2016 (6) TMI 475 - AT - Service Tax

Demand of Service tax alongwith interest and penalties - Management, maintenance or repair service, construction of complex service and in respect of late payment charges recovered from customers under construction of complex service - Held that - an amount of Rs. 18,49,532/- has already been remitted. Regarding the remaining component of ₹ 88,24,333/- it is found that the related amount so collected and transferred to the cooperative societies when they are formed by the residents prima facie may not be liable to service tax in view of judgement of CESTAT in the case of Kumar Beheray Rathi Vs. CCE, Pune-III 2013 (12) TMI 269 - CESTAT MUMBAI . However, the said judgement is distinguishable to the extent that in the present case as pointed by Revenue that the appellant had the freedom to utilise this amount for maintenance of buildings up to the time the resident s cooperative societies came into existence while in the case of Kumar Behary Rathi, CESTAT had clearly given a finding that the builder was not in the business of maintenance of immovable property. Therefore, a pre-deposit of ₹ 30 lakhs would meet the requirement of Section 35F of Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. Accordingly, we order pre-deposit of ₹ 30 lakhs within six weeks. Compliance is to be reported on 15.7.2016. - Stay granted

Summary

Issues:
1. Service tax demand confirmed under management, maintenance, or repair service, construction of complex service, and late payment charges.
2. Applicability of service tax on the amount collected for maintenance security, escrow account, and corpus fund.
3. Interpretation of the agreement between buyers and the appellant regarding fund utilization.
4. Distinction between the present case and the Kumar Beheray Rathi case.
5. Requirement of pre-deposit under Section 35F of Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994.

Issue 1: Service Tax Demand
The appellant filed a stay application and appeal against the order confirming a service tax demand of ?1,06,73,865 under management, maintenance, or repair service, construction of complex service, and late payment charges. The appellant deposited ?14,46,510 related to Rule 3 of Point of Taxation Rules 2011 and ?4,03,022 for late payment charges, disputing the remaining demand of ?88,24,333 collected under maintenance security, escrow account, and corpus fund meant for a cooperative society. The appellant also raised the issue of time bar.

Issue 2: Applicability of Service Tax
The appellant argued that the amount collected for maintenance security, escrow account, and corpus fund, intended for transfer to a cooperative society, should not be subject to service tax. Citing a CESTAT judgment in Kumar Beheray Rathi's case, the appellant contended that no service tax should be levied on these amounts. However, the respondent argued that the agreement allowed the appellant to utilize these funds for building maintenance until the cooperative society's formation, making the amount liable to service tax under MMR.

Issue 3: Interpretation of Agreement
The agreement between buyers and the appellant permitted the utilization of funds for building maintenance until the cooperative society's establishment by the residents. The respondent emphasized that this provision obligated the appellant to pay service tax on the collected amount under MMR.

Issue 4: Distinction from Kumar Beheray Rathi Case
The Tribunal noted a distinction between the present case and the Kumar Beheray Rathi case cited by the appellant. While the cited case ruled in favor of the builder, stating they were not in the business of maintenance of immovable property, in the current scenario, the appellant had the freedom to use the collected amount for building maintenance until the cooperative societies were formed. This distinction influenced the Tribunal's decision on the applicability of service tax.

Issue 5: Pre-Deposit Requirement
Considering the facts and the appellant's time bar issue, the Tribunal ordered a pre-deposit of ?30 lakhs within six weeks as per Section 35F of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994. Compliance was to be reported by a specified date, and recovery of the remaining liability was stayed pending the appeal, with a warning of dismissal for non-compliance. Amounts already deposited were to be counted towards the required pre-deposit.

This comprehensive analysis of the judgment covers the issues related to the service tax demand, applicability of service tax on collected amounts, interpretation of the agreement, distinction from a previous case, and the requirement for a pre-deposit under relevant legal provisions.