Tribunal: Service tax on realized revenue, not recognized revenue. Section 78 penalties set aside.

The tribunal ruled that service tax should be paid on realized revenue, not recognized revenue. The case was remanded for reconsideration to reconcile realized revenue with ST-3 returns. Penalties under Section 78 were set aside due to known facts. Appeals were partially allowed, with a three-month reconsideration period.

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Issues Involved:
1. Service Tax liability on unbilled revenue amount.
2. Service Tax liability on mobilization advance.
3. Service tax demanded on credit balance of erection and labour charge.
4. Service Tax demanded on the debit balance reflected in Service Tax ledger.
5. CENVAT Credit availed over and above as under respective head of trial balance.
6. Interest on delayed payment of service tax.

Issue-wise Detailed Analysis:

1. Service Tax liability on unbilled revenue amount:
The appellant argued that the department misinterpreted unbilled revenue as realized revenue. Unbilled revenue, recognized as income under Accounting Standard AS-7 using the percentage completion method, does not equate to actual revenue realized from customers. The appellant cited the case ISS Catering Services (South) Pvt. Ltd. [2016 (41) S.T.R. 567 (Tri. - Chennai)] to support their argument that unbilled revenue should not be considered for service tax as it has not been realized.

2. Service Tax liability on mobilization advance:
The appellant contended that the mobilization advance booked was related to running bills or adjustment entries, not new projects. The amount was initially transferred to the mobilization account and later adjusted to respective debtors' accounts. The appellant provided the mobilization ledger during the investigation, arguing that the service tax demand was arbitrary and should be set aside.

3. Service tax demanded on credit balance of erection and labour charge:
The appellant stated that the ledger entries were inclusive of service tax, supported by contract samples. The department failed to consider debit balances resulting from reversal entries for service tax and VAT included in the credit figure. The appellant's accounting policy credited revenue inclusive of service tax, and corresponding debit entries were passed to reflect actual income.

4. Service Tax demanded on the debit balance reflected in Service Tax ledger:
The appellant explained that debit balances were adjustment and transfer entries between codes. They provided a CA certificate and SAP-generated vouchers as evidence. The department did not consider the interim/accrual accounting code balances disclosed during the audit. The trial balance showed no closing balance, and reasons for debit entries were detailed in the paper book.

5. CENVAT Credit availed over and above as under respective head of trial balance:
The impugned order disallowed CENVAT Credit amounting to Rs. 18,01,047/-, which the appellant did not contest. However, the appellant argued that there were no malafides on their part, making the penalty unjustifiable.

6. Interest on delayed payment of service tax:
The appellant did not contest the interest amount of Rs. 35,72,360/- on delayed service tax payments.

Judgment Summary:

The tribunal considered the submissions and the impugned order. It noted that construction contracts span multiple accounting periods, and Accounting Standard AS-7 governs revenue and cost recognition. The tribunal found that the demand was based on expected revenue recognition, not actual revenue realized. Service tax should be paid on realized revenue, not recognized revenue. The tribunal directed the revenue to reconcile realized revenue with ST-3 returns and remanded the matter to the original authority for reconsideration.

For issues 5 and 6, the tribunal upheld the demand but set aside penalties under Section 78, as all facts were known to the department.

Conclusion:
The appeals were partially allowed, with the matter remanded for reconsideration within three months.

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