2020 (10) TMI 477 - AT - Service Tax

Accrual of Service Tax liability - mobilization advance paid to the appellant - payment to be made on which stage? - on receipt or on issue of the bill? - HELD THAT - The several contracts provide for the payment to be made at different, pre-determined stages of performance and are, generally, subject to evaluation of the work undertaken. It is also seen that such appraisal, as a prelude to making payments, is not undertaken until after the execution of the work in relation to the taxable service has commenced and that all the contracts, while linking such measurable stages, provide for payment of only 90% of contracted amount for the entirety of the work. The mobilization advance is adjusted against the final payment due and is not linked to the work but as a pledge of the contract between the appellant and principal. It is also subject to furnishing of prescribed bank guarantee ; there is no connection with the performance of the contract. It is not in dispute that the mobilization advance , carrying interest, is granted to enable the contractor to prepare for undertaking the contracted work. The subsequent adjustment with the final payment due does not suffice to construe this as an advance payment for the work to be done merely because the recipient and payee happened to be the provider of service. The payment of mobilization advance is but a separate financial transaction within the contract for providing of service and, within the limits laid down by the Hon ble Supreme Court in re Intercontinental Consultants and Technocrats Ltd, 2018 (3) TMI 357 - SUPREME COURT is not permitted to be included in the gross amount envisaged in section 67 of Finance Act, 1994. In view of absence of allegation that any part of the contracted value has not been levied to tax, the demand is not consistent with law and deserves to be set-aside - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to confirmation of liability under Finance Act, 1994 for mobilization advance received by M/s Gammon India Ltd in construction contracts.

Analysis:
The appeal challenges the liability confirmed under the Finance Act, 1994 for a mobilization advance received by M/s Gammon India Ltd. The dispute revolves around the taxability of the mobilization advance paid to the appellant, specifically at which stage - on receipt or on issue of the bill - the advance is subject to tax. The demand is based on the legal framework established by amendments to the Finance Act, 1994, circulars issued by the Central Board of Excise & Customs (CBEC), and the taxability of works contract services as per section 65(105)(zzza) of the Finance Act, 1994.

The appellant's contention is that the mobilization advance was not additional consideration liable to be taxed beyond what was already discharged. They argue that the advance was for procurement of essential equipment and labor before the commencement of the contracted work, acting as a financial accommodation. The appellant asserts that tax had been discharged on the entire contractual value and that the advance was adjusted against the final payment due on the contracts. They rely on legal precedents to support their argument.

The Authorized Representative emphasizes statutory provisions such as section 67(3) of the Finance Act, 1994, and circulars issued by CBEC. They argue that the advance payment is considered taxable at the stage of receipt based on previous tribunal decisions. The tax mechanism is discussed, focusing on deeming the gross amount received by the service provider as taxable value and the inclusion of tax component in every payment.

The judgment discusses the implications of amendments to sections 65 and 67 of the Finance Act, 1994, and the Point of Taxation Rules, 2011. It analyzes the legislative intent behind taxing advance payments and the interpretation of taxable services. The judgment highlights the distinction between taxable and non-taxable services and the importance of evaluating the work undertaken before making payments.

The analysis delves into the legal interpretation of the Finance Act, 1994, emphasizing that the gross amount is only relatable to the service rendered and not the entirety of receipts. The judgment concludes that the demand is not consistent with the law as there is no allegation that any part of the contracted value has not been levied to tax, ultimately allowing the appeal.