2015 (9) TMI 1724 - HC - Service Tax

Court directs 5% pre-deposit on net profit, questions service tax calculation.

The Court modified the CESTAT order, directing a pre-deposit of 5% of the Appellant's net profit, finding the calculation of service tax on the gross ... Pre-deposit for filing appeal - assessable value/gross value for service tax - computation of service tax on commission/profit - real estate agent service - site formation and clearance, excavation and earth moving and demolition services - prima facie caseAssessable value/gross value for service tax - prima facie case - computation of service tax on commission/profit - Whether the entire sums received under the MOUs could prima facie be treated as the gross value for computation of service tax and the quantum of pre-deposit to be ordered pending appeal. - HELD THAT: - The Adjudicating Authority accepted that the cost/value of land cannot be included in gross value but proceeded to compute demand on the entire receipts. The High Court found that this approach prima facie appears unsustainable because the SCN itself and the AA's own concession indicate that the entire receipts cannot constitute the assessable value. It also noted that no land was purchased at one site and that the Appellant's explanation about return of funds by allotment of shares was not considered. While not expressing any final view on whether taxable service was rendered, the Court treated the net profit figure advanced by the Appellant (profit after accounting for loss on one transaction) as a reasonable basis for assessing the quantum for pre-deposit purposes and reduced the pre-deposit directed by the CESTAT. The Court thus ordered a conditional pre-deposit of 5% of the Appellant's net profit (computed by the Appellant) as a reasonable interim measure pending final adjudication by the CESTAT, and stayed further proceedings subject to compliance. [Paras 12, 13, 14, 15, 16]The pre-deposit directed by the CESTAT is modified: the Appellant shall make a pre-deposit equal to 5% of the net profit figure relied upon by it (net profit of Rs. 4,41,19,634 as used by the Court) on or before 15th October 2015; interim stay to continue until that date and, subject to compliance, the CESTAT shall proceed to decide the appeal on merits.Real estate agent service - site formation and clearance, excavation and earth moving and demolition services - Whether the MOUs reflect that the Appellant acted as an agent of SICCL and rendered taxable services under the heads contended by the Adjudicating Authority. - HELD THAT: - The Court observed that the AA concluded, on analysis of the MOUs, that the Appellant acted as an agent and rendered two types of taxable services. However, the Court held that these factual and legal contentions are arguable and require examination on merits. The Court did not decide these questions on the merits but indicated that they must be examined and determined by the CESTAT when the substantive appeal is heard. [Paras 11]Questions whether the MOUs reflect agency and whether taxable services were rendered are left for final adjudication by the CESTAT; they are not decided by this Court and await determination on merits.Final Conclusion: The CESTAT order requiring 25% pre-deposit is modified: the Appellant is directed to make a pre-deposit of 5% of the net profit figure relied upon by it on or before 15th October 2015; the Court records a prima facie case that the entire receipts cannot constitute gross value for service tax and leaves contested questions of agency and taxable service to be decided by the CESTAT on merits. Issues:1. Appellant challenging order passed by CESTAT under Section 35G of the Central Excises Act, 1944.2. Dispute regarding taxable 'real estate' services provided by the Appellant.3. Calculation of service tax liability based on gross value received for land purchase.4. Prima facie case made by Appellant for pre-deposit of service tax demand.5. Examination of Appellant acting as an agent for another party and providing taxable services.Issue 1:The appeal by M/s. Elegant Developers challenges the order passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) under Section 35G of the Central Excises Act, 1944, against the order-in-original dated 30th September 2013 passed by the Adjudicating Authority (AA), the Commissioner of Service Tax (CST).Issue 2:The dispute revolves around whether the Appellant provided taxable 'real estate' services, as the AA held in the order dated 30th September 2013, despite agreeing that the cost/value of land should not be included in the gross value for levy of service tax.Issue 3:The calculation of the service tax liability was based on the entire sum received by the Appellant for the purchase of land, leading to a demand of service tax on the gross value, which the Appellant contested as unreasonable.Issue 4:The Appellant made a prima facie case for a conditional pre-deposit of the service tax demand, arguing that the tax should be levied only on the commission/profit earned and not on the entire sum received for land purchases.Issue 5:The Court analyzed whether the Appellant acted as an agent for another party and provided taxable services, as determined by the AA, and found that this aspect needed further examination by the CESTAT when the appeals are heard.In the judgment, the Court noted that the Appellant argued against the inclusion of the entire sum received for land purchases in the computation of service tax liability. The Court found that the AA's calculation of the demand on the gross value appeared unsustainable, as it exceeded the total sum received by the Appellant under the three MOUs. Additionally, the Court observed that the AA overlooked the fact that no land was purchased in Kurukshetra, and the Appellant's explanation of returning the sum to SICCL in the form of shares was not considered. The Court acknowledged the Appellant's prima facie case and directed a pre-deposit of 5% of the net profit earned by the Appellant, modifying the impugned order of the CESTAT.Therefore, the judgment highlighted the need for a detailed examination of whether the Appellant provided taxable services and acted as an agent, while also addressing the calculation discrepancies in the service tax liability and the reasonable pre-deposit amount based on the Appellant's net profit.