2013 (8) TMI 674 - AT - Service Tax

Service tax demand u/s 73A sale of flats - collection of amount towards service tax but not as service tax - contingent liability department contended that service tax liability would arise under Works Contract Service for prospective customers under the agreement for sale appellant constructed flats for sale - a circular dated 01/08/2006 CBEC clarified that liability to pay service tax is on the person who undertook actual construction and not on the builder Held that - Provisions of Section 73A are not attracted - the appellant cannot be blamed for believing that the amount is required to be collected - It was the Directorate General of Service Tax which issued the circular saying that the amount is required to be collected and - the appellant cannot be blamed for believing that the amount is required to be collected - appellant took the precaution of collecting it as contingent liability and not as service tax per se he also made it clear that in case the outcome of the judicial proceedings emerges in their favour, the amount would be refunded along with interest appeal allowed in the favour of assessee.

Summary

Issues:
1. Interpretation of Section 73A(2) of the Finance Act, 1994 regarding collection of contingent liability towards service tax.
2. Applicability of circulars issued by Directorate General of Direct Tax and Central Board of Excise and Customs on service tax liability in construction activities.
3. Assessment of liability on the appellant for the amount collected as contingent liability.
4. Consideration of the appellant's actions in returning the collected amount after clarification from the Board.

Issue 1: Interpretation of Section 73A(2) of the Finance Act, 1994
The appellant, a construction company, collected a sum as contingent liability towards service tax from flat buyers. The issue revolved around whether Section 73A(2) applied, which mandates the payment of any amount collected but not required to be collected as service tax. The Tribunal analyzed the provision and concluded that since the appellant collected the amount under the belief that it was required, as per a circular by the Directorate General of Service Tax, and later returned it after clarification from the Central Board of Excise and Customs, Section 73A did not apply to the facts of this case.

Issue 2: Applicability of circulars on service tax liability
The Tribunal considered the circulars issued by the Directorate General of Direct Tax and the Central Board of Excise and Customs regarding service tax liability in construction activities. These circulars clarified the tax liability concerning construction of flats for prospective buyers. The appellant had collected sums as contingent liability towards service tax based on the evolving legal position. After a subsequent circular clarified that the amount need not be collected, the appellant returned the money to the buyers, demonstrating adherence to the updated guidelines.

Issue 3: Assessment of liability on the appellant
Following a show cause notice demanding a sum collected as contingent liability, the appellant was adjudicated with a demand for payment under Section 73A(2) of the Finance Act, 1994. The Tribunal examined the circumstances under which the amount was collected and subsequently returned by the appellant. Considering the actions taken by the appellant in collecting the sum and returning it after clarification from the Board, the Tribunal held that the provisions of Section 73A were not applicable to the case.

Issue 4: Consideration of the appellant's actions
The appellant, through their Chartered Accountant, provided evidence that they collected the amount as contingent liability and returned it along with interest following the clarification from the Central Board of Excise and Customs. The Tribunal acknowledged the appellant's proactive approach in handling the situation, returning the money to the buyers once the legal position was clarified. Consequently, the Tribunal allowed the appeal and disposed of the stay application, recognizing the appellant's compliance with the updated guidelines and their prompt action in returning the collected amount.

This detailed analysis of the judgment highlights the key legal issues, interpretations of relevant provisions, and the Tribunal's decision based on the facts and legal principles involved in the case.