2019 (9) TMI 123 - AT - Service Tax

Management, maintenance or repair service - amount received from the customers for Corpus Fund / Escrow Fund and Maintenance Security Deposit - liability of service tax - HELD THAT - In the present case, we consider it appropriate to remand the matter for a consideration as to whether the Corpus Fund / Escrow Fund before transfer of the said fund to the society was utilized by the appellant for replacement of any of the items for it is only in such a situation that it could be levied to service tax. Maintenance and security amount -HELD THAT - The contention of the learned counsel for the appellant is that it is distinct from maintenance charges and since the refundable maintenance security deposit is ultimately transferred by the appellant to the resident co-operative society, it cannot be said that the maintenance security deposit is towards any service - The maintenance security deposit is to cover an exigency when the owner of the house does not pay the maintenance charges after the society is formed. It has, therefore, to be ascertained whether this amount before it is transferred to the society has been utilized. This aspect of the matter, therefore, also needs to be examined on remand. Demand of service tax - late payment charges - HELD THAT - Any additional amount collected towards delay in making the payment of the installments cannot be subjected to levy of service tax. This position stands clarified by the Circular dated 3 August 2011 issued by the Central Board of Excise and Customs New Delhi - Demand set aside. Short payment of service tax - period 1 July 2011 to 30 September 2012 - payment made on receipt basis instead of accrual basis - HELD THAT - The payment is made on receipt basis instead of accrual basis had actually deposited the amount prior to the issuance of the show cause notice and that is why the amount has also been appropriated in the impugned order - only aspect that needs to be examined in regard to this issue is about the penalty that has been imposed by the Commissioner. Appeal allowed by way of remand.

Issues Involved:

1. Demand of service tax on Corpus Fund, Escrow Fund, and Maintenance Security Deposit.
2. Demand of service tax on late payment charges.
3. Short payment of service tax on receipt basis instead of accrual basis.
4. Imposition of interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994.
5. Invocation of the extended period of limitation.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Corpus Fund, Escrow Fund, and Maintenance Security Deposit:

The appellant contended that the amounts collected under Corpus Fund, Escrow Fund, and Maintenance Security Deposit were not for any specified service and hence not liable for service tax. The Commissioner, however, held that these amounts were for the provision of service to the buyers and maintenance of common areas, thus falling under "Management, Maintenance or Repair" services under Section 65(105)(zzg) of the Act. The Commissioner did not find any documentary evidence proving that these amounts were transferred to the co-operative societies or were refundable. Hence, the demand of ?88,24,333/- was confirmed.

The Tribunal, referencing the case of Vijay Shanthi Builders Ltd. Vs. CCE Chennai, remanded the matter for verification of whether the Corpus Fund/Escrow Fund was utilized by the appellant before transferring to the society. The Tribunal emphasized that without evidence of utilization, no service tax could be levied.

2. Demand of Service Tax on Late Payment Charges:

The Commissioner confirmed the demand of service tax on late payment charges, considering them as penalties for late payment of installments, which are taxable under the same service categories. The appellant argued that late payment charges are not for any service provided and relied on a CBEC Circular dated 3 August 2011, which clarified that such charges are not includible in taxable value as they are penal charges for not making payments within the stipulated time.

The Tribunal agreed with the appellant, stating that additional amounts collected for delay in payment cannot be subjected to service tax. The Tribunal found the Commissioner’s confirmation of the demand unjustified and set it aside.

3. Short Payment of Service Tax on Receipt Basis Instead of Accrual Basis:

The appellant admitted the short payment due to a lack of knowledge about the change in provisions from 1 July 2011 and had deposited the amount prior to the issuance of the show cause notice. The Commissioner appropriated this amount in the order.

The Tribunal noted that the appellant’s payment on a receipt basis instead of accrual basis was due to a change in the system and that the amount was deposited before the show cause notice was issued. The Tribunal found that no penalty should have been imposed under Section 80 of the Act.

4. Imposition of Interest and Penalties:

The Commissioner imposed interest and penalties under Sections 75, 76, 77, and 78 of the Act. The Tribunal found that since the primary demands were not justified, the imposition of penalties was also unwarranted. The Tribunal emphasized that the penalties were not applicable due to the appellant’s compliance before the issuance of the show cause notice and the absence of deliberate intent to evade tax.

5. Invocation of the Extended Period of Limitation:

The appellant contended that the extended period of limitation was wrongly invoked. The Tribunal, considering that the entire demand was not justified, found it unnecessary to examine this contention further.

Conclusion:

The Tribunal set aside the impugned order dated 28 March 2014, remanding the matter to the Commissioner to verify whether the amounts collected under Corpus Fund, Escrow Fund, and Maintenance Security Deposit were utilized by the appellant before transferring to the society. The Commissioner was directed to complete this verification within three months. The Tribunal allowed the appeal to the extent indicated, emphasizing the need for documentary evidence to substantiate the appellant’s claims.

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