TaxTMI 
TaxTMI 
2025 (12) TMI 762
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....tions and conditions as per Agreement for Sale. 3. In pursuance to the Agreement, during the period from April, 2015 to March, 2017 ('relevant period'), the Appellant was undertaking manufacture of biscuits to be sold to BIL and was recording the consideration receive by it from BIL in the books of accounts in compliance with the applicable accounting standards. 4. The Companies Act, 2013 provides that the books of accounts should be maintained in due compliance of the Indian Accounting Standards ('Ind AS') which came into force from 01.04.2015. In accordance with Ind AS-17, which provides for accounting of leases, the Applicant accounted a portion of the consideration received from the Agreement of Sale as lease rent income, even if the instant transaction was not an actual lease. Such portion was the component of the depreciation of plant and machinery owned and used by the Appellant for carrying out the manufacturing activity for BIL, in accordance with Ind AS-17. 5. Under the aforesaid facts and circumstances, an audit was conducted at the Appellant's premises for the relevant period, which resulted in the issuance of the underlying SCN alleging that ....
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....ed order is to be set aside. 4. On the other hand Ld. Authorized Representative supported the impugned order. 4.1 Heard the parties. Considered the submissions. 5. We find that in this case demand of Service Tax has been raised on lease income entry made in the balance sheet for mere compliance of Ind AS 17 and as per the Indian Accounting Standard whether the said demand is sustainable or not the said issue has been considered by this Tribunal in the case of M/s. J.B.Mangharam Foods Pvt. Ltd. (Supra) wherein this Tribunal observed as under: "13. The main allegation in the show cause notice is that the component of "conversion charges", namely, interest", and "depreciation" have been shown towards rental income and are, therefore, leviable to service tax. The basic ingredient of an activity to be taxed under service tax is that the activity should be for a consideration as an element of contractual relationship, wherein the person doing an activity for a consideration does so on the desire of the person. Therefore, in order to levy service tax, the payment should be attributable to a particular service. In this context, we would like to refer the observations of t....
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.... has brought to our notice that prior to 2016, the companies were following the accounting standards prescribed under Generally Acceptable Accounting Principles (GAAP) and pursuant to India converging with International Financial Reporting Standards (IFRS) resulting in Indian Accounting Standards, Ind-AS were notified on 16.02.2015 w.e.f., 1.04.2015. AS-19 and Ind-AS-17 deals with lease accounting under Indian GAAP and Ind-AS respectively. In comparison to AS-19, Ind-A17 provided specific guidance to determine whether an arrangement in substance should be treated as lease or not and, therefore, these accounting under AS-19 was normally applied to transactions which were structured as lease. Since the present transaction did not fell under the ambit of lease in the legal sense. it was not required to be accounted for under the category of leasing in terms of AS-19. The learned counsel has further explained that since the conditions prescribed under para-6, 7, 8 and 9 of Appendix C to Ind-AS17 stands fulfilled, the arrangement between BIL and the appellant was construed as a lease for the purpose of accounting and accordingly the same was disclosed under the balance sheet/financial s....
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....ice tax on the amount of lease rent equalisation shown in the balance sheet. The appeal filed by the Revenue against the said decision was dismissed by the Apex Court leaving the question of law open vide Order dated 28.02.2024. in C.A No.6660 of 2019. Similar view was taken by the Chennal Bench in M/s Mahindra Holiday & Resorts India Ltd. versus Commissioner of LTU, Chennai Final Order No.42485-42487/2018 dated 26.09.2018 CESTAT-Chennai where again it was held that accounting standard makes it mandatory for an assessee to maintain its accounts in a particular manner. It is essentially to act as a balancing factor and it is only an entry made in the balance sheet. It was reiterated that the balance sheet entry could never become an income nor a consideration, nor a payment or the gross amount charged in terms of Section 67(a) and (c) and hence it is nothing but a financial adjustment in the nature of book entry. In a recent decision, the Allahabad Bench in M/s. J.M. Manpower and Security Pvt. Ltd versus Commissioner of Central Excise & Service Tax, Lucknow Final Order No. 70037/2023 dated 30.01.2024-CESTAT-Allahabad in ST Appeal No. 70394 of 2023 has also taken the view, observing ....