2018 (11) TMI 1219 - AT - Service Tax

Levy of service tax - Construction Services - Amount received in advance - abatement under N/N. 1/2006/ST dated 1/3/2006 - whether the appellants were required to pay the service tax on the amount received by them from the prospective buyers, In advance? - extended period of limitation - penalty. Held that - No doubt as per section 67 of the Act a person in the case where the provisions of service is for consideration in money, is liable to pay the service tax on gross amount charged by the service provider for the service provided or to be provided by him. But simultaneously there is no denial of fact that the levy in question was imposed for the first time by the amendment to Finance Act 1994 with effect from 1/07/2010 to Section 65(105) (zzzh). The Notification No. 136/2010 as impressed upon by the appellant is perused. It becomes clear that vide the said Notification the advance receipt by a builder till 30th June 2010 for which service was provided by him after 30th June 2010 was not to be taxed thereby qualifying that services of appellant were not taxable prior 1/07/2010. When the explanation as inserted in Section 65(105)(zzzh) is read along with clarification given by CBEC vide letter No. 334/3 TRU dated 1/07/2010, it again becomes amply clear that if agreement is entered into or any payment is received for sale of complex or apartment in residential complex service tax will be leviable on such transaction only with effect from 1/07/2010 - the impugned demand for the period since 1/04/2007 till 30th June 2010 is not sustainable the same has wrongly been confirmed. Demand for the remaining period - Held that - In view of Notification No. 1/2006 ST dated 1/3/2006 the abatement on construction services till 30th June 2010 was 67 per cent however the said Notification of amended vide Notification No. 29/2010 ST dated 22/06/2010 with a further amended vide Notification No. 26/2012 ST dated 20th June, 2012. Vide which the taxable service to the extent of 25 per cent only is made taxable. Hence the appellant is held to be entitled for the abatement at the rate of 75 per cent. The computation at the rate below is an error apparent, as such the same is liable to be re-computed the matter needs to be remanded for this limited purpose. Extended period of limitation - Held that - The appellant was not liable to pay the service tax prior to 1st July 2010 there remains no reason for alleged suppression. Otherwise also to invoke the extended period of limitation heavy burden rests upon the Department to proof some positive Act on account on the assessee other than the mere inaction or failure to discharge the liability - extended period cannot be invoked. Penalty - Held that - The apparent allegation is delay in discharging the liability the allegation as grave as of misinterpretation and suppression are not at all attributable. For the similar reason penalty also will not ordinarily to be imposed unless the party either acted deliberately in defiance of law and was guilty of dishonest conduct - penalty also set aside. The matter is sent back to the Adjudicating Authority below for the limited purpose of computing the demand after affording the abatement of the extent of 75 per cent - appeal allowed by way of remand.

Summary

Issues:
1. Liability to pay service tax on amounts received by the appellant.
2. Applicability of abatement rate on service tax.
3. Invocation of extended period of limitation and imposition of penalty for alleged suppression.

Issue 1: Liability to pay service tax on amounts received by the appellant

The appellant, engaged in construction services, was under scrutiny for not paying service tax on amounts received before giving possession of properties to clients. The Department issued a Show Cause Notice proposing demand for alleged short payment. The core issue was whether the appellant was required to pay service tax on amounts received in advance. The amendment to the Finance Act in 2010 clarified the liability of builders to pay service tax before possession. Legal precedents and notifications supported the view that the demand for the period before 2010 was not sustainable, leading to setting aside of the demand.

Issue 2: Applicability of abatement rate on service tax

The appellant argued for a higher abatement rate than what was granted by the Adjudicating Authority. The Tribunal found that the appellant was entitled to a 75% abatement rate based on relevant notifications. The computation error in granting a lower abatement rate required the matter to be remanded for recalculating the demand with the correct abatement rate.

Issue 3: Invocation of extended period of limitation and imposition of penalty for alleged suppression

The Department alleged suppression by the appellant and invoked the extended period of limitation for imposing penalties. However, the Tribunal found that the appellant had a reasonable belief regarding the payment of service tax before 2010, which negated the allegations of suppression. Legal principles and precedents were cited to support the view that penalties were not sustainable, and the show cause notices were held to be barred by time. Consequently, the order was set aside, and the matter was remanded for computing the demand with the correct abatement rate.

This detailed analysis of the judgment highlights the key legal issues addressed by the Appellate Tribunal CESTAT NEW DELHI in the case, covering the liability of the appellant for service tax, the abatement rate applicable, and the imposition of penalties for alleged suppression.