2023 (10) TMI 814 - AT - Service Tax

Point of taxation Rules - Liability to pay interest on the delayed remittance of Service Tax on the advances received for the period April 2009 to September 2013. It is submitted that mobilisation advances should have been paid from the due date of the advances received instead of paying at the time of completion of the project. HELD THAT - The demand of interest is for two projects undertaken by the appellant. One of them is BHEL and from the work order of this unit at Clause 12.1 mobilisation advance is shown as interest-bearing mobilisation advance of 5% of the contract price in stages is admissible in the following manner. Rate of interest shall be 2% above PLR of State Bank of India applicable at the time of drawing the advance - Records are produced to show that these mobilisation advances are shown as liabilities in their financial records. Therefore, the question of paying Service Tax at the time of receipt of these advances does not arise since they are only to be taken as loans and it became part of the consideration as and when the invoices were raised. The question here was whether the unadjusted amount received as mobilization advance during the Service Tax regime was liable to GST after the introduction of GST - In the present case, the liability of tax on mobilization advance is not in dispute, the only dispute is the time of payment of tax. Even as per The Point of Taxation Rules , the liability to pay taxes in the projects undertaken by the appellant arises as per clause b (i) in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service. In the instant case, the appellant has paid the tax on completion of the service on the invoice value which includes the mobilisation advances received by him. It is not the case of the department that invoices were raised in piecemeal without payment of tax as and when the advances were received - there are no merit in demanding interest assuming that the date of payment of tax arose based on the advances received. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Liability to pay service tax on mobilisation advances.
2. Determination of the point of taxation for mobilisation advances.
3. Applicability of interest on delayed payment of service tax.

Summary:

1. Liability to Pay Service Tax on Mobilisation Advances:
The appellant, M/s. Shankaranarayana Constructions Private Limited, was involved in rendering 'Construction Services'. The Revenue officers noticed that the appellant was not discharging service tax on mobilisation advances as and when received. The Commissioner held that the appellant is liable to pay interest under Section 75 of the Finance Act, 1994, for the delayed remittance of service tax on the advances received for the period April 2009 to September 2013.

2. Determination of the Point of Taxation for Mobilisation Advances:
The appellant argued that the mobilisation advances received from customers, such as BHEL and Jaipur University, were loans secured by bank guarantees and should not be considered as advances as per the definition of 'Service' in Section 65B(44) or as the value of taxable service under Section 67 of the Finance Act. They cited several judicial decisions supporting their claim that mobilisation advances are not liable for service tax until they form part of the consideration when invoices are raised.

3. Applicability of Interest on Delayed Payment of Service Tax:
The Revenue contended that the mobilisation advances were advances, and therefore, service tax was payable upon receipt. Since the service tax was paid later, interest was due for the delay. They relied on the decision in Siemens Ltd., where it was held that GST is leviable on mobilisation advances upon receipt.

Analysis and Findings:
The Tribunal examined the relevant sections of the Finance Act, 1994, and the Point of Taxation Rules, 2011. The appellant had discharged service tax on the gross amount received as per the relevant sections. The dispute was only about the delayed payment of tax on mobilisation advances. The Tribunal noted that the mobilisation advances were treated as secured loans in the appellant's financial records and were adjusted against the final payment upon completion of the project.

Judicial Precedents:
The Tribunal referred to several decisions, including:
- Commissioner of Central Excise, Pune-I vs. Thermax Engineering Construction Co. Ltd.: Mobilisation advances treated as earnest money and not liable to tax until included in the consideration upon raising invoices.
- Gammon India Ltd vs. Commissioner of Service Tax, Mumbai: Mobilisation advances are separate financial transactions within the contract for providing service and not included in the 'gross amount' under Section 67 of the Finance Act, 1994.

Conclusion:
The Tribunal found no merit in the demand for interest, assuming that the date of payment of tax arose based on the advances received. The impugned order was set aside, and the appeal was allowed.

Order Pronounced:
The order was pronounced in Open Court on 13/10/2023.