2019 (2) TMI 1246 - AT - Service Tax

Levy of service tax - immovable property given in settlement of agreement - operation and licence agreement - termination of the agreement - demand of service tax raised on the value of immovable property which was given to them as part of settlement deed - Held that - After 18.4.2006, it can be seen that even if consideration is received as kind or other than money, the value of such kind other than money is also subject to levy of service tax. The value of any immovable property received as consideration would be subject to levy of service tax after 18.4.2006. In the present case, the appellants have received consideration in the nature of money as well as in the nature of immovable property. They paid up the service tax on the consideration received in the form of money. Even if the value of the immovable property is shown in the books of accounts in terms of money, it will not change the nature of the consideration received. The amendment brought forth with effect from 18.4.2006 makes it clear that prior to this date there was no intention to levy service tax on consideration received in the nature other than money. After the final settlement, undisputedly there has been no service provided by the appellant to SHRIL. Though part payments might have been received, such payments including the immovable property is for the services provided (or settled) upto 1.3.2006. It is also to be mentioned that prior to 2011, the service tax has to be discharged on receipt basis and not accrual basis. Though balance payments in the nature of money was received after 1.3.2006, the appellant is liable to pay service tax on such amounts since even prior to 18.4.2006 the consideration in money is taxable. For the immovable property received after 1.3.2006, there can be no levy of service tax since the provision of service is complete on 1.3.2006. The Board vide Letter No. 334/4/2006-TRU dated 28.2.2006, in para 8(1)(f) has clarified that the amendment to Section 67 proposes to include consideration received not wholly in terms of money. The demand of service tax on the value of immovable property to the tune of ₹ 30,60,000/- with the penalties thereon cannot sustain and requires to be set aside - As the assessee is not contesting the demand of service tax of ₹ 33,53,890/- with interest thereon, no interference is made in respect of this demand, however, penalty set aside. Appeal allowed in part.

Summary

Issues Involved:
1. Demand of service tax on the value of immovable property received as part of a settlement.
2. Applicability of amended Section 67 of the Finance Act, 1994.
3. Contesting penalties imposed under Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on the Value of Immovable Property:
The appellants provided consultancy and management services to hotels and resorts and were registered under Management Consultancy Services and Intellectual Property Service. During an audit, it was found that they had not paid service tax on time and had not discharged the appropriate service tax on the gross service charges received. A difference of ?2.50 crores was noted in the profit and loss account compared to the ST-3 returns, attributed to the value of property acquired in lieu of management fees. The appellants contested the demand of service tax on ?2.50 crores, arguing that the settlement agreement dated 1.3.2006 involved the transfer of property as part of the settlement, which was not subject to service tax as per Section 67 before its amendment on 18.4.2006.

2. Applicability of Amended Section 67 of the Finance Act, 1994:
Section 67, prior to its amendment on 18.4.2006, contemplated the levy of service tax on the gross amount charged in the nature of money only. The department issued a show cause notice based on the amended Section 67, which included consideration other than money. The appellants argued that the amendment was not applicable to their case as the settlement took place on 1.3.2006, before the amendment. The Tribunal agreed, stating that the consideration in the nature of immovable property received before the amendment was not subject to service tax.

3. Contesting Penalties Imposed Under Section 78 of the Finance Act, 1994:
The appellants contested the penalties imposed, stating that they had already paid the service tax of ?33,53,890/- and interest of ?2,93,093/- on 27.3.2008, before the issuance of the show cause notice dated 15.5.2008. The Tribunal found that the appellants had reflected their receipts in their accounts and that it was a matter of belated payment. Hence, it invoked Section 80 to set aside the penalties imposed under Section 78.

Conclusion:
The Tribunal held that the demand of service tax on the value of immovable property to the tune of ?30,60,000/- with the penalties thereon could not sustain and required to be set aside. The demand of service tax of ?33,53,890/- with interest thereon was not contested by the appellants and thus remained undisturbed. The total penalty of ?75 lakhs imposed under Section 78 was set aside. The appeal was partly allowed, providing consequential relief to the appellants.