2024 (10) TMI 624 - AT - Service Tax

Liability for payment of service tax on sinking fund/interest free maintenance scrutiny - interest - penalty - extended period of limitation - HELD THAT - The issue is no more res integra. In the case of KUMAR BEHERAY RATHI OTHERS VERSUS CCE. 2013 (12) TMI 269 - CESTAT MUMBAI , the Tribunal held that collection of one time deposit on account of maintenance and repair of common areas is not taxable. The said decision of the Tribunal has been affirmed by Hon ble Bombay High Court in THE COMMISSIONER OF SERVICE TAX, MUMBAI VERSUS M/S. SHRI KRISHNA CHAITANYA ENTERPRISES AND M/S. GREEN VALLEY DEVELOPERS AND KUMAR BEHERAY RATHI 2018 (2) TMI 1056 - BOMBAY HIGH COURT . Interest - penalty - HELD THAT - As both the demands are set aside on merits, the corresponding demand of interest and penalty also set aside. Time Limitation - HELD THAT - As both the demands are set aside on merits, it is refrained from dealing with the aspect of limitation. Appeal allowed.

Summary

Issues:
- Challenge against demand for service tax on sinking fund
- Interpretation of liability for payment of service tax on sinking fund/interest free maintenance security
- Applicability of precedent decisions on the issue

Analysis:
The appeal was filed against an Order-In-Appeal by the Commissioner demanding service tax on sinking fund and interest-free maintenance security collected by the Appellant. The Appellant, engaged in developing residential complexes, challenged the demand issued for the period 2012-2015. The Commissioner observed that the amounts collected were for maintenance or repair services and not mandated by any specific provision. The Appellant argued that the sinking fund was an interest-free maintenance security transferred to the Residents Welfare Association (RWA) and cited relevant case laws to support their position.

The Tribunal noted that the issue of liability for service tax on sinking fund/interest-free maintenance security had been previously addressed in various cases. In the case of Kumar Beherary Rathi Vs. CCE, it was held that one-time deposits for maintenance and repair are not taxable. This decision was affirmed by the Bombay High Court. Additionally, in the case of KDP Infrastructure (Pvt.) Ltd. Vs. CCE, it was established that amounts collected as Interest Free Maintenance Security (IFMS) were not liable for service tax as they were refundable security deposits, not for providing services. The Tribunal referred to other cases where similar decisions were made, supporting the non-taxable nature of such collections.

Considering the precedent decisions and the arguments presented, the Tribunal set aside the demand for service tax on the sinking fund and interest-free maintenance security, amounting to Rs.2,78,015/-. The Tribunal also waived the penalty and interest associated with the demand. As both demands were set aside on merit, the issue of limitation was not addressed. Ultimately, the appeal was allowed in favor of the Appellant, providing consequential relief.

In conclusion, the Tribunal's decision was based on the interpretation of the nature of the amounts collected by the Appellant as sinking fund and interest-free maintenance security. The judgment relied on precedent cases to establish that such collections were not subject to service tax, being considered as refundable security deposits rather than payments for services. The Appellant's appeal was successful, with the demand for service tax being set aside, along with associated penalties and interest.