Tribunal upholds tax liability for agreements 1 & 3, sets aside service tax demand on advance for agreement 2.

The tribunal upheld the tax liability and penalties for agreements No.1 and 3 but set aside the demand for service tax on the advance received for agreement No.2, ruling in favor of the appellant on this specific issue.

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Issues:
1. Whether appellant is required to be penalized for non-discharge of service tax liability on the taxable services agreed to be provided by agreement No.1, 2 and 3 for design and supply of plant, machinery and equipment and more specifically whether the demand of service tax liability on the amount of advance received from RINL is taxable in respect of supply of the plant and machinery.
2. Whether penalty imposed by the adjudicating authority on the services to be provided under agreement No.1 and 3 is correct or otherwise.

Analysis:

Issue 1:
The appellant received an advance payment for consulting engineering services without discharging the service tax. The audit revealed this discrepancy, leading to a show cause notice for tax liability, interest, and penalties. The appellant contested, arguing that the advance payment for supply of materials under agreement No.2 did not attract service tax liability. The departmental representative contended that all three agreements formed an integral part of the contract for plant and machinery supply, necessitating service tax liability. The tribunal examined the agreements and held that the appellant correctly discharged the tax liability for agreements No.1 and 3 but not for agreement No.2, which solely involved supply of materials. Thus, the demand for service tax on the advance received for agreement No.2 was set aside.

Issue 2:
Regarding penalties imposed on invoices for advance payments under agreements No.1 and 3, the tribunal upheld the adjudicating authority's decision. It was noted that the appellant, being in the organized sector, should have discharged the service tax liability promptly. The penalties imposed were deemed appropriate, and the appeal against them failed. However, the tribunal set aside the demand for service tax on the advance received for agreement No.2, along with associated interest and penalties, as it was deemed incorrect based on the nature of the agreement.

In conclusion, the tribunal upheld the tax liability and penalties for agreements No.1 and 3 but set aside the demand for service tax on the advance received for agreement No.2, ruling in favor of the appellant on this specific issue.

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