2015 (1) TMI 727 - AT - Service Tax

Denial of an exemption - Availment of 67% abatement under Notification No. 15/2004-ST dated 10.09.2004 and Notification No.1/2006-ST dated 01.03.2006 - Demand of interest - Receipt of advance - Held that - during the relevant period the rate to tax applicable was rate of tax prevailing on the date of providing the service. Therefore before the service was provided the appellants would have been in no position to know as to at what rate to pay the service tax. The service tax was paid as and when the service relating to advance received was rendered. In this view of the matter it is not possible to sustain the order relating to recovery of impugned interest. It was only on 18.05.2012 that Section 67A was introduced which provided that the rate of service tax value of taxable service and the rate of exchange if any shall be the rate of service tax or value of taxable service or rate of exchange in force as applicable at the time when the taxable service has been provided or agreed to be provided. Obviously Section 67A would only have prospective applicability. Thus to reiterate as the advance received by the appellants has been adjusted in due course as and when the service was provided coupled with the fact that unless the service was provided the rate at which the service tax was to be paid would not be known it is not possible difficult to sustain the order with regard to confirmation of the impugned interest. - Following decision of M/s Bhayana Builders (P) Ltd. vs. CST Delhi 2013 (9) TMI 294 - CESTAT NEW DELHI (LB) - Decided in favour of assessee.

Summary

Issues:
1. Confirmation of service tax demand on the ground of denial of exemption notification.
2. Confirmation of service tax demand on advance received from service recipient.
3. Imposition of penalty under Section 78 of the Finance Act.

Analysis:

Issue 1:
The appellants appealed against the order confirming a service tax demand of &8377; 89,74,621/- due to the denial of an exemption notification. The demand was based on the appellants availing 67% abatement under specific notifications which were deemed incorrect as the cost of materials used in providing the taxable service was not included. The appellants argued that the definition of gross amount charged in the relevant notification was ultra vires Section 67 of the Finance Act, 1994. The Larger Bench decision in the case of M/s Bhayana Builders (P) Ltd. vs. CST, Delhi had already settled this issue in favor of the appellants. Consequently, the demand of &8377; 89,74,621/- was deemed unsustainable.

Issue 2:
Regarding the demand of &8377; 18,54,468/- confirmed on the advance received by the appellant, it was noted that the show cause notice acknowledged that service tax on the advance was subsequently paid. The appellants did not contest this demand. The order also imposed interest of &8377; 2,76,359/- on delayed payment of service related to the advance received. However, during the relevant period, the rate of tax applicable was determined at the time of providing the service. As the service tax was paid when the service was rendered, and the rate of tax was unknown until then, it was deemed unsustainable to recover the interest. Section 67A, introduced later, clarified the rate of service tax to be applicable at the time of providing the taxable service, but this provision had prospective applicability. Therefore, the order confirming the interest was not sustainable.

Issue 3:
A penalty of &8377; 1,08,29,089/- was imposed under Section 78 of the Finance Act. However, based on the analysis of the above issues and the subsequent allowance of the appeal, the penalty imposed was not specifically addressed in the judgment.

In conclusion, the appeal was allowed based on the unsustainable nature of the service tax demands and interest imposed, as detailed in the judgment.