TaxTMI 
TaxTMI 
2024 (8) TMI 1211
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the same with the service tax authorities. 2.2 During the audit of the records of the appellant for the period April, 2013 to June, 2016, it was observed that the appellant, while providing the taxable service related to construction of residential complex to his customers in respect of flats booked by them was paying service tax on receipt basis, whereas he had to pay the service tax on accrual basis, in terms and conditions given in their respective agreements/ booking forms and Point of Taxation Rules, 2011' (in short 'PoT Rules'). Thus they short paid service tax amounting to Rs 62,40,916/- They were not paying service tax on the Preferential Location Charges (PLC) services provided to his customers. Service Tax Short paid Rs.3,25,123/- 2.3 A Show Cause Nolice dated 02.05.2017 was issued to appellant asking them to show cause as to why:- (i) Service Tax amounting to Rs. 62,40,916/-, not paid on construction of residential complex service, should not be demanded and recovered from them under proviso to Section 73(1) of Chapter V of the Finance (ii) Service Tax amounting to Rs. 3,25,123/-, not paid on PLC recovered from service recipients while providing....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as follows: Suresh Kumar Bansal [2016 (43) STR 3 (Del.)] Vasudha Bommireddy [2020 (2) TMI 632 - TELANGANA H.C.] Ballal Developers Pvt. Ltd. [2019 (9) TMI 889 - CESTAT- Bangalore]. In the order dated 12.12.2018 in W.P. (C) No. 949/2018, Ruchi Goyal vs. NBCC (India) Ltd., the Hon'ble Delhi H.C. has granted the refund to the petitioner by following Suresh Kumar Bansal case (supra).- Review petition of the Department has been dismissed on the ground that Rule 2A of Service Tax (Determination of Value) Rules, 2006, has no application for the construction of residential complex- Ruchi Goyal vs. NBCC (India) Ltd., 2019 (29) G.S.T.L 392 (Del.). As per the agreement, the buyer is to make payments at the different stages of construction of the building. However, in case of default of such payment, the appellant has only recourse to cancel the agreement and refund the collected amount after deducting 15% of such collected amount. Hence, the appellant had no contractual right to compel the buyer to pay the amount which is payable on specified stage of construction. When the agreement has been breached on default in payment, such defaulted payment cannot be consideration for any ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yment of service tax was to be taken in terms of provision of Rule3(a) of PoT Rules, i.e. on accrual basis and not on actual receipt basis. The appellant, however, has contended that he had neither provided continuous supply of service nor was liable to pay service tax on the installments receivables/due from the prospective buyers and had correctly paid service tax on the amount received against the booking of flats. In this regard, I find that as per Notification No. 28/2011-ST dated 1st April, 2011 as amended, Construction of Residential Complex [Section 65(105) (zzzh)] service had been notified as "continuous supply of service" for the purpose of PoT, 2011. As per Rule 2(c) of PoT Rules, the continues supply of service is defined as "continuous supply of service" means any service which is provided, [or to be provided continuously or on recurrent basis, under a contract, for a period exceeding three months with the obligation for payment periodically or from time 10 time], or where the Central Government, by a notification in the Official Gazette prescribes provision of a particular service ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....struction of apartments - Petitioner not raises invoices as and when a particular landmark is reached - Accrual of the consideration stage- wise occasioned automatically upon completion of the stage of construction set out in the agreement itself - However, petitioner confirms receipt of lump sum advances corresponding lo several initial landmarks in the contract, even prior to achievement of such landmarks -Entire sum received thus becomes taxable upon receipt as per provisions of Rule 3(b) of Point of Taxation Rules, 2011- Reporting of income in profit and loss account being irrelevant for the purposes of determination of Service Tax payable---. [paras 19, 20, 22, 24, 25, 34] In view of above, I find that the appellant was liable to pay service tax on accrual basis and not receipt basis. However, the contention of the appellant that he was entitled to cum- tax benefit was tenable as there was nothing on record to infer that the service tax was charged or collected separately by the appellant in addition to the amount of consideration received by him. 9. As regards to levy of service tax on preferential location charges (PLC), Hon'ble High Court of Delhi in case of Suresh ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id after the due date, as per provisions of the PoT as these applied to the supply of a continuous service, as was the case. Under the facts and circumstances of the case, neither the allegation of suppression of facts nor intent to evade payment of taxes is sustainable. Accordingly, penalty under Section 78 of the Act is not imposable. As the demand pertains to the period from April-2013 to June-2016 and the SCN was issued on 02.05.2017, it was incumbent upon the department to ascertain whether the appellant had already filed ST-3 returns of the subsequent period and if so, then what was the total lax liability admitted in the returns so filed. The admitted tax liability was required to be dealt with under the provisions of Section 73(1B) (w.e.f 14.05.2015) of the Act in respect of which no SCN was permissible under law at the time of issuance of SCN. Accordingly to the extent of the admitted tax liability, no penalty was imposable under any of the provision of law. The admitted tax liability was required to be recovered along with interest hereon in any of the modes specified in Section 87 of the Act, as provided in the said Section 73 (1B) ibid. A show cause notice could h....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment: (Provided that for the purposes of clauses(a) and (b),- (i) in case of continuous supply of service where the provisions of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).] Explanation - For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provisions of taxable service, the point of taxation shall be the date of receipt of such advance.] 10. Rule 3 finds part in the Point of Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on contract can be estimated reliably when all the following conditions are satisfied: Construction Contracts 73 (a) total contract revenue can be measured reliably; (b) it is probable that the economic benefits associated with the contract will flow to the enterprise; (c) both the contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. 23. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) it is probable that the economic benefits associated with the contract will flow to the enterprise; and (b) the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably. 24. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts incurred for work performed upto the reporting date bear to the estimated total contract costs; or (b) surveys of work performed; or (c) completion of a physical proportion of the contract work. Progress payments and advances received from customers may not necessarily reflect the work performed. 30. When the stage of completion is determined by reference to the contract costs incurred upto the reporting date, only those contract costs that reflect work performed are included in costs incurred upto the reporting date. Examples of contract costs which are excluded are: (a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and (b) payments made to subcontractors in advance of work performed under the subcontract. . . . ." 15. AS 7 thus provides for a detailed methodology for the reporting and determination of the percentage of income from the contract over the term of the project and sets out the mode of computation for arri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ive Lakhs Forty Three Thousand Three Hundred And Twenty Only) for the construction of a Three Bed Room Flat measuring 2055 sq. ft. as per the specifications mentioned in Schedule B and Schedule C in the following manner: At the time of booking Rs.25,43,320/- - On completion of Basement work Rs.26,00,000/- - On completion of Ground Floor Roof Rs.18,00,000/- - On completion of First Floor Roof Rs.18,00,000/- - On completion of Second Floor Roof Rs.18,00,000/- - On completion of Third Floor Roof Rs.18,00,000/- - On completion of Brick Work Rs.18,00,000/- - On completion of Internal Plastering Rs.18,00,000/- - On completion of Tile Laying in your flat Rs.12,00,000/- - On Handing Over Possession of your flat - Rs. 4,00,000/- 2. The Party of the Second Part has paid a sum of Rs.87,43,320/- (Rupees Eighty Seven Lakhs Forty Three Thousand Three Hundred And Twenty Only) by the way of cheque no.049006 drawn on ICICI Bank, dated 05.11.2014., to the Party of the First Part as Advance, the receipt of which sum, the party of the First Part hereby acknowledges. 3. The Party of the Second party shall pay the Balance Sum of the Rs.88,00,000/-(Rupees Eighty Eight Lakhs Only) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision. 27. ...... 28. ...... 29. ...... 30. .... .. 31. The petitioner is, admittedly, recognizing revenue under the 'Project Completion Method' in terms of AS-7 issued by ICAI. We need not, in the present case, concern ourselves with the method followed for the preparation of financials as the same has no impact upon the Point of Taxation Rules. Suffice it to state that the AS provides a certain methodology for the computation of income from projects that is at variance with the method set out under Rule 3. 32. Insofar as Rule 3 sets out a specific modus operandi in this regard, it assumes priority and is the only relevant factor to be taken into account in the determination of point of rendition and accrual of services for the purpose of imposition of service tax. The first issue is answered accordingly. 33. ........ 34. In the light of the discussion above, the impugned order of assessment dated 21.04.2017 is set aside and the matter remitted to the file of the Respondent to be re-done de novo strictly in accordance with the provisions of Rule 3 of the Rules and in the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....u) which were introduced by the Finance Act of 2010 in the provisions of Section 65 (105) are also sought to be challenged. The challenge is on the ground that firstly there is no element of service involved and the addition attaches to a location. Secondly, it has been submitted that there is no voluntary act of rendering a service. Thirdly, it has been urged that the tax is a tax on land per se, since it is a tax on location. Fourthly, it has been submitted that the provision is vague and therefore arbitrary since what constitutes a preferential location, an extra advantage or the basic sale price has not been defined. 33. Now what clause (zzzzu) of Section 65(105) brings in are services provided to a buyer by a builder of a residential complex or a commercial complex for providing a preferential location or development of such complex, but to the exclusion of services covered under sub clauses (zzg), (zzq) and (zzzh) and those in relation to parking places. A preferential location is defined to mean any location having extra advantages which attracts extra payment over and above the basic sale price. The circular which was ....