services or bundled services._
(1) Unless otherwise specified, reference to a service
(herein referred to as main service) shall not include
reference to a service which is used for providing
main service.
(2) Where a service is capable of differential
treatment for any purpose based on its description,
the most specific description shall be preferred over
a more general description.
Service Tax Appeal Nos.70774-70775 of 2016
20
(3) Subject to the provisions of sub-section (2), the
taxability of a bundled service shall be determined in
the following manner, namely:-
(a) if various elements of such service are naturally
bundled in the ordinary course of business, it shall
be treated as provision of the single service which
gives such bundle its essential character,
(b) if various elements of such service are not
naturally bundled in the ordinary course of business,
it shall be treated as provision of the single service
which results in highest liability of service tax.
Explanation- For the purposes of sub- section (3),
the expression 'bundled service means a bundle of
provision of various services wherein an element of
provision of one service is combined with an element
or elements of provision of any other service or
services."
43.5 I find that the noticee has agreed that benefit of
abatement as conferred vide Notification No. 26/2012-ST
dated 20.06.2012 shall not be available to them in respect
of Ganpati City Project and also in respect of Wonder City
Row Houses because amount charged from the service
receiver do not includes value of land. The noticee also
admitted that they are engaged in the activity of
construction of residential complex in the five such
projects namely Ganpati City, Ganpati Kings County,
Ganpati Classique, Ganpati World and Wonder City [G+2 &
RH]. However, Noficee's claim that Ganpati City and
Wonder City Row Houses fall under Work Contract is not
acceptable as noticee failed to submit copies of any of such
contract, copies of relevant Ledger A/c showing contract
receipts, details of payment of Work Contract Tax (WCT)/
Value Added Tax (VAT) and other relevant details to
substantiate their claim of treating such services as 'Work
Contract'. I have perused a copy of Contract/Agreement
relied upon by the Department in the case in respect of
Service Tax Appeal Nos.70774-70775 of 2016
21
Ganpati City Project. I find that in this case Allotment
Letter has been issued by the noticee to a customer/
service receiver namely Mr. Sandeep K Chetan on
09.02.2013 mentioning therein that.
"We are pleased to allot you Residential Unit No. 43
Type 'B' detailed in Schedule 'A' at the foot of this
allotment letter. The Allotment Price of 18,75,000/-
(Rupees Eight Lac Seventy Five Thousand only) as
on 16-Jan-2013. The Allotment price has been
bifurcated as follows:
Total Land Price Component 74,86,700/-
Total Construction Price Component 23.88.300/-
The advance received by us from you has been
bifurcated as follows......"
43.6 Thus, there are no evidence to substantiate the claim
that said claimed services are work contract. The noticee
has also issued a 'No Objection Certificate to Mortgage to
said Shri Sandeep K Chetan on 09.02.2013. In this case
Sale Deed of Land/ Plot has been signed on 01.03.2013
but the Construction Agreement has been executed on
09.02.2013 itself between the noticee and Shri Sandeep K
Chetan ie. the Residential Unit has been allotted to the
service receiver and agreement of construction agreement
has been made much before the transfer of ownership of
land/plot to service receiver and Agreement of
Construction of House is made between Noticee and buyer
on a plot of land when buyer was not actually a land
owner? Thus, the whole gimmick is for claiming the
benefit, which was otherwise not available to them.
Actually, the noticee has been constructing the whole
projects of Residential Complex under different names of
projects with one or more common facilities like park, lift,
Service Tax Appeal Nos.70774-70775 of 2016
22
parking space, community hall, common water supply or
effluent treatment system etc. but in projects like Ganpati
City and Construction of Row Houses in Wonder Cily, the
noticee has bifurcated the cost of land and construction on
their own as evident from the Allotment Letter, Sale Deed
of Land/ Plot, Construction Agreement etc. Further the
provisions are contained in Section 66F(2) of the Act that,
"Where a service is capable of differential treatment for
any purpose based on its description, the most specific
description shall be preferred over a more general
description". I thus find that Work Contract is general
description as it constitutes various types of work where
transfer of property in goods is involved which may be a
commercial or industrial construction: maintenance or
repair of movable or immovable property; erection,
commissioning or installation; finishing service in relation
of construction work, residential construction etc..
whereas, the construction work carried out by the noticee
is actually construction of residential complexes under
different projects and 'Construction of Residential Complex
is more specific description than the 'Work Contract' for
the services provided by the noticee.
43.7 The noticee has also claimed that the gross amount
in respect of Ganpati City and Wonder City is inclusive of
Service Tax. I find that matter has already been discussed
in foregoing paragraphs. Moreover, in the copy of
Agreement in respect of Ganpati City Project referred
above, at Point No. 6 it is clearly mentioned that faxes like
service tax, sales tax, levy, duty of any nature by central
government. state government and local bodies shall be
payable separately by the second party (le, service
receiver) and the Noticee's Director has admitted that the
Service Tax is being charged from customers separately
over and above the cost of house/ flat. I also find that in
the SCN, while calculating liability against Ganpati City,
Service Tax Appeal Nos.70774-70775 of 2016
23
refunds due to cancellation of bookings (amount shown in
parentheses in the chart enclosed with letter dated
13.09.2014 of the noticee) have been deducted from gross
receipts during the period 2010-11, 2011-12 & 2013-14,
but for the financial year 2012-13 no such consideration is
made in the SCN. Therefore, considering the request of the
noticee, the taxable value in respect of Ganpati City
Project for the financial year 2012-13 is calculated as
under:
(Amount in Rs.)
Relevant Ganpati City Net Receipt % age Taxable Taxable
Month Value Value
Receipt Refund
Up to 30.06.2012
Apr-12 2670927 0
May.12 100000 0
Total 2770927 0 2770927 33% 914406
01.07.2012 Onwards
Jul.12 64930 0
Aug.12 0 195000
Nov.12 0 150000
Dec. 12 0 384850
Mar-13 31139038 0
Total 31203968 729850 30474118 100% 30474118
Grand 33974895 729850 33245045 31388524
Total
43.8 find that the taxable value for the Ganpati City
Project is ₹3,13,88,524.00 instead of ₹3,20,20,444.00 for
the financial year 2012-13. I thus hold that method
adopted by the Department for calculation of taxable value
under the category of Construction of Residential Complex
Service as per the conditions provided in Notification No.
26/2012-ST dated 20.06.2012 for the financial years
2012-13 & 2013- 14 is correct and proper and accordingly
the taxable value for the financial year 2012-13 & 2013-14
is ₹7,39,41,287.00 (₹52,26,474.00+ ₹1,17,95,303.00+
Service Tax Appeal Nos.70774-70775 of 2016
24
₹2,55,30,986.00 +₹3,13.88,524.00) and
₹12,52,38,426.00 respectively on which the noticee is
liable to pay Service Tax under the category of
Construction of Complex Service.
44. I also find that Noticee has shown some amount as
service provider under the category of Work Contract
Service in the ST-3 Returns filed for the financial year
2013-14 and paid Service Tax on abated value of 40%
under Rule 2A of Service Tax (Determination of Value)
Rules, 2006 read with Notification No. 24/2012-ST dated
06.06.2012. The noticee has claimed that the amount
shown under the Work Contract Service is actually the
amount of construction receipts in respect of Ganpati City
Project and Wonder City RW Project but they have not
submitted any document viz. Ledger Account, copies of
Work Contracts, contract receipts, details of payment of
VAT/ WCT, Balance Sheet/ Trial Balance etc. for the
relevant period to substantiate their claim, therefore, it
could not be ascertained that the details of Work Contract
Service shown in ST-3 Returns are actually for these
Residential Complex Projects and not for any other Work
Contracts. Hence the claim of noticee to add the taxable
value of Work Contract for computing the differential
Service Tax liability cannot be accepted."
4.5 We find that claim for appellant on cum tax benefit should
have been allowed to them as has been discussed in the
impugned order and it has been observed that the contracts
entered by the party, provided that the amount of tax due are to
be paid separately over and above the contract value. The said
stipulation in the contract has been accepted by the Director of
the appellant. Section 67 (2) of the Finance Act, 1994 reads as
follows:
"(2) Where the gross amount charged by a service provider, for
the service provided or to be provided is inclusive of service tax
Service Tax Appeal Nos.70774-70775 of 2016
25
payable, the value of such taxable service shall be such amount
as, with the addition of tax payable, is equal to the gross amount
charged."
Interpreting the said provision in case of Shakti Motors [2008
(12) S.T.R. 710 (Tri. - Ahmd.)] following has been held:
"In terms of the above provision if the invoice does not
specifically say that the gross amount charged includes
service tax, it cannot be treated as cum-service tax price.
Therefore in the absence of any evidence to show that
invoices had indeed been prepared in this manner, cum-tax
value benefit cannot be extended..."
Accordingly, we are not inclined to agree with the said plea made
by the appellant that cum tax benefit should be allowed to them
during the entire period of dispute. However we note that the
demands in the present case have been made on the basis of the
Receipts shown in the Book of Accounts which are made on the
basis of the Guidance Note on accounting for real estate
transaction GN (A) 33 (Revised 2012), Accounting Standard - 7
pertaining to Construction Contracts. As per the said guidance
note revenue is recognized on percentage completion method
and no accounting entry is passed on in respect of installments
becoming due from the customers unless the same is received
by the appellant. In our view if the receipts taken are not as per
as invoice issued/ installments paid but on the basis of the book
of accounts then the cum tax benefit needs to be extended to
the appellant. The fact whether the amount of service tax was
collected over and above the contract value as per the terms of
agreement needs to be verified from the invoices issued by the
appellant and relevant records maintained by the appellant in
respect of the installment received. Thus in our view this issue
needs to be re-examined by the adjudicating authority on the
basis of actual receipts project wise and not on the basis of
fictional entries appearing in the books of accounts as per the
above guidance note.
Service Tax Appeal Nos.70774-70775 of 2016
26
4.6 From the table annexed in para no.42.2 it is evident that in
respect of M/s Ganpati Classique and M/s Ganpati Kings County
taxable value has been calculated after allowing the abatement
of 25% and to M/s Ganpati City after allowing abatement of 33%
as per the notification no.1/2006-ST. The benefit of the said
Notification No.1/2006 have been allowed similarly during the
Financial Year 2012-13 (upto February 2013), taxable value
have been computed allowing abatement of 25% in respect of
M/s Ganpati Works Project, Ganpati Classique, Ganpati Kings
County and 33% in respect of M/s Ganpati City. However for the
month of March 2013 and thereafter, the demand has been
made on the entire value of gross receipts in case of Ganpati
City project. It is contention of the appellant that for the period
of March, 2013 and thereafter abatement @60% should have
been allowed for determination of the taxable value in terms of
Rule 2A of Service Tax (Determination of Value) Rules, 2006
provides for a taxable value of 40% of total amounts charged for
work contract. The services provided by the appellant in the said
project and similar project would be only "work contract services
for original works" as the property in the flat sold in the project
is duly passed on to the customer of the appellant, even if the
appellant charges for the cost of land separately. The contention
of the appellant is that the value should have been demanded
after allowing the benefit of abatements i.e. 60% needs to be
looked into. It is not correct as has been alleged that after
February, 2013 the taxable value have to be the gross value
charged, the abatement of 40% claimed for the month of March,
2013 and thereafter needs to be looked into by the Original
Authority for determining the taxable value in respect of M/s
Ganpati Projects.
4.7 It is also evident that during the F.Y. 2013-14, the taxable
value declared into ST-3 returns have been correctly reflected
while making the demand. It is the contention of the appellant
that total taxable value reported in ST-3 returns during the said
period as Rs.11,05,12,885/- is a verifiable fact from the ST-3
returns filed by the appellant. Adjudicating Authority should
Service Tax Appeal Nos.70774-70775 of 2016
27
accordingly reworked out the demand for the F.Y.2013-14 after
determining the correct taxable value as per ST-3 returns and
after allowing the benefit of the abatement as claimed by the
appellant in respect of M/s Ganapati City Projects and similar
projects where the appellant is recovering the cost of land
separately.
4.8 We also find that appellant was discharging service tax
liability due on receipt basis. After insertion of Point of Taxation
Rules, 2011 the liability to discharge the service tax was shifted
to due basis. Undisputedly appellant was maintaining the books
of account on the basis of GN (A) 33 (Revised 2012),
Accounting Standard - 7 pertaining to Construction Contracts
which provide that the receipts are to be accounted on
percentage completion basis. The demand made in the present
case has been made on the basis of entries taken from the book
of accounts. In case of Firm Foundations & Housing Pvt. Ltd
[2018 (16) G.S.T.L. 209 (Mad.)] Hon‟ble Madras High Court has
observed as follows:
"10. Rule 3 finds part in the Point of Taxation Rules, 2011
applicable with effect from 1-4-2011. It provides for a
methodology for determining the accrual and quantification
of services, the exact delivery of which is not certain or
ascertainable, and that may also be continuous in nature.
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.
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
Service Tax Appeal Nos.70774-70775 of 2016
28
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) 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 Service Tax Appeal Nos.70774-70775 of 2016 29 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 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.
Service Tax Appeal Nos.70774-70775 of 2016 30
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 incurred up to the reporting date. Examples of contract costs which are excluded are :
Service Tax Appeal Nos.70774-70775 of 2016 31
(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 paid the appropriate Service Tax.‟ Despite the explanation offered by the petitioner to the effect that it is the Point of Taxation Rules Service Tax Appeal Nos.70774-70775 of 2016 32 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) for the construction of a Three Bed Room Flat measuring 2055 sq. ft. as per the specifications Service Tax Appeal Nos.70774-70775 of 2016 33 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.
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 Service Tax Appeal Nos.70774-70775 of 2016 34 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 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."
The fact of payment of service tax on the receipt basis also needs to be verified, it cannot be so that the service tax is demanded on due basis by taking the figures from the book of accounts and is in actual paid by the appellant on receipt basis.
Service Tax Appeal Nos.70774-70775 of 2016 35 In such situation it would amount to double taxation on such transactions by following different method of computation which is against the Article 265 of Constitution. In case the amount in respect of all the projects has been paid of receipt basis then the benefit of such payments should be allowed while computing the tax demand. However, in such cases also appellants would be liable to pay interest on the total payment of service tax from the due date determined as per Point of Taxation Rules,2011 till the date f payment of service tax.
4.9 As we find that the value of services specifically in respect of consideration of complex services needs to be re-determined for the F.Y.2011-12, 2012-13, 2013-14 after taking into consideration the observations made above, we set aside the impugned order. Remand the matter back to the Original Authority for re-computation of taxable values and service tax due if any by the appellant only in case of Construction of Residential Complex Services. Issues of penalty imposed will have to be re-decided in the remand proceedings.
4.10 Appeal of Appellant-II i.e. Director in the company is allowed as the only finding recorded against him in para 51 of the impugned order which is as follows:-
"51. I also find that Shri Nikhil Agarwal, Director of Noticee was overall incharge of the company and was responsible to the company for the conduct of business of the company and was knowingly involved in evasion of Service Tax and various contraventions of the Act and Rules. In his statement dated 21.01.2014, Shri Nikhil Agarwal stated that he was engaged in decision taking roles of the company. Thus Shri Nikhil Agarwal is liable for penalty under Section 78A of the Act."
Impugned order do not record any reason for which the said Director could be said to be illegally involve in the evasion of service tax. In case of V S Bobba [2021 (52) G.S.T.L. 67 (Tri. - Bang.)], Bangalore bench observed as follows:
Service Tax Appeal Nos.70774-70775 of 2016 36 "6. ..... Further, on merit also, we do not find any material which was considered by both the authorities below while imposing the penalties on these two officers under Section 78A of the Finance Act. The only ground on which both the authorities have imposed penalties is that these officers were negligent whereas we do not find any material to substantiate that allegation against these officers. These officers have merely complied with the agreement entered into between the parties and no knowledge can be imputed on them that they have deliberately violated the provisions of the Act. Further, we find that in the case of Hindustan Steel Ltd. v. State of Orissa, 1978 (2) E.L.T. J159 (S.C.), wherein it was held that penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of it obligation.
Further, we find that in the SCN, it has not been established that these individuals have acted in contumacious manner so as to impose penalty."
Accordingly, penalties imposed upon Director Shri Nikhil Agarwal under Section 78A is set aside.
5.1 Appeal of appellant-I is allowed by way of remand as indicated in para no.4.9 above, matter remanded back to the Original Authority for re-computation of taxable value and demand of service tax.
5.2 Appeal of appellant-II is allowed as indicated in para no.4.10 above.
(Pronounced in open court on- 15 July, 2024) (P.K. CHOUDHARY) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) akp