2025 (8) TMI 1220 - AT - Service Tax

Appellant gets 67% exemption under Exemption N/N.18/2005-ST; maintenance as pure agent, deposits not taxable, penalties set aside

M/s. Bengal Ambuja Housing Development Ltd. Versus Commissioner of Service Tax, Kolkata

M/s. Bengal Ambuja Housing Development Ltd. Versus Commissioner of Service Tax, Kolkata - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether benefit of Notification providing 67% abatement (Notification A) and simultaneous availment of CENVAT credit on input services is impermissible where the construction service was rendered prior to issuance of a later notification (Notification B) that expressly restricts such simultaneous benefit, but payment was received after Notification B came into force. 2. Whether amounts paid and reimbursed by the appellant for repair and maintenance of a Sewerage Treatment Plant (STP), procured and paid for on behalf of allottees before formation of a managing body, constitute taxable consideration or are excluded from taxable value as amounts paid by a 'pure agent'. 3. Whether deposits and construction receipts collected for club facilities (refundable deposits to be handed over to associations on formation or completion) constitute taxable receipts under 'club or association service' or are non-taxable deposits. 4. Whether compensation termed as 'guarding charges' (penalty/compensation for allottee's delay in taking possession) constitutes consideration for 'security agency service' or is a non-service penalty not subject to service tax. 5. Whether recovery of CENVAT credit confirmed by the authority should be appropriated where the assessee has already paid the service tax, interest and penalty under protest and furnished evidence of payment. 6. Whether extended period of limitation and penalties can be invoked where the assessee acted on an arguable interpretation of law and bona fide belief as to entitlement to CENVAT credit and other tax positions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Notification A (abatement) vs Notification B (restriction on CENVAT) where service rendered before but payment received after Notification B Legal framework: Taxability of construction services is determined by the law in force at the time the taxable event occurs; exemption/abatement notifications operate with conditions applicable to the period when service is rendered. CENVAT credit rules and specific notifications may restrict credit on inputs/capital goods and/or input services. Precedent treatment: Tribunal authority has held that entitlement to an exemption/abatement applicable at the time of rendering service cannot be denied merely because payment was realized after a subsequent notification that alters conditions; earlier tribunal decisions applying this principle were relied upon by the appellant and considered by the Court. Interpretation and reasoning: The Court examined the timeline: construction service was rendered and completed before the coming into force of Notification B; Notification A (allowing abatement and not restricting input service credit) was available during the period of rendering. Notification B, introduced later, cannot be given retrospective effect to deny benefits legitimately availed when the taxable event occurred. The revenue's approach - denying benefit because payment was realized after Notification B - improperly treats receipt of payment as the decisive taxable event rather than the rendering of service. The Court rejected the Appellate Authority's reliance on post-service payment timing as a ground to displace entitlement arising when service was rendered. Ratio vs. Obiter: Ratio - entitlement to exemption/abatement and to take CENVAT credit on input services is governed by the law in force when the service was rendered; subsequent notifications cannot be invoked to deny those benefits when service completion predates the subsequent notification. Observational support referencing tribunal precedent is applied but the core holding is ratio. Conclusion: Demand based on simultaneous availment of abatement under Notification A and CENVAT credit on input services is unsustainable and set aside. Issue 2 - Reimbursement for STP maintenance as 'pure agent' and inclusion in taxable value Legal framework: Determination of taxable value excludes amounts received by a pure agent who procuring goods or services on behalf of the recipient provided statutory tests for 'pure agent' are satisfied (contractual role, no title, no use, receipt only of actual amount). Service Tax (Determination of Value) Rules and judicial authority defining 'pure agent' govern the analysis. Precedent treatment: Decisions of tribunals and the Supreme Court affirm that amounts incurred by a pure agent and reimbursed on actual basis are not includible in taxable value; recent higher-court pronouncements confirming non-inclusion even post-introduction of valuation rules were considered. Interpretation and reasoning: The appellant arranged procurement and payment for STP maintenance and electricity on behalf of allottees because the body corporate was not formed; documents (debit notes, ledgers) demonstrated procurement on behalf of allottees, reimbursement on actuals, and absence of any management/maintenance service provided for consideration. The statutory criteria for 'pure agent' were satisfied (contractual arrangement, no retention/use, only actual amounts received). Therefore the payments are not taxable consideration. Ratio vs. Obiter: Ratio - expenditures incurred and reimbursed by a true 'pure agent' are not includible in taxable value; reliance on higher-court authority that post-dating valuation rules does not alter this principle forms part of the holding. Conclusion: Demand for service tax on STP repair and maintenance reimbursements is not sustainable and is set aside. Issue 3 - Characterisation of deposits/receipts for club facilities as deposits vs taxable 'club or association service' Legal framework: Service tax liability hinges on character of receipt - whether consideration for provision of a service or a refundable deposit. If sums are mere deposits to be transferred/returned to the association on formation or upon completion, they are not consideration for a taxable service. Precedent treatment: The Court relied on principles distinguishing refundable deposits from consideration; tribunal practice supports treating refundable deposits handed over to associations or refundable on formation as non-taxable. Interpretation and reasoning: The receipts for club facilities were collected as refundable deposits or advances to be handed over to the Apartment Owners Association or upon completion; in one project the deposit was in fact refunded with interest once the association formed. No continuing service was provided for these deposits by the appellant. The substance is deposit, not service consideration. Ratio vs. Obiter: Ratio - refundable deposits held to be non-taxable where they are to be transferred/refunded and are not consideration for a service. Conclusion: Demand under 'club or association service' is unsustainable and set aside. Issue 4 - Guarding charges/compensation for delay in possession: penalty vs security agency service Legal framework: Statutory definition of 'security agency' covers persons engaged in providing security services; consideration for security agency services attracts service tax. Conversely, compensation or penalties imposed for contractual breach are not payments for provision of security services and therefore not taxable under that head. Precedent treatment: The Court applied statutory definition and conventional analysis distinguishing penalties/compensation from consideration for services. Interpretation and reasoning: The 'guarding charges' arise under the contract as compensation payable by allottee for failure to take possession; they are not payments to obtain security services from the appellant, nor was the appellant engaged in the business of providing security services. The charges are in nature of contractual penalty/compensation and do not fall within the statutory scope of 'security agency' service. Ratio vs. Obiter: Ratio - compensatory amounts characterized as penalties/compensation do not constitute taxable security agency services absent an actual contract for security service. Conclusion: Demand under 'security agency service' is not sustainable and set aside. Issue 5 - Appropriation of payments where assessee has paid service tax, interest and penalty under protest Legal framework: Where tax, interest and penalty have been paid and evidence of payment is produced, the tribunal may appropriate those payments against confirmed liabilities; net further liability depends on amount already paid. Interpretation and reasoning: The appellant produced challan evidencing payment of service tax, interest and 25% penalty; the issue was not contested. The Court appropriated the payments and held no further payment warranted. Ratio vs. Obiter: Ratio - where payment is made and proved, and liability corresponds to that payment, no additional recovery is required. Conclusion: Recovery order is satisfied by prior payments; no further payment warranted. Issue 6 - Invocation of extended limitation period and imposition of penalties where assessee acted on bona fide interpretation Legal framework: Extended limitation and penalty may be barred where liability arises from an arguable interpretation of statutory provisions and the assessee acted on bona fide belief; established authority supports denial of extended period and penalties in such circumstances. Precedent treatment: Court relied on higher-court authority recognizing that interpretation disputes and bona fide positions preclude invocation of extended limitation and penalty. Interpretation and reasoning: The contested matters involved interpretation of notifications and entitlement to CENVAT credit; appellant advanced an arguable legal position and acted in bona fide reliance thereon. There was no suppression of material facts. Accordingly, extended limitation and penalties were not properly attracted. Ratio vs. Obiter: Ratio - extended limitation and penalties cannot be invoked where the issue is one of interpretation and the assessee acted on bona fide legal belief. Conclusion: Extended limitation invoked for confirming demands is not sustainable; all penalties imposed are set aside.