Construction company escrow amount not considered service tax under Finance Act; Tribunal rules in favor.

The Tribunal held that the amount collected in an escrow account by a construction company for safeguarding against future service tax liability was not to be considered as service tax under Section 73A of the Finance Act, 1994. As the liability for service tax was not determined and the amount was held separately pending a final decision, the Tribunal ruled that Section 73A did not apply. Consequently, the order demanding payment of service tax was set aside, and the appeal was allowed.

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Issues:
Whether service tax collected from customers and kept in an escrow account attracts provisions of Section 73A of the Finance Act, 1994.

Analysis:
The appellant, engaged in construction activities, did not charge service tax on residential apartments constructed from 2006 to 2009. They collected amounts in an escrow account from buyers to safeguard against future service tax liability. The authorities demanded service tax of Rs. 2,44,17,471/- with interest and imposed a penalty of Rs. 5000/- under Section 77 of the Finance Act, 1994.

The main issue is whether the amount collected in the escrow account should be considered as service tax under Section 73A of the Finance Act, 1994. The appellant argued that the collected amount was a "caution deposit" and not service tax. They maintained separate accounts to return the amount to buyers if not liable for service tax. The Commissioner did not consider this argument, and the liability of service tax was not determined. Section 73A mandates payment to the Government of any amount collected as service tax, but in this case, the amount was held in escrow pending a final decision on liability.

The Tribunal analyzed the nature of the escrow account and determined that the amount was not collected as service tax but kept aside for safekeeping. The appellant assured buyers of refund with interest if not liable for service tax. Since the liability was not established, the Tribunal held that Section 73A did not apply. The impugned order demanding payment was set aside, and the appeal was allowed.

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