2022 (8) TMI 63 - AT - Service Tax

Liability of service tax - unbilled revenue amount - mobilization advance - credit balance of erection and labour charge as reflected in trial balance during the period 2012-2013 - debit balance reflected in Service Tax ledger during the period 2010-2011 2011-2012 - HELD THAT - The appellant is a construction company engaged in providing various taxable services as referred in para 2. Construction contracts are the contracts which run over period of time and are not limited strictly by the Financial Year - it is evident that Accounting Standard AS-7 provides for method of recognition of costs, expenses and revenues during the particular period and the manner of disclosure of the same in the book of accounts. This standard uses the word expected and recognition and would not reflect the actual realization of the revenue by the contractor against a particular project. The Service tax is paid on the basis of the revenue realized towards the provision of the taxable services and not on the basis of the revenue recognition. Impugned order do not point out a single case whereby the amounts realized by the appellant against any of the project undertaken by the appellant were not reflected in their ST-3 return. ST-3 return is based on the revenues realized by the appellant during the period of the return and not on the basis of revenue recognition. Accordingly, there are no merits in the impugned order - the entire demand is for the period of the running contracts during the period 2008 to 2012 and would have been completed by now. Revenue should reconcile the revenue realized contract wise, with the service tax return, and if there all the revenues realized either as advance or on the completion of the contract can be reconciled with the ST-3 returns then demands need to be set aside or restricted to the unexplained amounts realized and not reflected in the ST-3 return. With the above observation, the matter is remanded to the original authority for reconciliation. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Service Tax liability on unbilled revenue amount.
2. Service Tax liability on mobilization advance.
3. Service tax demanded on credit balance of erection and labour charge.
4. Service Tax demanded on the debit balance reflected in Service Tax ledger.
5. CENVAT Credit availed over and above as under respective head of trial balance.
6. Interest on delayed payment of service tax.

Issue-wise Detailed Analysis:

1. Service Tax liability on unbilled revenue amount:
The appellant argued that the department misinterpreted unbilled revenue as realized revenue. Unbilled revenue, recognized as income under Accounting Standard AS-7 using the percentage completion method, does not equate to actual revenue realized from customers. The appellant cited the case ISS Catering Services (South) Pvt. Ltd. [2016 (41) S.T.R. 567 (Tri. - Chennai)] to support their argument that unbilled revenue should not be considered for service tax as it has not been realized.

2. Service Tax liability on mobilization advance:
The appellant contended that the mobilization advance booked was related to running bills or adjustment entries, not new projects. The amount was initially transferred to the mobilization account and later adjusted to respective debtors' accounts. The appellant provided the mobilization ledger during the investigation, arguing that the service tax demand was arbitrary and should be set aside.

3. Service tax demanded on credit balance of erection and labour charge:
The appellant stated that the ledger entries were inclusive of service tax, supported by contract samples. The department failed to consider debit balances resulting from reversal entries for service tax and VAT included in the credit figure. The appellant's accounting policy credited revenue inclusive of service tax, and corresponding debit entries were passed to reflect actual income.

4. Service Tax demanded on the debit balance reflected in Service Tax ledger:
The appellant explained that debit balances were adjustment and transfer entries between codes. They provided a CA certificate and SAP-generated vouchers as evidence. The department did not consider the interim/accrual accounting code balances disclosed during the audit. The trial balance showed no closing balance, and reasons for debit entries were detailed in the paper book.

5. CENVAT Credit availed over and above as under respective head of trial balance:
The impugned order disallowed CENVAT Credit amounting to Rs. 18,01,047/-, which the appellant did not contest. However, the appellant argued that there were no malafides on their part, making the penalty unjustifiable.

6. Interest on delayed payment of service tax:
The appellant did not contest the interest amount of Rs. 35,72,360/- on delayed service tax payments.

Judgment Summary:

The tribunal considered the submissions and the impugned order. It noted that construction contracts span multiple accounting periods, and Accounting Standard AS-7 governs revenue and cost recognition. The tribunal found that the demand was based on expected revenue recognition, not actual revenue realized. Service tax should be paid on realized revenue, not recognized revenue. The tribunal directed the revenue to reconcile realized revenue with ST-3 returns and remanded the matter to the original authority for reconsideration.

For issues 5 and 6, the tribunal upheld the demand but set aside penalties under Section 78, as all facts were known to the department.

Conclusion:
The appeals were partially allowed, with the matter remanded for reconsideration within three months.