2025 (8) TMI 4 - AT - Service Tax

Service Tax on Short-Term Accommodation Applies from May 2011; Earlier Demands and Certain Charges Set Aside

M/s. Springfield Projects Pvt. Ltd. Versus The Principal Commissioner of CGST & Central Excise, Kolkata North Commissionerate And The Principal Commissioner of CGST & Central Excise, Kolkata North Commissionerate Versus M/s. Springfield Projects Pvt. Ltd.

The CESTAT allowed the appeal, holding that service tax on short-term accommodation service applies only from 01.05.2011, and demands for earlier periods ... Levy of service tax - Short Term Accommodation Service - Demand confirmed on account of denial of abatement as claimed by the appellant-assessee - Applicaility of N/N. 1/2006-ST dated 01.03.2006 - Refundable Security Deposit - On Advance from Customers – closing balance has been considered instead of amount received during the year - Service tax charged on closing balance of Pre-Receipt Amount and Sports Activity Fees under Pre-receipt Income - Misc. Income – Sale of Liquor Bottle, Cartoon - Service Tax charged on opening balance of Sundry Debtor instead of amount received during the year - Dispensing charges & Enlistment charge - sale of property. Levy of service tax - Short Term Accommodation Service - HELD THAT:- It is observed that levy of service tax on Short Term Accommodation Service has been introduced only w.e.f. 01.05.2011. When a new service is brought into service tax net without changing an existing entry, it is presumed that the earlier entry did not cover the said activity. Therefore, it is observed that service tax can be levied on Short Term Accommodation Service only after 01.05.2011. It is observed that the appellant has discharged the service tax liability on the rentals received from members as well as non-member under the head Short Term Accommodation w.e.f 01.05.2011. Thus, demanding service tax on room rentals under the taxable head of “Club or Association Service” for the period prior to 1.5.2011, is not sustainable and accordingly, the same is set aside. Service tax confirmed on account of denial of abatement as claimed by the appellant-assessee - applicaility of N/N. 1/2006-ST dated 01.03.2006 - HELD THAT:- In terms of the said notification, no credit of tax paid on input, input services, capital goods used for providing such output service on which the benefit of abatement is taken, would not be available. However, the notification does not preclude the right of the appellant-assessee to avail the Cenvat credit in relation to input services used in providing other taxable output services on which service tax has been discharged on 100% of the taxable value. In this regard, the appellant-assessee submitted that they have not availed the credit on input services which are exclusively used in providing such taxable service on which abatement is claimed. We observe that the department has not disputed this claim of the appellant-assesse. Thus, it is observed that the appellant-assessee has rightly availed the benefit of abatement as provided under Notification 01/2006- ST dated 01.03.2006 and they have not violated any of the terms and conditions specified in the said notification to avail the abatement. Accordingly, the demand of service tax confirmed in the impugned order on this count is not sustainable and hence the same is set aside. Refundable Security Deposit - HELD THAT:- The deposits collected by the club or association from its members at the time of admission are in the nature of interest-free refundable security deposits, which are intended as a safeguard for the use of various facilities and amenities provided by the club. These deposits are refundable upon the expiry or termination of the membership agreement and are not linked to the provision of any specific service. As per Section 67 of the Finance Act, 1994, service tax is levied on the gross amount charged as consideration for a service provided or to be provided. Since these deposits are refundable and do not constitute consideration for any service, they fall outside the scope of service tax - the Ld. adjudicating authority has rightly dropped the demand raised in the notice on this count. On Advance from Customers –closing balance has been considered instead of amount received during the year - HELD THAT:- The submission of the appellant-assessee agreed upon that during the relevant period, service tax is payable on receipt basis, and hence only the advance received during the year is taxable, not the cumulative closing balance. Furthermore, for the years 2010–11 to 2012–13, the SCN has clubbed figures for advance from members and pre-receipt income without proper bifurcation. As such, the demand raised by considering the entire closing balance is incorrect and not legally sustainable. Accordingly, the Ld. adjudicating authority has rightly dropped this demand. Service tax charged on closing balance of Pre-Receipt Amount and Sports Activity Fees under Pre-receipt Income - HELD THAT:- The appellant-assessee follows the accrual system and raises invoices in advance of the service period. Accordingly, the amount billed in advance is shown under liabilities in the balance sheet, and transferred to income only in the year of service, on which service tax is duly paid either upon billing or receipt—whichever is earlier. The SCN, however, inconsistently includes closing balances in some years and billed amounts in others, ignoring the correct accounting treatment. This leads to duplicative inclusion of amounts under multiple heads, despite such amounts already being taxed once - the Ld. adjudicating authority has rightly dropped this demand. Misc. Income – Sale of Liquor Bottle, Cartoon - HELD THAT:- The miscellaneous income disclosed by the appellant-assessee includes proceeds from the sale of scrap, primarily consisting of used liquor bottles. Since the sale of scrap bottles constitutes a transaction in goods, it does not fall within the ambit of service as defined under the Finance Act, 1994. Thus, no service tax liability arises on such sales. Accordingly, the Ld. adjudicating authority has rightly dropped this demand. Service Tax charged on opening balance of Sundry Debtor instead of amount received during the year - HELD THAT:- It is important to note that with the introduction of the Point of Taxation Rules, 2011 effective from 01.04.2011, tax liability arises at the time of billing or receipt, whichever is earlier. Therefore, considering sundry debtor balances for taxation purposes is no longer valid. In light of this, the demand raised in the SCN is incorrect and unsustainable in law. Accordingly, the Ld. adjudicating authority has rightly dropped this demand. Dispensing charges & Enlistment charge - HELD THAT:- The demand raised under the category of 'Business Auxiliary Service' (BAS) in the Show Cause Notice (SCN) included income from enlistment charges and dispensing charges. The appellant-assessee contended that these charges were not received for acting as an agent, and thus, do not fall under the ambit of BAS. Accordingly, it is found that the Ld. adjudicating authority has rightly dropped this demand. Sale of Property - HELD THAT:- The appellant-assessee supported their claim by submitting relevant purchase and sale agreements. Therefore, it is observed that the transaction did not fall under the scope of taxable service, and the demand does not sustain. Accordingly, the Ld. adjudicating authority has rightly dropped this demand. The appeal filed by the appellant- assessee is allowed. ISSUES: Whether service tax can be levied on Short Term Accommodation Service provided prior to its introduction date of 01.05.2011.Whether abatement benefit under Notification No. 1/2006-ST can be denied when CENVAT credit on input services is availed simultaneously.Whether refundable security/membership deposits constitute taxable consideration under service tax law.Whether service tax can be levied on closing balances of advances or pre-receipt income instead of actual receipts during the relevant period.Whether inclusion of miscellaneous income such as sale of liquor bottles and scrap constitutes taxable service.Whether service tax can be imposed on opening or closing balances of sundry debtors instead of on actual taxable receipts.Whether dispensing charges and enlistment charges fall within the ambit of Business Auxiliary Service for service tax purposes.Whether profit from sale of property amounts to taxable service under Real Estate Agent Service category. RULINGS / HOLDINGS: Service tax on Short Term Accommodation Service can be levied only from 01.05.2011, as 'when a new service is brought into service tax net without changing an existing entry, it is presumed that the earlier entry did not cover the said activity'; thus, demands for periods prior to 01.05.2011 under 'Club or Association Service' are unsustainable and set aside.The appellant-assessee is entitled to claim abatement under Notification No. 1/2006-ST provided no CENVAT credit is availed on input services exclusively used for the abated service; since the appellant did not avail such credit on input services used for abated services, the denial of abatement is unsustainable and the demand is set aside.Refundable security/membership deposits are not consideration for any service and fall outside the scope of service tax as per Section 67 of the Finance Act, 1994; thus, demands on such deposits are rightly dropped.Service tax is payable on actual advances received during the year and not on closing balances of advances or pre-receipt income; demands based on closing balances are incorrect and rightly dropped.Sale of scrap such as used liquor bottles constitutes sale of goods and not a taxable service; hence, service tax demands on such miscellaneous income are rightly dropped.Tax liability arises on billing or receipt, whichever is earlier, under Point of Taxation Rules, 2011; hence, taxing opening or closing balances of sundry debtors is incorrect and demands on such basis are rightly dropped.Dispensing charges and enlistment charges not received for acting as an agent do not fall within Business Auxiliary Service; demands on such charges are rightly dropped.Profit from sale of property does not constitute a taxable service under Real Estate Agent Services; demands on such profits are rightly dropped. RATIONALE: The Court applied the statutory framework under the Finance Act, 1994, relevant Notifications including Notification No. 1/2006-ST, and the Point of Taxation Rules, 2011.The principle that a newly introduced taxable service without amendment to existing entries excludes prior coverage was affirmed.Interpretation of Notification No. 1/2006-ST was clarified to allow abatement where no CENVAT credit is claimed on input services exclusively used for the abated service, distinguishing credit usage across multiple taxable services.Reliance was placed on Section 67 of the Finance Act, 1994, and CBEC Education Guide clarifying that refundable deposits are not consideration for service and thus not taxable.The Court emphasized correct accounting treatment and the accrual system, rejecting demands based on balance sheet figures rather than actual taxable receipts.Point of Taxation Rules, 2011, were applied to reject taxation on sundry debtor balances, affirming tax incidence on billing or receipt.The Court followed established jurisprudence and CBEC instructions in excluding non-agent charges from Business Auxiliary Services and excluding sale of goods from taxable services.No dissent or doctrinal shift was noted; the Court upheld existing legal principles and clarified their application to the facts.