2018 (10) TMI 642 - Commissioner - Service Tax

Valuation - includibility - amount collected as Interest free Maintenance Security as a deposit - Section 67 of FA - Whether service tax is leviable on the amount collected as Interest free Maintenance Security (IFMS) collected as a deposit from the flat owners of a housing society? Held that - The reference to section 67 for making IFMS as part of the gross amount chargeable to tax for provision of the said service in the impugned order is not tenable as only advances for the services and actual receipts for provision of the said service can be legible to tax which in this case being the advance deposit of first 18 months and the monthly charges are already covered by service tax and the same was duly paid. The deposit (IFMS) could not be correlated to payment or advance for service. The amount collected as deposit was merely a security and not an advance towards any service charge and hence not includible in value for service tax. Further, the appellants had retained this amount till the stage of transfer of maintenance responsibility to RWA. The repair and maintenance was the responsibility of developer till that stage - The issue of taxability of maintenance charges in such cases was decided by Honourable Tribunal in the case of Kumar Behary Rathi vs. CCE Pune 2013 (12) TMI 269 - CESTAT MUMBAI , where it was held that Such maintenance of the structure is not rendering a taxable service as per s. 65 (64) of the Finance Act, 1994. Demand set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether service tax is leviable on the amount collected as Interest Free Maintenance Security (IFMS) collected as a deposit from flat owners of a housing society.

Issue-Wise Detailed Analysis:

1. Service Tax on Interest Free Maintenance Security (IFMS):
The core issue in this appeal is whether service tax is applicable to the IFMS collected by the appellants from flat owners. The appellants were engaged in providing maintenance services and had collected IFMS as a security deposit to guarantee the payment of maintenance charges and other agreed amounts. This deposit was non-refundable but transferable to a third party, such as a new flat owner or the Resident Welfare Association (RWA), upon transfer of the flat.

The adjudicating authority (AA) had held that the IFMS was essentially an advance payment for services to be provided and thus liable to service tax under Section 67 of the Finance Act, 1994. The AA argued that since the IFMS could be adjusted against arrears of maintenance and other charges, it formed part of the gross amount charged for the provision of services.

Appellants' Main Submissions:
The appellants contended that the IFMS was merely a security deposit and not a consideration for any service provided. They argued that the IFMS was collected to ensure timely payment of maintenance charges and was reflected as a liability in their balance sheet. They further asserted that service tax was already being paid on the actual maintenance charges, both annual and monthly, and that the IFMS had no direct nexus with the provision of maintenance services. Additionally, they argued that any adjustment of IFMS against arrears was duly accounted for, and service tax was paid on such adjustments.

Record of Personal Hearing:
During the personal hearing, the appellants reiterated their stance that the IFMS was a security deposit and not subject to service tax. They emphasized that the amount was shown as a long-term liability in their balance sheet and was refundable or transferable as per the agreement terms.

Discussions and Findings:
The Commissioner examined the facts and submissions and noted that the appellants were already paying service tax on the actual maintenance charges collected. The Commissioner found that the AA had failed to provide cogent evidence linking the IFMS directly to the provision of maintenance services. The Commissioner referred to Section 67 of the Finance Act, 1994, which defines the valuation of taxable services, and concluded that the IFMS did not qualify as consideration for services provided.

The Commissioner also cited the Supreme Court's judgment in UOI & Anr. vs. Intercontinental Consultants and Technocrats Pvt. Ltd. [2018(010)GSTL0401(SC)], which emphasized that service tax should only be levied on the actual consideration for services provided. The Commissioner held that the IFMS was a security deposit and not an advance payment for services, and thus not includible in the taxable value.

Conclusion:
Based on the above analysis, the Commissioner concluded that the IFMS collected by the appellants was not subject to service tax. The appeal was allowed, and the impugned order was set aside. The Commissioner emphasized that the AA's findings were not in conformity with the legal provisions and judicial precedents, and thus, the demand for service tax on IFMS was not tenable.

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