2023 (7) TMI 305 - AT - Service Tax

Demand of service tax on advances received - Validity of demand made, without classifying the services - advance receipt pursuant to the work order assigned to them for construction of various turnkey projects - Revenue is of the view that the appellant were liable to pay service tax at the time of receipt of the advances for execution of their work - HELD THAT - It is found that in this case facts are not in dispute that appellant is engaged in an activity of supply of goods as well as services. Therefore, the merit classification of the activity undertaken by the appellant is works contract services and the appellant has obtained advances for execution of the activity of works contract services and the revenue has not classified the activity undertaken by the appellant under works contract services and no demand is made for works contract services - In that circumstances the advances mobilized by the appellant for execution of the said works contract services is not liable to be taxed. Therefore, it is held that the demand of service tax is not payable by the appellant. Demand of interest has been made against the appellant for delayed payment of service tax - HELD THAT - As no service tax is payable by the appellant, therefore, the question of payment of interest on delayed payment of service tax does not arise as held by this Tribunal in the case of M/S. JAI BALAJI INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, BOLPUR 2023 (6) TMI 1102 - CESTAT KOLKATA , wherein this Tribunal held that as the appellant was not liable to pay duty in terms of Rule 8 of Central Excise Valuation Rules, 2000, therefore, no interest is payable by the appellant - the demand of interest is not sustainable. Appeal allowed.

Summary

Issues involved:
The appeal challenges the demand of service tax on advance receipts for construction projects and the imposition of interest on delayed payment of service tax.

Summary:

Issue 1: Demand of service tax on advance receipts
The appellant, engaged in turnkey projects involving supply of goods and services, argued that the correct classification for their activity is Works Contract Services. As the revenue did not classify the activity under Works Contract Services, the demand for service tax on advances received for execution of works contract services was deemed not payable. Citing a Supreme Court case, the Tribunal held that the appellant is not liable to pay service tax on the advances.

Issue 2: Imposition of interest on delayed payment
The appellant contended that since they were not liable to pay service tax, the question of interest on delayed payment does not arise. The Tribunal referred to a previous case where it was held that if duty was not payable, interest would not be applicable. Therefore, the demand for interest was deemed unsustainable, and the impugned order was set aside with consequential relief granted to the appellant.