2023 (12) TMI 10 - AT - Service Tax

Levy of service tax - customer of the assessee was to make an advance payment of 25% of the contract price - unbilled revenue - entitlement to make payment of tax in respect of the amounts out of the CENVAT Credit standing to its credit? Service tax on advance amount - HELD THAT - There is no doubt that Service Tax was payable upon receipt of the consideration. No other factor such as the time of accrual of the consideration was relevant. Hence, the advance of Rs.37,55,76,899/- having already been received, would become taxable in the month in which the same was received by the appellant. This is of course subject to the qualification that if the appellant is able to establish that any portion of the advance so received was either refunded to its customer or no services were rendered in respect of any portion of the advance, then such portion would not be taxable. The advances, to the extent they have been received in the tax period under consideration (i.e., 2008-09), would be taxable. The adjudicating authority is directed, accordingly, to bring so much of the advance to tax as has been received in this tax period, provided that there is nothing on the record to show that the advances so received were subsequently refunded. The appellant has also contended that these amounts have already suffered tax in the subsequent / final tax period. If this is the case, then it would not be open to the Revenue to levy tax once again. Hence, the adjudicating authority is directed to examine whether the above contention of the appellant is correct so that there is no double taxation. Service tax on unbilled revenue - HELD THAT - Unbilled revenue represents amounts attributable to services already performed, which have accrued but which have not fallen due for payment or invoicing in terms of the agreement between the parties. It therefore represents revenue which has not yet become recoverable from the customer of the appellant. The fact that these amounts continued at the end of the relevant tax period to appear as unbilled revenue demonstrates that no receipts had been made in that respect. Therefore, there is no question that the unbilled revenue did not represent consideration though which has been received by the appellant for services rendered, they would be taxable only at the time of receipt in accordance with the provisions of Rule 6 ibid. - the unbilled revenue of Rs.23,75,85,656/- cannot be brought to tax. Entitlement to make payment of tax in respect of the amounts out of the CENVAT Credit standing to its credit - HELD THAT - The appellant would no doubt be entitled to make good the taxes that are due by means of utilization of credit available to it. Much emphasis has been laid on the position that the appellant and its customer are related i.e., associated enterprises within the meaning of the above Explanation. The reason this is of no relevance is that Section 67(3) read with the aforesaid Explanation operates to define what falls within consideration or gross amount charged . In the facts of the case at hand, it is nobody s case that the unbilled revenue does not constitute consideration for services rendered or that it does not form a part of the gross amount charged . The limited scope of the dispute is whether that sum, although forming a part of gross amount charged , can be taxable in this tax period as contended by the Revenue, or in a subsequent period as contended by the appellant. This question is already answered and hence, Section 67 or the Explanation thereunder would not disturb reasoning. Appeal allowed in part and part matter on remand.

Summary

Issues Involved:
1. Liability of advance payment to Service Tax.
2. Liability of unbilled revenue to Service Tax.
3. Entitlement to make payment of tax using CENVAT Credit.

Summary:

Issue 1: Liability of Advance Payment to Service Tax
The Tribunal considered Rule 6 of the Service Tax Rules, 1994, which stipulates that Service Tax is payable upon receipt of consideration. The advance of Rs.37,55,76,899/- received by the appellant is taxable in the month it was received, subject to any portion refunded or services not rendered. The adjudicating authority is directed to verify if the advance was refunded or if it has already been taxed in a subsequent period to avoid double taxation. Any shortfall in tax due to rate changes can be recovered with interest.

Issue 2: Liability of Unbilled Revenue to Service Tax
The Tribunal held that unbilled revenue of Rs.23,75,85,656/- represents amounts attributable to services performed but not yet due for payment or invoicing. Since these amounts were not received, they cannot be taxed during the relevant period. They are taxable only upon actual receipt in accordance with Rule 6.

Issue 3: Entitlement to Make Payment of Tax Using CENVAT Credit
The Tribunal affirmed that the appellant is entitled to utilize the available CENVAT Credit to pay any taxes due as a result of the findings.

Additional Considerations:
The Tribunal addressed contentions regarding Explanation (c) to Section 67 of the Finance Act, 1994, emphasizing that the definition of "gross amount charged" includes book adjustments with associated enterprises. However, since the unbilled revenue forms part of the "gross amount charged" but is not yet received, it is taxable only upon receipt.

Conclusion:
- Issue 1: Remanded to the adjudicating authority for further verification.
- Issue 2: Allowed, unbilled revenue is not taxable.
- Issue 3: Allowed, appellant can use CENVAT Credit for tax payment.

The appeal is partly allowed and partly remanded, with the adjudicating authority directed to follow specific instructions regarding the advance payment.