2008 (10) TMI 34 - AT - Service Tax

Respondent providing coaching for various entrance exams - As the services have been actually rendered prior to 1.7.03, the payment received earlier does not make it as service charges attributable to services rendered prior to 1.7.03. Therefore, service tax is payable - However, the Commissioner (A) finding that nondisclosure of value received before 1.7.03 against coaching services was due to bona fide interpretation Act/Rules and can t be considered as suppression does not need interference

Summary

Issues:
1. Whether service tax is leviable on advance fees collected for coaching services prior to the introduction of service tax.
2. Whether the amendments to Section 65(105) and Section 67 by the Finance Act 2005 impact the liability to pay service tax on advance payments received for services to be provided later.

Analysis:

Issue 1:
The case involved a dispute regarding the levy of service tax on advance fees collected for coaching services before the introduction of service tax. The Department issued a show cause notice proposing a demand for service tax and penalties. The original authority confirmed the demand, but the Commissioner (Appeals) set it aside, ruling that service tax was not leviable on payments received before the introduction of service tax. The Tribunal disagreed with the Commissioner's decision, stating that the main obligation to pay tax arises from the Finance Act, 2003, and services were brought into the tax net by a specific notification with effect from 1-7-03. The Tribunal held that even if amounts were collected in advance, it was still possible to raise an invoice indicating the service charges and the service tax payable. Therefore, the Tribunal concluded that service tax was payable on services actually rendered before 1-7-03, regardless of when the payments were received.

Issue 2:
Regarding the impact of the amendments to Section 65(105) and Section 67 by the Finance Act 2005, the Tribunal analyzed the changes in the provisions of the Act and the Rules. The amendments expanded the definition of taxable service to include 'services to be provided,' allowing for the collection of service tax even before the services were rendered. The Tribunal highlighted that the amendments aimed to address situations where advance payments were received for services to be provided later. It emphasized that the date of payment of tax was linked to the date of receipt of charges for the services, and the liability to tax was not extinguished by changes in due dates for payment. The Tribunal clarified that the amendments permitted the collection of service tax on advance payments for services to be provided in the future. Therefore, the Tribunal upheld the original authority's decision on the applicability of service tax on advance payments received for services to be provided later, in line with the amendments introduced by the Finance Act 2005.

In conclusion, the Tribunal modified the Commissioner (Appeals) order, upholding the original authority's decision on the levy of service tax on advance payments for coaching services rendered before 1-7-03. The Tribunal also affirmed that the amendments by the Finance Act 2005 allowed for the collection of service tax on advance payments for services to be provided later. The appeal was disposed of accordingly, providing relief to the party only on the ground of limitation.