Service tax payable on advance payments but not on unbilled revenue until actual receipt

CESTAT Chennai held that service tax was payable on advance payments of Rs.37,55,76,899/- received by the assessee in the tax period, regardless of when consideration accrued. The tribunal directed the adjudicating authority to examine whether these amounts were subsequently refunded or already taxed in later periods to avoid double taxation. However, unbilled revenue of Rs.23,75,85,656/- representing services performed but not yet invoiced or due for payment could not be taxed until actual receipt. The assessee was entitled to utilize CENVAT credit for tax payments. Appeal was partly allowed with matter remanded for examination.

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Issues Involved:
1. Liability of advance payment to Service Tax.
2. Liability of unbilled revenue to Service Tax.
3. Entitlement to make payment of tax using CENVAT Credit.

Summary:

Issue 1: Liability of Advance Payment to Service Tax
The Tribunal considered Rule 6 of the Service Tax Rules, 1994, which stipulates that Service Tax is payable upon receipt of consideration. The advance of Rs.37,55,76,899/- received by the appellant is taxable in the month it was received, subject to any portion refunded or services not rendered. The adjudicating authority is directed to verify if the advance was refunded or if it has already been taxed in a subsequent period to avoid double taxation. Any shortfall in tax due to rate changes can be recovered with interest.

Issue 2: Liability of Unbilled Revenue to Service Tax
The Tribunal held that unbilled revenue of Rs.23,75,85,656/- represents amounts attributable to services performed but not yet due for payment or invoicing. Since these amounts were not received, they cannot be taxed during the relevant period. They are taxable only upon actual receipt in accordance with Rule 6.

Issue 3: Entitlement to Make Payment of Tax Using CENVAT Credit
The Tribunal affirmed that the appellant is entitled to utilize the available CENVAT Credit to pay any taxes due as a result of the findings.

Additional Considerations:
The Tribunal addressed contentions regarding Explanation (c) to Section 67 of the Finance Act, 1994, emphasizing that the definition of "gross amount charged" includes book adjustments with associated enterprises. However, since the unbilled revenue forms part of the "gross amount charged" but is not yet received, it is taxable only upon receipt.

Conclusion:
- Issue 1: Remanded to the adjudicating authority for further verification.
- Issue 2: Allowed, unbilled revenue is not taxable.
- Issue 3: Allowed, appellant can use CENVAT Credit for tax payment.

The appeal is partly allowed and partly remanded, with the adjudicating authority directed to follow specific instructions regarding the advance payment.

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