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TMI Blog2018 (4) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... .S.R.Sundar, learned counsel for the respondent have been heard. 4. The sequence of relevant dates and events is as follows: (i)A show cause notice (in short SCN ) was issued by the respondent calling upon the petitioner to explain why differential service tax of an amount of Rs. 1,70,07,530/- not be demanded from the petitioner in terms of section 73(1) of the Finance Act, 1994 for the period January, 2013 to March, 2015. (ii)The respondent at paragraph 4.2 of the SCN, states as follows: '4.2. Since it appeared that in terms of Rule 3 of Point of Taxation Rules, 2011 the assessee is required to pay service tax immediately on raising invoices and the practice adopted by the assessee i.e making payment of Service Tax only on realization basis from the clients as against the accrual basis is in contravention of Rule 3 of the Point of Taxation Rules 2011. From the verification of value declared as Revenue from Operations in the Profit and Loss account and payment of service tax declared in the respective ST-3 returns, it appeared that the assessee have short paid service tax for the period 2012-13 (January to March 2013), 2013-14 and 2014-15. The service tax actually payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevance with payment of service tax as service tax is governed by Finance Act and Service Tax Rules. In terms of explanation to Rule 3 of Point of Taxation Rules, if the service provider receive any advance towards the provision of service, the date of payment of service tax shall be the date of receipt of each such advance. Hence the assessee are required to pay service tax immediately on receipt of advance. The assessee had averred that they had paid service tax on receipt basis and there was no short payment of service tax by them and the demand of service tax leads to double taxation on the service income for which service tax has already been paid. However, the assessee have neither given any statement/details on the receipt of consideration received from the buyers during the material period and payment of service tax within the time nor given any break-up details of income reflected as Revenue from Operations in the balance sheet to get exclusion from service category. Assessee had only furnished Annexure A- which is a sample of details reflecting only the advance received from buyers and recognized as income in the subsequent years. The assessee has not given any details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of these rules, unless otherwise provided, 'point of taxation' shall be, - (a) the time when the invoice for the service [provided or agreed to be provided] is issued: [Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service.] (b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment: (Provided that for the purposes of clauses(a) and (b),- (i) in case of continuous supply of service where the provisions of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... timated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35. 22. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: Construction Contracts 73 (a) total contract revenue can be measured reliably; (b) it is probable that the economic benefits associated with the contract will flow to the enterprise; (c) both the contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. 23. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) it is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily indicate that the outcome of the contract cannot be estimated 29. The stage of completion of a contract may be determined in a variety of ways. The enterprise uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include: (a) the proportion that contract costs incurred for work performed upto the reporting date bear to the estimated total contract costs; or (b) surveys of work performed; or (c) completion of a physical proportion of the contract work. Progress payments and advances received from customers may not necessarily reflect the work performed. 30. When the stage of completion is determined by reference to the contract costs incurred upto the reporting date, only those contract costs that reflect work performed are included in costs incurred upto the reporting date. Examples of contract costs which are excluded are: (a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f replies, the petitioner on 22.09.2016, 28.02.2017 and 11.04.2017 explains yet again that the P and L account cannot be the basis of the assessment. The impugned order is passed notwithstanding the objections raised, and negating the same. 19.Clause (i) of the proviso to Rule 3 specifically provides for determination of the point of taxation in cases of continuous supply as in the case of the petitioner herein. 20.The petitioner enters into agreements with customers for the construction of apartments. The agreement provides for demarcated activities, described stage-wise (in short landmarks ) upon the completion of which, payments are to be released by the customer. The rendition of the service results in the accrual of the receipt of consideration in respect thereof. 21.The relevant clause in the construction agreement dated 30.12.2014 (provided as a sample) reads thus: ".. 1.The party of the Second Part shall pay the party of the First Part a sum of Rs. 1,75,43,320/- (Rupees One Crore Seventy Five Lakhs Forty Three Thousand Three Hundred And Twenty Only) for the construction of a Three Bed Room Flat measuring 2055 sq. ft. as per the specifications mentioned in Schedule B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment(Rule 3(b)). In the present case, no invoice is said to have been raised. However, the petitioner confirms that it has, in fact, received lump-sum advances corresponding to several initial landmarks in the contract, even prior to the achievement of such landmarks. As per the provisions of Rule 3(b), the entire sum received thus becomes taxable upon receipt and according to Mr.Prabhakar, has been offered to tax. 25.Instead of such determination by application of the provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not been offered for service tax. The reporting of income in the P and L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous. 26.It is a well settled position that when a statutory provision or Rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision. 27.I am conscious of the fact, and indeed Mr.Sundar has repeatedly emph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy for the computation of income from projects that is at variance with the method set out under Rule 3. 32.Insofar as Rule 3 sets out a specific modus operandi in this regard, it assumes priority and is the only relevant factor to be taken into account in the determination of point of rendition and accrual of services for the purpose of imposition of service tax. The first issue is answered accordingly. 33.As far as the application of Rule 3 is itself concerned, Mr.Sundar insists that the materials in support of the petitioners stand have not been produced and relies upon the finding in the impugned order to this effect at paragraph 13.5 thereof (extracted earlier). The petitioner has, admittedly, produced the agreements setting out the slabs for payment and an annexure tabulating the receipts, upon completion of each stage of completion of the project before the authorities. It was for the respondent to have looked into the same and called for further information if necessary to assess the receipts in line with Rule 3 of the Rules. Admittedly this has not been done and the respondent merely adopts the income reflected in the P and L account as the receipts for the purpose of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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