2024 (8) TMI 1211 - AT - Service Tax

Time and manner of payment of service tax - construction of residential complexes - accrual basis or receipt basis - Service tax on Preferential Location Charges Time and manner of payment of service tax - construction of residential complexes - HELD THAT - From the impugned order it is evident that appellants are paying service tax on receipt basis and revenue has issued notice and confirmed the demand against the appellant demanding the tax on accrual basis relying on the provisions of Point of Taxation Rules, 2011. Indeed the scheme of levy of taxation of services was changed with the introduction of Point of Taxation Rules, 2011 and the service tax which was till then being paid on the basis of receipt basis was changed to accrual basis. Undisputedly, in India the accounts of the companies are based on the accrual basis and the Financial Statements are also prepared on the accrual basis. There are no merits in the submissions made by the appellant to the extent that Rule 3 of the Point of Taxation Rules shall not apply and service tax should be paid by them on the receipt basis - the impugned order, recognizes the fact that appellant s claim with regards to payment of service tax on the receipt basis and remands the matter back to the original authority for reconciliation of the payment of the service tax made by the appellant on receipt basis with the payment of service tax on accrual basis as per Rule 3. There are no infirmity in the direction given for the reason that Point of Taxation Rules, only determine the time when the service tax becomes due for the payment and do not create additional liability to tax. In case by following the receipt basis or any other basis if the entire tax liability has been discharged then there can be no demand for the same. However in view of specific stipulation as per the said Rules, if the tax is paid later than the due date then there interest has to be paid for the period of delay. Service tax on Preferential Location Charges - HELD THAT - In case of Maharashtra Chamber Of Housing Industry 2012 (1) TMI 98 - BOMBAY HIGH COURT Hon ble Bombay High Court has held ' if no separate charge is levied, the liability to pay service tax does not arise and it is only where a particular service is separately charged for that the liability to pay service tax arises. The fact that the service is rendered in the context of a location, does not make it a tax on land within the meaning of Entry 49 of List II. The tax continues to be a tax on the rendering of a service by the builder to the buyer. There is no vagueness and uncertainty. The legislative prescription is clear. Hence, there is no excessive delegation.' - there are no merits in the submission made in respect of Preferential Location Charges. There are no merits in this appeal - appeal dismissed.

Summary

Issues Involved:
1. Payment of service tax on construction of residential complexes on accrual basis vs. receipt basis.
2. Payment of service tax on Preferential Location Charges (PLC).
3. Applicability of extended period proviso and imposition of penalties.

Issue-wise Detailed Analysis:

1. Payment of Service Tax on Construction of Residential Complexes on Accrual Basis vs. Receipt Basis:

The appellant, engaged in providing taxable services related to the construction of residential complexes, was found to be paying service tax on a receipt basis instead of an accrual basis. The audit revealed a shortfall in service tax payment amounting to Rs. 62,40,916/-. The adjudicating authority confirmed the demand under Section 73(1) of the Finance Act, 1994, and ordered recovery. The appellant contended that the service tax should be paid on receipt basis as per their agreements with buyers and cited several judicial precedents to support their argument. However, the tribunal upheld the adjudicating authority's decision, referencing Notification No. 28/2011-ST and Rule 3 of the Point of Taxation Rules, 2011, which mandate payment on an accrual basis for continuous supply of services. The tribunal also cited the Madras High Court's decision in Firm Foundations & Housing Pvt Ltd, which clarified that service tax should be paid on accrual basis as per the Point of Taxation Rules, irrespective of the accounting method used by the appellant.

2. Payment of Service Tax on Preferential Location Charges (PLC):

The appellant was also found to have short-paid service tax amounting to Rs. 3,25,123/- on PLC. The adjudicating authority confirmed the demand and ordered recovery. The appellant argued that PLC is not consideration for rendering service but a premium price for the sale of flats. The tribunal, however, upheld the adjudicating authority's decision, referencing the Delhi High Court's decision in Suresh Kumar Bansal, which held that PLC embodies the value of additional satisfaction derived by a customer and is thus taxable. The tribunal also cited the Bombay High Court's decision in Maharashtra Chamber Of Housing Industry, which confirmed that service tax is applicable on PLC as it involves value addition and services provided by the builder to the buyer.

3. Applicability of Extended Period Proviso and Imposition of Penalties:

The appellant argued against the applicability of the extended period proviso, claiming no suppression of facts or intent to evade tax. The adjudicating authority imposed a penalty of Rs. 65,66,039/- under Section 78 of the Finance Act, 1994. The tribunal found that the appellant had adopted a wrong manner of payment (receipt basis instead of accrual basis), leading to deferred tax liability. However, the tribunal noted that there was no suppression of facts or intent to evade tax and thus, the penalty under Section 78 was not sustainable. The tribunal remanded the case to the adjudicating authority to ascertain the status of ST-3 returns filed and the total tax liability admitted in the returns, directing recovery of admitted tax liability along with interest.

Conclusion:

The tribunal dismissed the appeal, upholding the adjudicating authority's decision to demand service tax on an accrual basis and include PLC in the taxable value. The tribunal also remanded the case for reconciliation of tax payments and recovery of admitted tax liability with interest, while setting aside the penalty under Section 78 due to lack of suppression of facts or intent to evade tax.