TaxTMI 
TaxTMI 
2024 (7) TMI 1636
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....ndred Ninety Nine only) (1,35,689.00 (Club or Association Service) + 86,29,510.00 Construction of Complex Service)] against M/s Ganpati Infrastructure Development Company Limited, Ganesh Plaza, 31/472, C/1. First Floor, Sultanganj Bye Pass Road, Agra under Section 73(1) of the Finance Act, 1994. As the noticee has already deposited Service Tax amounting to 3,02,701.00, the same is appropriated against the said confirmed demand of Service Tax. I drop the demand of Service Tax amounting to 21,99,154.00 (Rupees Twenty One Lakhs Ninety Nine Thousand One Hundred Fifty Four only) against the noticee. 2. I also confirm the demand of interest at appropriate rates as applicable from time to time till the deposit of demanded amount of Service Tax from said M/s Ganpati Infrastructure Development Co. Ltd., Agra under Section 75 of the Finance Act, 1994. 3. I hereby impose a penalty of Rs.1,697.00 for the period from 01.07.2010 to 7th April 2011 (100% of the Tax evaded) and 43,81,751.00 for the period from 8th April 2011 to 2013-14 (50% of the Tax evaded) total amounting to Rs.43,83,448.00 (Rupees Forty Three Lakhs Eighty Three Thousand Four Hundred Forty Eight only) upon said....
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.... The noticee was providing club or association service. They were charging club membership charges for providing various facilities. They had also collected amounts under this head but no Service Tax was paid on the same. The noticee was also not registered for club or association service. Shri Nikhil Agarwal, Director of the noticee in his statement dated 21.01.2014 agreed that till 15.03.2013 they had not paid Service Tax on club membership charges. (iii) Shri Nikhil Agarwal stated in his statement dated 05.12.2014 stated that in lieu of club membership fee the buyers of the flat/houses get the facility of Gymnasium. Community Hall and other common facilities; that club membership fee have been charged and received over and above the price of the plot and construction; that they had not paid Service Tax on club membership fee received prior to 31.03.2013 but later on the same amounting to 78,342.00 (ST- Rs.57,477,00 + interest- 20,865.00) has been deposited and intimated vide letter dated 30.09.2014; that all the receipts from customers are considered inclusive of Service Tax and it is paid after reverse calculation: that the noticee undertook all assets and liabilities ....
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....long with interest thereon) should not be appropriated towards confirmed dues: (ii) Interest at the appropriate rate should not be charged and recovered from them under Section 75 of the Finance Act, 1994; (iii) Penalty under Section 76, 77 and 78 of the Finance Act, 1994 should not be imposed upon them." 2.5 Appellant-II was also issued with a show cause notice, asking them to show cause, why penalty should not be imposed on them under Section 78A of the Act. 2.6 These show cause notices were adjudicated as per the impugned order referred in para-1 above. 2.7 Aggrieved appellants have filed these two appeals before the Tribunal. 3.1 We have heard Shri Dharmendra Srivastava, Chartered Accountant alongwith Mohammad Suhail, Advocate appearing for the appellants and Shri Sandeep Pandey, Authorised Representative appearing for the revenue. 3.2 Arguing for the Appellants learned Counsel submits that- * The demand made in respect of club and membership fees should not have been made at all, as the entire demand of Rs. 1,35,689/- of service tax due alongwith due interest of Rs. 20,865/- for the Financial Year 2012-13 was deposited much before the ....
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....-. * Even otherwise, no service tax demand can be made on the appellant, as the demands are being computed on due basis, whereas appellant has been maintaining accounts and depositing service tax on receipt basis. As appellant has been discharging service tax liability on receipt basis i.e. as and when the installments were received from the customers. Therefore, in the successive period when the installments (which have become due earlier) are actually received, service tax liability on such is duly discharged by the appellant. Thus, there is no short payment of tax liability on the part of appellants. The only demand that can be made in the present case of interest on late payment of service tax. * Extended period of limitation cannot be invoked and penalty could not have been imposed. * Penalty on appellant-II under Section 78A cannot be upheld for the reason that for imposition of penalty under this section the Director must be knowingly engaged in contravention of Act which is not true in the present case. 3.3 Learned Authorized Representative appearing for the revenue reiterates the findings recorded in the impugned order. 4.1 We have consider....
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....idential Complex'] and declared service of 'Construction of Complex' w.e.f. 01.07.2012 under Section 66E(b) of the Act. However, for some part of financial year 2012-13 and for 2013-14 the noticee has claimed that some of their construction projects would fall under the category of declared service of 'Work Contract' and claimed the abatement on gross amount received in terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006 as amended w.e.f. 01.07.2012 vide Notification no. 24/2012ST dated 06.06.2012. In view of the dispute in the classification of service provided by Noticee, there is need to discuss the taxability of service and determine the amount of Service Tax financial year-wise. Period-01.07.2010 to 31.03.2011 42.1 The Department has calculated the Tax liability for the period, in the Annexure-A of the SCN, as under: Project-wise Income from 01.07.2010 to 31.03.2011 (Amount in Rs. ) Period Name of Project Total Ganpati Classique Ganpati Kings County Ganpati City Gross Receipts 2963530 40664812 27835211 71463553 %age as Taxable Value 25% 25% 33% Taxable Value ....
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....m of the noticee that the gross receipts for the Ganpati City Project are inclusive of Service Tax is not tenable and cannot be accepted, I find that Service Tax on differential taxable value of Rs.16,476.00 is demandable from the noticee along with interest for the period from 01.07.2010 to 31.03.2011. Financial Year 2011-12 42.2 The Department has calculated the Tax liability for the period, in the Annexure-A of the SCN, as under: Project-wise Income for F.Y.2011-12 (Amount in Rs. ) Period Name of Project Total Ganpati Classique Ganpati Kings County Ganpati City Apr."11-Jun."11 3217500 12701962 Jul."11-Sep."11 30807239 16079262 Oct."11-Dec."11 17266387 18731462 Jan."12-Mar."12 21504834 13141287 Gross Receipts 72795960 60653973 37123168 170573101 %age as Taxable Value 25% 25% 33% Taxable Value 18198990 15163439 12250645 45613129 Taxable Value declared in ST-3 and Differential Service Tax liability (Amount in Rs. ) Gross Receipts Value of Taxable Service Taxable Valu....
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.... the taxable service by the service provider. 33 10 (a) [zzzh) Construction of Complex This exemption shall not apply in cases where the taxable services provided are only completion and finishing services in relation to residential complex, referred to in sub-clause (b) of clause (30a) of section 65 of the Finance Act. Explanation- The gross amount charged shall include the value of goods and materials supplied or provided or used for providing the faxable service by the service provider. This exemption shall not apply in cases where the cost of land has been separately recovered from the buyer by the builder or his representative. 25 42.2.3 In the case of Ganpati City Project, the noticee was charging cost of land separately and the same is not included in the gross receipts of Construction of Residential complex, therefore, noticee was paying Service Tax on 33% of gross receipts in terms of Sl. no. 10 of Notification no. 1/2006-ST dated 01.03.2006 and in respect of other projects, they were paying Service Tax on 25% of gross receipts in terms of Sl. no. 10(a) of the said notification. Noticee pleaded that due to problem in filing of online ST-3 i....
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....f Residential Complex Service during the financial year 2011-12, as evident from the copies of e-payment challans shown in the Returns as well as submitted the copies thereof, therefore, I accept the taxable value declared in the manually filed ST-3 Return. Further, plea of Noticee regarding cum-tax value in respect of Ganpati City Project has already been discussed in above Para and needs no further discussion. I thus find that service tax on differential taxable value of Rs. 1,26,11,236.00 (Rs.4,56,13,129.00-Rs.3,30,01,893.00) is demandable from the noticee along with interest for the financial year 2011-12. The demandable tax, thus comes to Rs. 12,98,957.00; as under: (Amount in Rs. ) Gross Receipts Value of Taxable Service Taxable Value declared in ST-3 Returns Taxable Value suppressed Service Tax payable (Differential) Service Tax @10% Edu. Cess @2% of ST Sec. & High. Edu. Cess@ 1% of ST Total 1 2 3 4 5 6 7 8 170573102 45613129 33001893 12611236 1261124 25222 12611 1298957 Financial Year 2012-13 & 2013-14 43. The Department has calculated the Tax liability for the period, in the Ann....
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.... 165779340 52071359 31090041 28845964 25355296 407683582 %age as Taxable Value 25% 25% 25% 100% 25% 25% Taxable Value 26135396 41444835 13017840 31090041 7211491 6338824 125238426 Taxable Value declared in ST-3 and Differential Service Tax liability (Amount in Rs. ) Financial Year Gross Receipts Value of Taxable Service Taxable Value declared in ST-3 Returns Taxable Value suppressed Service Tax payable (Differential) Service Tax @10% Edu. Cess @2% of ST Sec. & High. Edu. Cess@ 1% of ST Total 2012-13 204021016 74573207 47128327 27444880 3293386 65868 32934 3392187 2013-14 407683582 125238426 93388359 31850067 3822008 76440 38220 3936668 Total 611704598 199811633 140516686 59294947 7115394 142308 71154 7328855 43.1 The noticee pleaded that Department has not considered refunds made by them due to cancellation during the period from May'12 to Dec.'12 in Ganpati City project; 100% of gross receipts has been taken as taxable value from March 13 onwards in respect of Ga....
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.... in the case of Wonder City project (started in 2013-14), the noticee is engaged in the construction of two types of residential complex i.e. Row Houses or Independent Houses (RH) and Ground + 2 Floors (G+2) and in respect of Row Houses, the noticee claimed that the services provided are Work Contract and claimed abatement accordingly under Rule 2A of Valuation Rules, whereas, for project under G+2, the services claimed as Construction of Resi. Complex, I find that provisions relating to Construction of Residential Complex Service are contained under Section 65(105) (zzzh) [Definition of 'taxable service of 'Construction of Complex']: Section 65(300) [Definition of 'Construction of Complex']; Section 65/91a) [Definition of 'Residential Complex'] prior to 01.07.2012 and declared service of 'Construction of Complex w.e.f. 01.07.2012 under Section 66E(b) of the Act and the same has already been defined in the broad heading of Brief Facts of Case of this order, and for the sake of brevity 1 am not reproducing the same here again. However, to understand the declared service of Work Contract, it is necessary to go through the statutory definition of Work C....
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....oject and also in respect of Wonder City Row Houses because amount charged from the service receiver do not includes value of land. The noticee also admitted that they are engaged in the activity of construction of residential complex in the five such projects namely Ganpati City, Ganpati Kings County, Ganpati Classique, Ganpati World and Wonder City [G+2 & RH]. However, Noficee's claim that Ganpati City and Wonder City Row Houses fall under Work Contract is not acceptable as noticee failed to submit copies of any of such contract, copies of relevant Ledger A/c showing contract receipts, details of payment of Work Contract Tax (WCT)/ Value Added Tax (VAT) and other relevant details to substantiate their claim of treating such services as 'Work Contract'. I have perused a copy of Contract/Agreement relied upon by the Department in the case in respect of Ganpati City Project. I find that in this case Allotment Letter has been issued by the noticee to a customer/ service receiver namely Mr. Sandeep K Chetan on 09.02.2013 mentioning therein that. "We are pleased to allot you Residential Unit no. 43 Type 'B' detailed in Schedule 'A' at the foot of th....
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....n of residential complexes under different projects and 'Construction of Residential Complex is more specific description than the 'Work Contract' for the services provided by the noticee. 43.7 The noticee has also claimed that the gross amount in respect of Ganpati City and Wonder City is inclusive of Service Tax. I find that matter has already been discussed in foregoing paragraphs. Moreover, in the copy of Agreement in respect of Ganpati City Project referred above, at Point no. 6 it is clearly mentioned that faxes like service tax, sales tax, levy, duty of any nature by central government. state government and local bodies shall be payable separately by the second party (le, service receiver) and the Noticee's Director has admitted that the Service Tax is being charged from customers separately over and above the cost of house/ flat. I also find that in the SCN, while calculating liability against Ganpati City, refunds due to cancellation of bookings (amount shown in parentheses in the chart enclosed with letter dated 13.09.2014 of the noticee) have been deducted from gross receipts during the period 2010-11, 2011-12 & 2013-14, but for the financial yea....
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....ontract receipts, details of payment of VAT/ WCT, Balance Sheet/ Trial Balance etc. for the relevant period to substantiate their claim, therefore, it could not be ascertained that the details of Work Contract Service shown in ST-3 Returns are actually for these Residential Complex Projects and not for any other Work Contracts. Hence the claim of noticee to add the taxable value of Work Contract for computing the differential Service Tax liability cannot be accepted." 4.5 We find that claim for appellant on cum tax benefit should have been allowed to them as has been discussed in the impugned order and it has been observed that the contracts entered by the party, provided that the amount of tax due are to be paid separately over and above the contract value. The said stipulation in the contract has been accepted by the Director of the appellant. Section 67 (2) of the Finance Act, 1994 reads as follows: "(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged." ....
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...., Ganpati Kings County and 33% in respect of M/s Ganpati City. However for the month of March 2013 and thereafter, the demand has been made on the entire value of gross receipts in case of Ganpati City project. It is contention of the appellant that for the period of March, 2013 and thereafter abatement @60% should have been allowed for determination of the taxable value in terms of Rule 2A of Service Tax (Determination of Value) Rules, 2006 provides for a taxable value of 40% of total amounts charged for work contract. The services provided by the appellant in the said project and similar project would be only "work contract services for original works" as the property in the flat sold in the project is duly passed on to the customer of the appellant, even if the appellant charges for the cost of land separately. The contention of the appellant is that the value should have been demanded after allowing the benefit of abatements i.e. 60% needs to be looked into. It is not correct as has been alleged that after February, 2013 the taxable value have to be the gross value charged, the abatement of 40% claimed for the month of March, 2013 and thereafter needs to be looked into by the O....
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....order. The flaw, as I see it, arises from reliance by the respondent upon the entries in the P and L account to determine the point of taxation of the services rendered and quantification thereof. 13. Before going to the basis of the SCN and impugned order, I extract the basis of finalization of the P and L account itself. Admittedly, the financials, including the P and L account have been prepared on the basis of the Accounting Standards (in short "AS") issued by the Institute of Chartered Accountants of India (in short ICAI). In the present case, the petitioner states unambiguously in the reply to the SCN that the basis of preparation of financials as far as the income from the building project is concerned is the "Project Completion method". 14. AS 7 deals with the recognition of income from building projects on the basis of the "Project Completion Method" and I extract the relevant portions of AS 7, in so far as it is relevant to this writ petition, hereunder : .... Recognition of Contract Revenue and Expenses 21. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated wit....
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....rdance with paragraph 35. 26. A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are recognised as an asset provided it is probable that they will be recovered. Such costs represent an 74 AS 7 amount due from the customer and are often classified as contract work in progress. 27. When an uncertainty arises about the collectability of an amount already included in contract revenue, and already recognised in the statement of profit and loss, the uncollectable amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense rather than as an adjustment of the amount of contract revenue. 28. An enterprise is generally able to make reliable estimates after it has agreed to a contract which establishes: (a) each party"s enforceable rights regarding the asset to be constructed; (b) the consideration to be exchanged; and (c) the manner and terms of settlement. It is also usually necessary for the enterprise to have an effective internal financial budgeting and reporting system. The enterprise reviews and, when necessary, revises the estimates of contract revenue ....
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.... "when" in relation to the rendition of service for computing taxability under the Finance Act, 1994. 17. The basis of the addition by the respondent is clear from the SCN wherein he states that "further, on verification of the profit and loss account of the assessee for the financial years 2012-13, 2013-14 and 2014-15 along with Service Tax Payment shown in the ST3 returns, it appears that the assessee have not paid the appropriate Service Tax." Despite the explanation offered by the petitioner to the effect that it is the Point of Taxation Rules that would govern the determination of time of rendition of service and consequent accrual of receipt and liability to tax thereof, and not the P and L accounts of the petitioner, the respondent persists in adopting the financials for the determination of service tax liability as well. 18. The foundation of the assessment is thus, in my view, flawed. The SCN calls upon the assessee to produce material in support of its stand and, at paragraph no. 11, states that the audited balance sheets for the financial years 2012-13, 2013-14 and 2015-16, statement recorded from the VP of the petitioner, worksheet and written submissi....
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....ause 1 of this Agreement. 4. Payment shall be made by the Party of the Second Part without default to the Party of the First Part. ..... 22. Rule 3(a) provides for a situation where the accrual of service is predicated upon the raising of an invoice. In the present case, the admitted position is that the petitioner does not raise invoices as and when a particular landmark is reached and the accrual of the consideration stage-wise is occasioned automatically upon completion of the stage of construction set out in the agreement itself. 23. It is the specific case of Mr. Prabhakar that the customers have remitted, in advance, the consideration relating to several of the initial landmarks as a lump sum and that the said amount has been offered to tax. It was then incumbent upon the respondent to have, in the light of the stand adopted by the petitioner in its Service Tax Returns, to have examined whether the receipts offered to tax correspond and cover the stages in respect of which consideration has accrued as per the agreement with the customer. 24. Rule 3(a) and (b) provides for the point of taxation to be either the point of raising of i....
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....he Original Authority for re-computation of taxable values and service tax due if any by the appellant only in case of Construction of Residential Complex Services. Issues of penalty imposed will have to be re-decided in the remand proceedings. 4.10 Appeal of Appellant-II i.e. Director in the company is allowed as the only finding recorded against him in para 51 of the impugned order which is as follows:- "51. I also find that Shri Nikhil Agarwal, Director of Noticee was overall incharge of the company and was responsible to the company for the conduct of business of the company and was knowingly involved in evasion of Service Tax and various contraventions of the Act and Rules. In his statement dated 21.01.2014, Shri Nikhil Agarwal stated that he was engaged in decision taking roles of the company. Thus Shri Nikhil Agarwal is liable for penalty under Section 78A of the Act." Impugned order do not record any reason for which the said Director could be said to be illegally involve in the evasion of service tax. In case of V S Bobba [2021 (52) G.S.T.L. 67 (Tri. - Bang.)], Bangalore bench observed as follows: "6. ..... Further, on merit also, we do not find any....