2023 (6) TMI 371 - AT - Service Tax

Adjustment of Advance tax paid (service portion) - Apportionment of advance received towards supply of goods and supply of services - Rule 6(4A) and 6(4B) of the Service Tax Rules, 1994 - HELD THAT - There is no apportionment of advance in the invoice itself towards the cost of materials or service portion and no tax has been determined. Therefore, the contention of the appellant that the mistakenly appropriated a part of the advance towards service portion can not be faulted as it is not on record that the same was approved by M/s. VISA or they had any information that the appellant had appropriated part of the advance towards service portion. Therefore, if VISA had informed the appellant at a later stage that the whole of the advance was to be appropriated towards cost of material, the same cannot be disputed without any evidence to the contrary. It is a settled law that the terms of the contract between the parties are to be accepted so far as those do not infringe the law. Further, It is not disputed that the for all the time tax amount of Rs. 1,87,93,063/- paid by the appellant on 4.11.2010/31.03.2011 was always remained with the Revenue till its adjustment made in Jan, 2011. It is also not disputed that the advance comprised only 5% of the project value of Rs. 1610.01 crore out of which 445 Crore (130 415) comprised of the service portion as per agreement between the appellant and VISA. This final value of service portion is also not disputed. Final taxable invoices for advance against the service portion were issued on 05.01.2012 involving service tax of Rs. 2,29,18,015/- on a taxable value of Rs. 22.25 Crore of which Rs. 1,87,93,063/- was suo-moto adjusted on the ground that the tax was erroneously paid in the past which was not required to be paid as same does not pertain to the taxable value of service - It is not disputed in the impugned order that the total advance received by the appellant was not 22.25 crore. Thus, there was in reality no short payment by the appellant. We further find that the findings of the Ld. Commissioner, that the appellant could not have adjusted the excess tax paid on 4.11.2010/31.03.2011 beyond the month of Nov 2010/April 2011 is also not sustainable. The demand of Rs. 1,87,93,063/- is not sustainable against the appellant and the same is hereby quashed - Appeal allowed. There is no rationale in contention of the department that the whole of 2nd installment of Rs. 40.25 crore should be considered towards service portion and is liable to service tax @10.3%. Demand is merely presumptive with no corroborative evidence and cannot be sustained. Therefore, appeal filed by the department is dismissed.

Issues Involved:
1. Taxable event determination for service tax.
2. Nature of advances received and their taxability.
3. Interpretation of contract terms by the Respondent Department.
4. Exemption applicability under Notification No. 45/2010 S.T.
5. Eligibility for adjustment of excess paid service tax under Rule 6(4A) and (4B) of Service Tax Rules, 1994.
6. Entitlement to credit/refund of excess service tax paid.
7. Invocation of extended period of limitation under Section 73(1).

Summary:

1. Taxable Event Determination for Service Tax:
The appellant argued that the taxable event is the actual rendition of service, not the receipt of payment. They cited the judgment in Vistar Construction P Ltd. vs. Union of India & Ors., which states that the taxable event as per the Finance Act, 1994, is the rendition of taxable services.

2. Nature of Advances Received and Their Taxability:
The appellant contended that the advances received were in the nature of earnest money and not liable to tax at the time of receipt. They relied on the judgment in CCE vs. Thermax Engineering Construction Co. Ltd., which supports this view.

3. Interpretation of Contract Terms by the Respondent Department:
The appellant argued that the Respondent Department was impermissibly re-writing the terms of the contract between the parties by interpreting the advances as consideration for services. They stated that the advances were towards the supply of goods and not a composite supply of goods and services.

4. Exemption Applicability under Notification No. 45/2010 S.T.:
The appellant claimed that the services provided were in relation to setting up a power plant for transmission and distribution of electricity, which is exempted under Notification No. 45/2010 S.T.

5. Eligibility for Adjustment of Excess Paid Service Tax under Rule 6(4A) and (4B) of Service Tax Rules, 1994:
The appellant cited the decision in General Manager (CMTS) v. CCE, which allows for the adjustment of excess tax paid against future liabilities if the excess payment is not due to reasons involving interpretation of law, taxability, classification, valuation, or applicability of exemption notification. The tribunal accepted this argument, stating that the adjustment was permissible.

6. Entitlement to Credit/Refund of Excess Service Tax Paid:
The appellant argued that they were entitled to a credit/refund of the excess service tax paid as the contract was terminated, and the performance bank guarantees were encashed by M/s. VISA. The tribunal found this argument valid, noting that the entire amount received was refunded to VISA.

7. Invocation of Extended Period of Limitation under Section 73(1):
The appellant contested the show cause notice issued on 13.02.2013 for the period 2010-2012, arguing that the extended period of limitation was not invokable as there was no intentional suppression of facts. The tribunal found no basis for the extended period of limitation.

Tribunal's Findings:
The tribunal noted that the appellant's contention that the advance was towards the supply portion was not disproven by any evidence from VISA. They held that the terms of the contract should be accepted unless they infringe the law. The tribunal also found that the tax amount of Rs. 1,87,93,063/- paid by the appellant was always with the Revenue and that there was no short payment by the appellant. They concluded that the adjustment of excess tax paid was permissible and quashed the demand of Rs. 1,87,93,063/- with consequential relief to the appellant.

Departmental Appeal:
The tribunal dismissed the departmental appeal, stating that the demand for service tax on the second installment of Rs. 40.25 crore was presumptive and lacked corroborative evidence. The cross-objection was also disposed of.

Conclusion:
The demand of Rs. 1,87,93,063/- against the appellant was quashed, and the departmental appeal was dismissed. The tribunal pronounced the judgment in the open court on 08.06.2023.

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