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TMI Blog2024 (8) TMI 1211X X X X Extracts X X X X X X X X Extracts X X X X ..... ns made by the appellant to the extent that Rule 3 of the Point of Taxation Rules shall not apply and service tax should be paid by them on the receipt basis - the impugned order, recognizes the fact that appellant s claim with regards to payment of service tax on the receipt basis and remands the matter back to the original authority for reconciliation of the payment of the service tax made by the appellant on receipt basis with the payment of service tax on accrual basis as per Rule 3. There are no infirmity in the direction given for the reason that Point of Taxation Rules, only determine the time when the service tax becomes due for the payment and do not create additional liability to tax. In case by following the receipt basis or any other basis if the entire tax liability has been discharged then there can be no demand for the same. However in view of specific stipulation as per the said Rules, if the tax is paid later than the due date then there interest has to be paid for the period of delay. Service tax on Preferential Location Charges - HELD THAT:- In case of Maharashtra Chamber Of Housing Industry [ 2012 (1) TMI 98 - BOMBAY HIGH COURT ] Hon ble Bombay High Court has he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Nolice dated 02.05.2017 was issued to appellant asking them to show cause as to why:- (i) Service Tax amounting to Rs. 62,40,916/-, not paid on construction of residential complex service, should not be demanded and recovered from them under proviso to Section 73(1) of Chapter V of the Finance (ii) Service Tax amounting to Rs. 3,25,123/-, not paid on PLC recovered from service recipients while providing the said construction of residential complex services, should not be demandcd and recovered from them under proviso to Section 73(1) of Chapter V of the Finance Act, 1994; (iii) Interest, on the said Service la amounts as mentioned in (i) (ii) above at the appropriate rate as applicable from time to time should not be demanded and recovered from them under Section 75 of Chapter V of the Finance Act, 1994; and (iv) Penalty should not be imposed upon them under Section 78(1) of Chapter V of the Finance Act, 1994 2.4 The show cause notice has been adjudicated as per the order in original dated holding as follows: (i) I confirm the demand of Service Tax amounting to Rs. 62,40,916/- (Rupees Sixty Two Lakhs Forty Thousands Nine Hundred Sixteen only) (incl Education Cess and Secondary an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only recourse to cancel the agreement and refund the collected amount after deducting 15% of such collected amount. Hence, the appellant had no contractual right to compel the buyer to pay the amount which is payable on specified stage of construction. When the agreement has been breached on default in payment, such defaulted payment cannot be consideration for any service and, construed as taxable value under section 67 of the Finance Act, 1994. Hence, no service tax was payable on the payments which were not received by the appellant. Reliance is placed on following decisions: Excel Industries Ltd., 2014 (309) E.L.T. 386 (S.C.). Repco Home Finance Ltd. - 2020 (42) G.S.T.L. 104 (Tri. - LB). ATS Township Private Limited [2019 (11) TMI 297 (CESTAT- ALL.). The appellant's agreement is revocable by the buyer till actual sale of flat and, the on-account payment (85% of the payment collected) received from the buyers were refundable till the actual sale of flat. The refundable payment received by the appellant cannot be construed as consideration for the construction activities carried out by it. Therefore, construction activities were not carried out by the appellant for the cus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, for a period exceeding three months with the obligation for payment periodically or from time 10 time], or where the Central Government, by a notification in the Official Gazette prescribes provision of a particular service to be continuous supply of service, whether or not subject to any condition; find that the appellant had entered into Flat Buyer Agreement with customers for the construction of apartment. The agreement described stage-wise landmarks upon the completion of which, payments were to be made by the customers. On perusal of one such agreement entered between the appellant and one Shri Manish Kumar Shell (placed on record) find that at page no 19, of the said agreement, the stage wise Payment Plan (CLP) has been given which is spread into 12 stages of construction and in front of it the percentage amount of total amount to be paid has been mentioned This clearly shows that the payment was required to be made by the customer as per the completion of stage of construction which makes it evident that the appellant was engaged in providing continuous supply of service to its buyers Thus, the contention of the appellant that he was not providing continuous supply of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by him. 9. As regards to levy of service tax on preferential location charges (PLC), Hon'ble High Court of Delhi in case of Suresh Kumar Bansal Vs UOI reported in 2016(43) S.T.R 3 (Del.,) as also relied by the appellant has held as under- 54. insofar as the challenge to the levy of service tax on taxable services as defined under Section 65(105) (zzzzu) is concerned, we do not find any merit in the contention that there is no element of service involved in the preferential location charges levied by a builder. We are unable to accept that such charges relate solely to the location of land. Thus, preferential location charges are charged by the builder based on the preferences of its customers. They are in one sense a measure of additional value that a customer derives from acquiring a particular unit. Such charges may be attributable to the preferences of a customer in relation to the directions in which a flat is constructed; the floor on which it is located; the views from the unit; accessibility to other facilities provide in the complex, etc. As stated earlier, service tax is a tax on value addition and charges preferential location in one sense embody the value of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e modes specified in Section 87 of the Act, as provided in the said Section 73 (1B) ibid. A show cause notice could have been issued only for the amount of tax not admitted in the returns by not including any part of the taxable value and that too only within the normal period of limitation. 11. Under the facts and circumstances of the case, I find it proper and reasonable to remand the case back to the adjudicating authority to pass the orders afresh after ascertaining the status of the ST-3 returns filed and the total amount of tax liability self-assessed and admitted in the returns so filed. The contention of the appellant that the tax liability on the entire amount of consideration received by him stands discharged needs to be examined for which the appellant is directed to produce before the adjudicating authority necessary documentary evidence. Needless to mention that the appellant is liable to pay interest for the delayed payment of tax. 4.3 We do not find any merits in the submissions made in the appeal. From the impugned order it is evident that the entire issue is in respect of the time and manner of payment of service tax. From the impugned order it is evident that appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be the date of receipt of such advance.] 10. Rule 3 finds part in the Point of Taxation Rules, 2011 applicable with effect from 01.04.2011. It provides for a methodology for determining the accrual and quantification of services, the exact delivery of which is not certain or ascertainable, and that may also be continuous in nature. 11. Before me, two legal issues arise for determination: (i) Relevance of the P and L accounts of the petitioner in the determination of point of rendition of service and the method of quantification of receipts in respect thereof and (ii) The application of Rule 3 itself in the admitted facts and circumstances of the present case. 12. Rule 3 specifically provides clarity on the determination of point of taxation. Had the respondent merely applied the said Rule to determine taxability of the services rendered by the petitioner, the basis of assessment would have been perfectly in order. The flaw, as I see it, arises from reliance by the respondent upon the entries in the P and L account to determine the point of taxation of the services rendered and quantification thereof. 13. Before going to the basis of the SCN and impugned order, I extract the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompletion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed. This method provides useful information on the extent of contract activity and performance during a period. 25. Under the percentage of completion method, contract revenue is recognised as revenue in the statement of profit and loss in the accounting periods in which the work is performed. Contract costs are usually recognised as an expense in the statement of profit and loss in the accounting periods in which the work to which they relate is performed. However, any expected excess of total contract costs over total contract revenue for the contract is recognised as an expense immediately in accordance with paragraph 35. 26. A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are recognised as an asset provided it is probable that they will be recovered. Such costs represent an 74 AS 7 amount due from the customer and are often classified as contract work in progress. 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the mode of computation for arriving at the same. The basis of such recognition and reporting is the apportionment of the income earned and expenditure incurred over the tenure of the project. This is entirely different and distinct from the scope, object and application of the Point of Taxation Rules that seeks to set out a methodology for determination of when the service was rendered and consequently when the receipt of income from such rendition be taxed. 16. The emphasis and thrust of each methodology is in alignment with the different purposes that they bear reference to AS 7, in the context of the preparation of financials, addresses the how much of the transaction over the term of contract whereas Rule 3 of the Rules addresses the when in relation to the rendition of service for computing taxability under the Finance Tax Act 1994. 17. The basis of the addition by the respondent is clear from the SCN wherein he states that further, on verification of the profit and loss account of the assessee for the financial years 2012-13, 2013-14 and 2014-15 along with Service Tax Payment shown in the ST3 returns, it appears that the assessee have not paid the appropriate Service Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 1 of this Agreement. 4. Payment shall be made by the Party of the Second Part without default to the Party of the First Part. 22. Rule 3(a) provides for a situation where the accrual of service is predicated upon the raising of an invoice. In the present case, the admitted position is that the petitioner does not raise invoices as and when a particular landmark is reached and the accrual of the consideration stagewise is occasioned automatically upon completion of the stage of construction set out in the agreement itself. 23. It is the specific case of Mr.Prabhakar that the customers have remitted, in advance, the consideration relating to several of the initial landmarks as a lump-sum and that the said amount has been offered to tax. It was then incumbent upon the respondent to have, in the light of the stand adopted by the petitioner in its Service Tax Returns, to have examined whether the receipts offered to tax correspond and cover the stages in respect of which consideration has accrued as per the agreement with the customer. 24. Rules 3(a) and (b) provide for the point of taxation to be either the point of raising of invoice (Rule 3(a)) or in a case where the service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of three (3) months from date of receipt of this order. 4.4 In view of the above decision we do not find any merits in the submissions made by the appellant to the extent that Rule 3 of the Point of Taxation Rules shall not apply and service tax should be paid by them on the receipt basis. We also note that as per Notification 28/2011-ST dated 01.04.2011 specifically reads as follows: G.S.R. (E).- In exercise of the powers conferred under clause (a) and clause (hhh) of sub-section (2) of section 94 the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), read with clause (c) of rule (2) of the Point of Taxation Rules, 2011(hereinafter referred to as the said rules), the Central Government hereby notifies that the provision of taxable services referred to in clauses (zzq), (zzzh), (zzzx), (zzzu) and (zzzza) of section 65(105) of the Finance Act, shall be treated as continuous supply of service, for the purpose of the said rules. 4.5 In fact impugned order, recognizes the fact that appellant s claim with regards to payment of service tax on the receipt basis and remands the matter back to the original authority for reconciliation of the payment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing repair, alteration, renovation or restoration builders of residential or commercial complexes provide other facilities and charge separately for them. These charges do not form part of the taxable value for charging of tax. These facilities include (i) Prime / preferential location charges for allotting a plot - or commercial space according to the choice of the buyer; (ii) Internal or external development charges which are collected for developing and maintaining parks, laying of sewage water pipelines, providing access roads and common lighting and other like charges. Since these charges are in the nature of service provided by the builder to the buyer over and above the construction service, they were brought within the purview of clause (zzzzu). In the affidavit in reply that has been filed in these proceedings reference has been made to the fact that builders as a matter of fact charge separately under diverse heads. A special value addition service includes the provision of a flat on a preferred floor to a prospective buyer, a flat facing a particular direction or a particular room in a particular direction. This involves a locational choice of a prospective buyer having ..... X X X X Extracts X X X X X X X X Extracts X X X X
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