2009 (3) TMI 21 - AT - Service Tax

Demand on amounts collected prior to 1.7.03 for the services rendered on or after 1.7.03 (when service tax was introduced on the commercial training and coaching service) - 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 - since SCN been issued after the period of one year and therefore appeal is allowed on the issue of limitation

Summary

Issues:
- Time limitation for demand of service tax on amounts collected before the introduction of service tax
- Taxability of service tax on amounts collected prior to the introduction of service tax but services rendered after the introduction
- Interpretation of the provisions of the Finance Act 2003 and Notification No. 7/2003-ST dated 20.6.03

Analysis:

Issue 1: Time limitation for demand of service tax
The appellant argued that the demand for service tax for the period from 1.4.03 to 31.3.04, based on amounts collected prior to 1.7.03, is time-barred as the show cause notice was issued on 21.3.06. The Tribunal found in favor of the appellant, stating that the notice was issued after the period of one year, making the entire demand time-barred. Consequently, the appeal was allowed on the issue of limitation with consequential relief.

Issue 2: Taxability of service tax on advance payments
The Department contended that service tax was applicable on amounts received before 1.7.03 for services rendered after that date, citing a previous case in favor of the Department. The Tribunal examined the nature of the liability to tax under Section 65(105)(zzc) introduced on 1-7-2003, emphasizing that the liability to tax is linked to the date of receipt of payment for services in the case of service tax. It was clarified that the date of payment of charges for services is flexible and determined by the agreement between the service provider and recipient. The Tribunal held that the appellant, who received payments in advance for services to be rendered after the introduction of service tax, was still liable to pay service tax, rejecting the argument that no tax was leviable on amounts received before the introduction of service tax.

Issue 3: Interpretation of Finance Act 2003 and Notification No. 7/2003-ST
The Tribunal analyzed the amendments made by the Finance Act 2005, expanding the definition of taxable service to include "services to be provided," allowing for the collection of service tax even before rendering the service. It was emphasized that the main obligation to pay tax arises from the Finance Act 2003 and relevant notifications, regardless of when the payment was received. The Tribunal concluded that the appellant had no vested right to collect fees in advance for services to be provided after 1.7.2003 and upheld the obligation to pay service tax on such advance payments.

In summary, the Tribunal ruled in favor of the appellant on the issue of time limitation for demand of service tax. However, it held that service tax was applicable on amounts received in advance for services to be rendered after the introduction of service tax, emphasizing the flexible nature of payment dates in the context of service tax liability. The Tribunal clarified that amendments to the relevant provisions expanded the scope of taxable services to include advance payments, rejecting the argument that no tax was leviable on such amounts received before the introduction of service tax.