TaxTMI 
TaxTMI 
2024 (8) TMI 1211
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of residential complexes", and are registered 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvice tax on the installments due on the buyers, though such payments were not received by it. The findings recorded are ignoring the decision 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....indings as follows: "7. I find that the adjudicating authority has confirmed the demand of service tax of Rs.62,40,916/- by holding that the appellant was providing continuous supply of service to the buyers of flats and the value for payment 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 cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Madras High Court in the case of M/s Firm Foundation & Housing Pvt. Ltd Vs Pr Commr of ST, Chennai as reported in 2018(16) GSTL 209(Mad,) has held as under: Point of Taxation - Determination of- Petitioner enters into agreements with customers for construction 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 in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had not been included for the purpose of discharge of the service tax liability. It is therefore evident that the appellant by adopting a wrong manner of payment of service tax (on receipt basis instead of on accrual basis) was deferring his tax liability and the service tax was eventually paid 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the service [provided or agreed to be provided] is issued: [Provided that where the invoice is not issued within the time period specified in rule 4A of the Service Tax Rules, 1994, the point of taxation shall be the date of completion of provision of the service.] (b) in a case, where the person providing the service, 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 se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately in accordance with paragraph 35. 22. In the case of a fixed price contract, the outcome of a construction 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 satisf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se reviews and, when necessary, revises the estimates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily indicate that the outcome of the contract cannot be estimated 29. The stage of completion of a contract may be determined in a variety of ways. The enterprise uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include: (a) the proportion that contract costs 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 b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ruction of apartments. The agreement provides for demarcated activities, described stage-wise (in short "landmarks") upon the completion of which, payments are to be released by the customer. The rendition of the service results in the accrual of the receipt of consideration in respect thereof. 21. The relevant clause in the construction agreement dated 30.12.2014 (provided as a sample) reads thus: ..... 1. The party of the Second Part shall pay the party of the First Part a sum of Rs.1,75,43,320/- (Rupees One Crore Seventy Five 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 Wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thus becomes taxable upon receipt and according to Mr.Prabhakar, has been offered to tax. 25. Instead of such determination by application of the provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not been offered for service tax. The reporting of income in the P and L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous. 26. It is a well settled position that when a statutory provision or Rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to 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 Taxat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion Rules, only determine the time when the service tax becomes due for the payment and do not create additional liability to tax. In case by following the receipt basis or any other basis if the entire tax liability has been discharged then there can be no demand for the same. However in view of specific stipulation as per the said Rules, if the tax is paid later than the due date then there interest has to be paid for the period of delay. 4.6 In respect of "Preferential Location Charges" impugned order has specifically followed the observations made by the Hon'ble Delhi High Court in case of Suresh Kumar Bansal, supra. In case of Maharashtra Chamber Of Housing Industry [2012-TIOL-78-HC-MUM-ST] Hon'ble Bombay High Court has held as follows: "32. The provisions of clause (zzzzu) 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, ....