2017 (1) TMI 31 - AT - Service Tax

Mobilization advances - penalty - The appellants received advances from service recipient and adjusted such amount towards the payment that has to be received from service recipient - Held that - The decision in the case of Thermax Instrumentation Ltd., Vs. CCE, Pune-I 2015 (12) TMI 1222 - CESTAT MUMBAI relied upon by Ld. Counsel covers the issue in hand. The Tribunal in the said judgment held that the demand of service tax on advances received is unsustainable when asessee has paid service tax on the total value of services periodically deducting the same from the advances received - penalty not imposable - demand of interest upheld - appeal disposed off - decided partly in favor of appellant.

Summary

Issues:
Challenge to demand confirmation under Section 75 and penalty imposition under Sections 76, 77, and 78 of the Finance Act, 1994.

Analysis:

1. Confirmation of Demand and Imposition of Penalty:
The appellant challenged the confirmation of demand under Section 75 and imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The dispute arose from the department's view that the appellants should pay service tax on mobilization advances received. The appellants argued that they had already discharged service tax on the amount received towards the consideration for services provided. Despite this, the department raised a demand for interest, contending that service tax was due from the date of receiving the advances. The original authority confirmed the demand and imposed penalties, which were upheld by the Commissioner (Appeals), leading to the current appeal.

2. Appellant's Argument and Department's Response:
The appellant's counsel contended that the mobilization advances were not subject to interest payment as they were meant for the service recipient, who had advanced the amount. The appellant had provided a bank guarantee as security when receiving the advances, indicating that they were not payments for services rendered. The appellant adjusted these advances against the consideration due from the service recipient, paying service tax on the adjusted amount. The appellant's balance sheet also reflected these advances as liabilities. In contrast, the department argued that the advances constituted consideration for services provided, making the appellants liable for service tax, interest, and penalties.

3. Judgment and Precedent:
After hearing both sides, the tribunal focused on the issue of penalties. Citing the case of Thermax Instrumentation Ltd. vs. CCE, Pune-I, the tribunal found that demanding service tax on advances when the assessee had already paid tax on the total service value periodically was unjustified. Therefore, the tribunal held that the penalties imposed were unsustainable, following the precedent set by the aforementioned case. Consequently, the tribunal modified the order by setting aside the penalties while upholding the confirmation of the interest demand. The appeal was partly allowed in this regard, with the stay application being disposed of accordingly.

In conclusion, the tribunal's judgment addressed the challenge to the demand confirmation and penalty imposition, emphasizing the distinction between mobilization advances and service consideration. The decision provided clarity on the applicability of penalties in such cases, drawing on relevant legal precedents to support its findings.