2017 (12) TMI 1191 - AT - Service Tax

Non-payment of service tax - receipt of advance from their customer which were later adjusted against the bills received on completion of stages of the contract - liability of interest - Held that - In case of Advance receipt from the customers the amount was received by the assessee as security/ guarantee amount. It is obvious that for big contract which spread over years the service provider needs to have specific performance guarantee from their customer. The assessee in turn of such security amount has issued Bank Guarantee amount to their customer. We find from the contract with Chettinand Cement Corporation Ltd., produced by the Appellant that it provides for Advance cum security and in turn the assessee is liable for equal amount of Performance security bank Guarantee. Thus the amount is guarantee from both the sides. Such amount cannot be considered as advance receipt since it is normal feature of contracts. There is no doubt to our mind that the advance cum security bank guarantee to the assessee by the contract awarding party is in the form of earnest money. Thus the same is not liable to tax. It is also found from the certificate issued by the Chartered Accountant that the aseessee has discharged service tax liability on the entire amount of such advances. We thus find no reason to hold that the said amount is liable to be taxed at the time of receipt. Demand on retention money - Engineers sent abroad - export of service - Held that - it is not in dispute that the services were rendered abroad. It is also not in dispute that the main contractor of the assessee received the consideration in foreign currency who in turn made payment to the assessee. In such case we find that the services rendered by the assessee falls under the Export of service which is eligible for exemption from service tax - assessee is not liable for payment of service tax on services rendered abroad. Appeal dismissed - decided against Revenue.

Summary

Issues:
- Service tax demand on advance payments
- Service tax demand on retention amount
- Service tax demand on services rendered abroad
- Imposition of penalty and interest

Service tax demand on advance payments:
The appeals arose from an Order-in-Original passed by the Commissioner, Central Excise, Pune I, concerning M/s Thermax Engineering Construction and the revenue. The issue revolved around the non-payment of service tax on advance payments received by M/s Thermax. The adjudicating authority confirmed the service tax demand on advance payments, but the appellant contested this decision. The appellant argued that the advance payments were in the nature of security deposits and not advances, as they were part of the contractual commitment between the parties. The appellant also highlighted the timing of service tax payment and relied on legal precedents to support their claim. The tribunal, after considering the submissions, held that the advance payments were not liable for service tax, as they were akin to earnest money and were accounted for in the final invoice payment.

Service tax demand on retention amount:
The adjudicating authority dropped the service tax demand on the retention amount retained by M/s Thermax from their vendors. The appellant argued that the retention amount was for specific contract performance and that service tax was paid in full to the subcontractors. The tribunal agreed with the appellant, citing similar cases and a relevant Board Circular, and allowed the credit for the retention amount, as the service tax had been paid in full to the service provider.

Service tax demand on services rendered abroad:
Regarding the services rendered abroad by M/s Thermax, the adjudicating authority did not find them liable for service tax. The appellant contended that the services qualified as Export of Service, as the consideration was received in foreign exchange. The tribunal concurred with the appellant's argument, citing legal precedents and holding that the services rendered abroad were exempt from service tax.

Imposition of penalty and interest:
The tribunal considered all submissions from both sides and made detailed findings on each issue. It concluded that there was no service tax liability on the advance payments, allowed the credit for the retention amount, and exempted the services rendered abroad from service tax. Consequently, the tribunal allowed the appeal filed by the assessee and rejected the appeal filed by the revenue. The cross-objection was also disposed of in favor of the assessee.