TaxTMI 
TaxTMI 
2015 (12) TMI 1222
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....pay a certain amount, generally 10% of the contract value as an advance payment. The appellant are also required to give a counter bank guarantee of equal amount to the customers (referred to as payment security). The customer has lien over the bank guarantee till the completion of the contract. The payments for the services are made in a progressive manner during the execution of the contract. The amount of advance given by the customer is reduced in proportion to the value of work completed as shown in the invoice raised upto any stage of work executed as per the terms of the contract. The amount of bank guarantee provided by the appellant is correspondingly reduced in proportion to the amount of advance adjusted by them. According to the appellant, service tax is paid on the invoice value on accrual basis, that is, on the 5th of the following month. Thus the tax is paid even before the receipt of consideration. Service tax is paid on the gross value including the proportionate advance which is deducted against every invoice raised. However, a show cause notice was issued on 2/5/2011, which culminated in the impugned order, in which it was held by the Ld. Commissioner that Servic....
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....l payment of tax on invoice basis should be verified with professional assistance of a cost auditor. 7. We have carefully gone through the facts of the case and submissions made by both sides. The relevant clauses of one typical agreement/contract given in the appeal memo and referred by both sides during the hearing regarding the payment terms are reproduced below: 11. Payment Terms To facilitate Owner plan the funds allocation efficiently and release payments from time to time, the Contractor shall submit a detailed billing break up to the Owner in due course of time. This billing break up shall be discussed and approved by the Owner and shall form the basis for opening the Letter of Credit and for the Contractor to raise his invoices. 11.1 ADVANCE PAYMENT 11.1.1 The Contractor shall deliver to the Owner a payment security in the form of a bank guarantee for 10% i.e. Rs. 80.50 lacs (Rupees Eighty Lacs Fifty Thousand Only) of the Contract price valid until the completion of Scope of Work ("payment security"). Upon receipt of the payment security, the Owner shall pay to the Contractor 10% of the Contract Price as an advance payment (Initial....
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....s thereon 887.915 4 Less: 10% initial advance payment received 80.50 5 Less: 10% Mile Stone payment to be received 80.50 6 L/C Value to be opened 726.9150 We have seen a sample invoice in the appeal memo as shown below Invoice Bill No. RAB 001 To, M/s. Madras Cements Limited R.R. Nagar Works, Virudhunagar Dist. L/C No.: 462030101300001 dated 10th May'10 Erection & Commissioning Work for the Captive Thermal Power Plant of 1X25 MW capacity at Madras Cements Ltd., R.R. Nagar Works. S.No. Descriptioin This Bills Amount (Rs.) 1 2 3 4 5 6 7 8 Value of work completed Add: Service Tax @10% Add: Education Cess @ 2% Add: S & H Cess @ 1% Total (1+2+4) Less: Advance Amount payable (5-6) Less TDS @2% on 2803959.48 3,105,160.00 310,516.00 6210.32 3105.16 3,424,991.48 621.032.00 2,803,959.48 56,079.19 Net Amount payable thro LC (7-8) 2,747,880.29 (Rupees Twenty Seven lakhs Forty Seven thousand Eight hundred Eight and Twenty Nine Paise only) Net amount to....
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....the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of goods faith, and as a guarantee that he will fulfill his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. K, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of party payment". In the present case the advance is like earnest money for which a Bank Guarantee is given by the appellant. It is a fact that the customer can invoke the Bank Guarantee at any time and take back the advance. Hence the appellant does not show the advance as an income, not having complete dominion over the amount and therefore the same cannot be treated as a consideration for any service provided. Therefore the findings lack appreciation of the complete facts and evidences. 8.1 The Commissioner's findings seem to be based solely on the provisions of Section 67(3) of the Finance Act, 1994 which is as under: "The Gross amount charged for taxable service shall include any amount received towards taxable service before, during o....
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....ovided. The authority below has proceeded on the conception that 33% of the advance received shall be value of taxable service. When the work order relied by the Ld. DR does not demonstrate that the receipt was the consideration for service provided, this does not provide a basis to appreciate that taxable event had arisen and levy was made properly. Once it is demonstrated by SCN that the levy was arrived treating advance receipt as measure of taxation resulting a levy of Rs. 3,15,253/- that shall not be approved to be taxed without service being provided. On the above reasoning, we dismiss the appeal of Revenue without accepting the reasoning given by the Ld. Commissioner (Appeals). We have shown above that service tax is paid on the total value of services provided periodically. And the advances are deducted from the total value which includes value of services provided. 9. It is also alleged in the show cause notice that in respect of some customers, the invoices are not issued for periods ranging upto two years after receipt of advances. The defence of the appellant is that these amounts are shown as current liability in their books of accounts and no services have been ....