2019 (11) TMI 297 - AT - Service Tax

Appellate Tribunal rules IFMS charges not taxable, emphasizes nature of collected amounts

M/s ATS Township Pvt. Ltd. Versus Commissioner, Central GST, Noida

The Appellate Tribunal CESTAT ALLAHABAD ruled in favor of the appellant in a dispute concerning the inclusion of 'Interest Free Maintenance Security' ... Valuation of services - Construction of Residential Complex - inclusion of the amount collected by the appellant as Interest Free Maintenance Security (IFMS) in the assessable value - classification of services - Revenue’s contention is that the said collected amount would fall under the category of ‘Management Maintenance and Repair Services’ and would be liable to service tax separately. HELD THAT:- The said amount collected by the appellant from the flat owners is towards the security for the purpose of maintenance of the building and to cover the eventual default made by any of the flat owners for payment of monthly maintenance charges. As per the agreement with the flat owners, the said amount is liable to be refunded to them within the period of Six months from the date of termination of the said agreement. The Adjudicating Authority observed that the genuineness of the said term is very much doubted inasmuch as the appellant had not produced any evidence to show that the said IFMS was ever refunded to anyone. The amount is refundable in case of termination of the ownership agreement and if no such termination has taken place till date, the amount would not be refunded. As long as the provisions for refund of the said amount in the agreement itself is there, it has to be considered that the said amount is refundable and was towards security deposits and was not for the purpose of providing any services, so as to levy tax on the same. Reference can be made to the Tribunal decision in the case of CCE & ST, Jaipur vs. Sand Dunes Construction Pvt. Ltd. [2018 (7) TMI 1383 - CESTAT NEW DELHI], whereby while taking note of the precedent decision of the Tribunal in the case of Kumar Beheray Rathi vs. CCE, Pune [2013 (12) TMI 269 - CESTAT MUMBAI]. It was held that the security deposits collected by the Builder for providing maintenance to immovable property services would not be taxable under the category of ‘Management Maintenance or Repairs Services’. Demand set aside - appeal allowed - decided in favor of appellant. Issues: Valuation of services, Inclusion of IFMS amount collectedIn this judgment by the Appellate Tribunal CESTAT ALLAHABAD, the dispute revolves around the valuation of services provided by the appellant, who is engaged in offering taxable services under the category of 'Construction of Residential Complex.' The appellant collected charges labeled as 'Interest Free Maintenance Security' (IFMS) and 'External Development Charges' (EDC) from customers. The Revenue contended that these charges should be included in the value of services provided, leading to a demand raised against the appellant. The Lower Authorities confirmed the demand, along with interest and penalty, prompting the appellant to appeal the decision.The main issue in this appeal is the inclusion of the amount collected by the appellant as IFMS. The Revenue argued that this amount falls under the category of 'Management Maintenance and Repair Services' and should be subject to service tax separately. However, the Tribunal noted that the amount collected as IFMS from flat owners was meant for security purposes to cover potential defaults in monthly maintenance payments. The Tribunal found the Adjudicating Authority's doubt regarding the refund of IFMS unfounded, as the amount is refundable upon agreement termination. Citing precedent decisions, the Tribunal emphasized that security deposits collected for maintenance services are not taxable under 'Management Maintenance or Repairs Services.' The Tribunal also highlighted a Commissioner (Appeals) decision in the appellant's favor for a subsequent period, further supporting the non-taxability of such amounts. Consequently, the Tribunal set aside the demand and penalty, aligning with the established legal position.Therefore, the Tribunal allowed both appeals, providing consequential relief to the appellant. The judgment emphasizes the importance of considering the nature and purpose of amounts collected in determining their taxability under relevant service categories.