2016 (10) TMI 1098 - AT - Service Tax

Expenses incurred in connection with maintenance - non-payment of service tax - notional interest - includibility - Held that - From the terms of the agreement, it is evident that the maintenance deposits have been paid by the buyers in terms of the agreement for carrying out the maintenance of the immovable property. From this, it is prima facie evident that the applicant is rendering service under Section 65(64) and service tax is required to be paid. Inclusion of notional interest - Held that - The issue is fairly complex and needs to be gone into in great detail. This would be possible only at the time of detailed final hearing when both sides would be given opportunity for detailed arguments. Under the circumstances, we are of the view that the applicant should be made to deposit around 10% of the total service tax demanded in the impugned order. The applicant are directed to deposit an amount of ₹ 50,00,000/- within a period of eight weeks - Subject to this pre-deposit, the balance amount of service tax demanded as well as the interest and penalties would stand stayed until disposal of the appeal.

Issues:
1. Challenge to Order-in-Original dated 28-10-2013 passed by the Commissioner, LTU, Bangalore regarding service tax on maintenance deposits.
2. Dispute over quantification of service tax on maintenance or repair services.
3. Argument against levy of service tax on maintenance services provided to self.
4. Claim of expenditure incurred as that of a pure agent.
5. Basis for determining the value of taxable service through interest liability on assumed loan.

Analysis:
1. The appeal challenged the Order-in-Original dated 28-10-2013 passed by the Commissioner, LTU, Bangalore, regarding the payment of service tax on maintenance deposits collected by the applicant. The applicant, engaged in construction, collected maintenance deposits from customers for the maintenance of a residential complex. The Revenue authorities contended that the applicant should pay service tax on the maintenance services rendered, including notional interest on the deposits.

2. The dispute centered around the quantification of the service tax on maintenance or repair services. The Revenue authorities calculated the total taxable value of maintenance or repair services by adding the total expenses incurred by the applicant to an additional notional consideration in the form of interest on the maintenance deposits. The appellant argued against this method of calculation, stating that the service was not provided to flat buyers but to themselves.

3. The appellant argued that since the maintenance services were provided to themselves, no levy of service tax should apply. They contended that the expenses incurred were in the capacity of a pure agent, exempting them from paying service tax. However, the Revenue authorities maintained that the maintenance deposits collected by the applicant satisfied the definition of 'maintenance or repair service' under the Finance Act, 1994.

4. The Revenue authorities justified the quantification of the service tax based on the agreements with buyers and the purpose of the maintenance deposits. The Tribunal observed that the maintenance deposits were paid by buyers for the maintenance of the property, indicating that the applicant was indeed rendering a service under the relevant legal provisions.

5. While acknowledging the liability of the applicant to pay service tax, the Tribunal found the quantification of the tax due to be disputable. They directed the applicant to deposit a specified amount as a pre-deposit, pending a detailed final hearing where both parties would have the opportunity for detailed arguments. The Tribunal stayed the balance amount of service tax demanded, along with interest and penalties, until the appeal's disposal.

In conclusion, the Tribunal upheld the liability of the applicant to pay service tax on maintenance services but directed a pre-deposit pending further detailed arguments on the quantification of the tax due.

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