Service tax on residential complex construction upheld on accrual basis under Point of Taxation Rules 2011

CESTAT Allahabad dismissed appellant's appeal regarding service tax on residential complex construction. The tribunal upheld revenue's demand for service tax on accrual basis under Point of Taxation Rules, 2011, rejecting appellant's claim for receipt basis payment. Matter remanded for reconciliation of payments made on receipt basis with accrual basis requirements. Regarding Preferential Location Charges, tribunal followed Maharashtra Chamber precedent holding service tax liability arises only when separate charges are levied for specific services. Appeal dismissed with no merit found in appellant's submissions.

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Issues Involved:
1. Payment of service tax on construction of residential complexes on accrual basis vs. receipt basis.
2. Payment of service tax on Preferential Location Charges (PLC).
3. Applicability of extended period proviso and imposition of penalties.

Issue-wise Detailed Analysis:

1. Payment of Service Tax on Construction of Residential Complexes on Accrual Basis vs. Receipt Basis:

The appellant, engaged in providing taxable services related to the construction of residential complexes, was found to be paying service tax on a receipt basis instead of an accrual basis. The audit revealed a shortfall in service tax payment amounting to Rs. 62,40,916/-. The adjudicating authority confirmed the demand under Section 73(1) of the Finance Act, 1994, and ordered recovery. The appellant contended that the service tax should be paid on receipt basis as per their agreements with buyers and cited several judicial precedents to support their argument. However, the tribunal upheld the adjudicating authority's decision, referencing Notification No. 28/2011-ST and Rule 3 of the Point of Taxation Rules, 2011, which mandate payment on an accrual basis for continuous supply of services. The tribunal also cited the Madras High Court's decision in Firm Foundations & Housing Pvt Ltd, which clarified that service tax should be paid on accrual basis as per the Point of Taxation Rules, irrespective of the accounting method used by the appellant.

2. Payment of Service Tax on Preferential Location Charges (PLC):

The appellant was also found to have short-paid service tax amounting to Rs. 3,25,123/- on PLC. The adjudicating authority confirmed the demand and ordered recovery. The appellant argued that PLC is not consideration for rendering service but a premium price for the sale of flats. The tribunal, however, upheld the adjudicating authority's decision, referencing the Delhi High Court's decision in Suresh Kumar Bansal, which held that PLC embodies the value of additional satisfaction derived by a customer and is thus taxable. The tribunal also cited the Bombay High Court's decision in Maharashtra Chamber Of Housing Industry, which confirmed that service tax is applicable on PLC as it involves value addition and services provided by the builder to the buyer.

3. Applicability of Extended Period Proviso and Imposition of Penalties:

The appellant argued against the applicability of the extended period proviso, claiming no suppression of facts or intent to evade tax. The adjudicating authority imposed a penalty of Rs. 65,66,039/- under Section 78 of the Finance Act, 1994. The tribunal found that the appellant had adopted a wrong manner of payment (receipt basis instead of accrual basis), leading to deferred tax liability. However, the tribunal noted that there was no suppression of facts or intent to evade tax and thus, the penalty under Section 78 was not sustainable. The tribunal remanded the case to the adjudicating authority to ascertain the status of ST-3 returns filed and the total tax liability admitted in the returns, directing recovery of admitted tax liability along with interest.

Conclusion:

The tribunal dismissed the appeal, upholding the adjudicating authority's decision to demand service tax on an accrual basis and include PLC in the taxable value. The tribunal also remanded the case for reconciliation of tax payments and recovery of admitted tax liability with interest, while setting aside the penalty under Section 78 due to lack of suppression of facts or intent to evade tax.

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