2008 (12) TMI 82 - AT - Service Tax

Leviability of tax on the amount received prior to 1.7.2003, (the date when tax levied on Commercial training or Coaching Centre), when the service was actually rendered after 1.7.03 - Held that the person, who has received value of taxable service in advance would be treated, a person, who collects value of taxable service later - appellants are liable to pay the tax on the value collected prior to 1.7.2003 it is case of interpretation of law, extended period not applicable, penalties waived

Summary

Issues Involved
1. Whether Service Tax is payable on the amount of advance (lump sum payment) received prior to 1.7.2003, when the service was actually rendered after 1.7.2003.
2. Interpretation of the relevant provisions of the Finance Act, 1994, and Service Tax Rules.
3. Applicability of penalty and extended period of limitation.

Issue-Wise Detailed Analysis

1. Service Tax on Advance Payment Received Before 1.7.2003
The core issue was whether Service Tax is payable on advances received before the service became taxable on 1.7.2003 but rendered after this date. The appellants argued that since the service contract and consideration were completed before 1.7.2003, no tax should be levied for services rendered post this date. They cited the Tribunal's decisions in Reliance Industries and Art Leasing Ltd, which supported their stance. However, the Tribunal held that Service Tax is a value-added tax linked to the rendering of services. Since the services were rendered after 1.7.2003, the tax was applicable regardless of when the payment was received.

2. Interpretation of Finance Act, 1994, and Service Tax Rules
The Tribunal examined the relevant provisions of the Finance Act, 1994, and Service Tax Rules. Section 66 of the Act, which is the charging section, mandates that tax is levied and collected as prescribed. Section 67 defines the value of taxable services as the gross amount charged by the service provider. Rule 6(1) of the Service Tax Rules requires payment of tax on the value of taxable services received in a calendar month. The Tribunal noted that the Board's Circular No. 65/14/2003-ST dated 5.11.2003 clarified that tax must be paid on the value of services attributable to the relevant month/quarter on a prorate basis. Thus, the Tribunal concluded that the appellants were liable to pay tax on the advance payments received before 1.7.2003 for services rendered after this date.

3. Applicability of Penalty and Extended Period of Limitation
The Tribunal considered the appellants' argument that the imposition of penalties and the extended period of limitation were not warranted due to the interpretative nature of the legal provisions. The Tribunal agreed, noting that the case involved interpretation of law, and thus, penalties were not justified. Consequently, penalties were set aside, and the benefit of cum-tax was extended to the appellants for the amount realized before 1.7.2003.

Conclusion
The Tribunal upheld the orders on merit, confirming that Service Tax was payable on the advance payments received before 1.7.2003 for services rendered after this date. However, it set aside the penalties and the extended period of limitation, recognizing the interpretative nature of the case. The appeals were disposed of accordingly.