2019 (1) TMI 1820 - AT - Service Tax

Property developer wins service tax refund appeal under Notification No. 25/2012-S.T.

The Tribunal allowed the appeal, directing the refund of service tax with interest. The appellant, a property developer, was eligible for exemption under ... Turnover - ordinary accounting parlance - exemption under Notification No. 25/2012 S.T. (Sl. No. 6) - service receiver eligible for exemption where business entity turnover up to ten lakh - exclusion of changes in inventory of work in progress from turnover - reliance on ICAI guidance and authoritative judicial interpretation - refund of service tax wrongly paid under reverse charge with interestTurnover - ordinary accounting parlance - reliance on ICAI guidance and authoritative judicial interpretation - Meaning of 'turnover' for the purpose of Serial No. 6 of Notification No. 25/2012 S.T. - HELD THAT: - The expression 'turnover' is not defined in Notification No. 25/2012 S.T. or in the Finance Act, 1994; therefore its meaning is to be ascertained in ordinary accounting or commercial parlance. The Tribunal applied the law declared by the Supreme Court in CIT v. Punjab Stainless Steel Indus., which endorses adopting the ordinary accounting meaning and consulting materials published by recognised bodies of accountants. The ICAI guidance equates 'turnover' with the aggregate amount for which sales are effected or services rendered by an enterprise. Applying this principle, amounts that are purchases or represent changes in inventory of work in progress are not sales and thus do not form part of 'turnover.' [Paras 15, 16, 17, 18]Turnover means aggregate amount for which sales are effected or services rendered; 'changes in inventory of work in progress' is not turnover and must be excluded.Exemption under Notification No. 25/2012 S.T. (Sl. No. 6) - service receiver eligible for exemption where business entity turnover up to ten lakh - exclusion of changes in inventory of work in progress from turnover - refund of service tax wrongly paid under reverse charge with interest - Applicability of the Notification exemption to the appellant (service receiver) and entitlement to refund of service tax paid under reverse charge - HELD THAT: - Serial No. 6 of Notification No. 25/2012 S.T. exempts legal services to a 'business entity with a turnover up to rupees ten lakh in the preceding financial year.' Having held that the correct measure of turnover excludes increase in work in progress, the Tribunal found the appellant's turnover for F.Y. 2011 12 to be below the ten lakh threshold. Consequently, the appellant, as the business entity receiving legal services and having paid service tax on reverse charge, was entitled to the benefit of the exemption and to refund of the tax wrongly paid. The Tribunal directed grant of refund with interest in accordance with rules. [Paras 13, 18, 19]The appellant (service receiver) qualifies for the Notification exemption after excluding changes in inventory from turnover; appeal allowed and refund with interest directed.Final Conclusion: Appeal allowed: the Tribunal held that 'turnover' means aggregate amount for which sales are effected or services rendered (excluding changes in inventory of work in progress), concluded the appellant's preceding year turnover is below the ten lakh threshold, and directed grant of refund of service tax wrongly paid under reverse charge with interest within eight weeks. Issues:Exemption eligibility under Notification No. 25/2012-S.T. for service tax paid on legal consultancy services; Interpretation of the term 'turnover' for exemption calculation.Exemption Eligibility Analysis:The appellant, a property developer, paid service tax on reverse charge basis for legal consultancy services despite being eligible for exemption under Notification No. 25/2012-S.T. The appellant's turnover for the relevant financial years was below the threshold for exemption. However, lower authorities denied exemption, stating it applies only to service providers, not receivers under reverse charge.Turnover Interpretation Analysis:The Adjudicating Authority calculated turnover using figures from the Profit and Loss account, including changes in inventory. The appellant contested this, arguing that inventory changes represent purchases, not sales, and should not be included in turnover. Citing judgments and accounting standards, the appellant emphasized that turnover should reflect sales or services rendered, excluding purchases.Legal Interpretation and Decision:The Tribunal analyzed the meaning of 'turnover' under Notification No. 25/2012-S.T. and legal precedents. Referring to the Supreme Court's definition of turnover as sales or services rendered, the Tribunal concluded that inventory changes do not constitute turnover. Excluding inventory changes, the appellant's turnover fell below the exemption threshold. Therefore, the Tribunal allowed the appeal, directing the refund of service tax with interest.This detailed analysis of the legal judgment highlights the issues, arguments, and the Tribunal's decision regarding exemption eligibility and the interpretation of turnover for service tax calculation under Notification No. 25/2012-S.T.