Customs, Excise and Service Tax Appellate Tribunal

Neo Structo Constuction Private Ltd. Vs. Commissioner of Central Excise, Customs and Service Tax

MANU/CS/0262/2024

05.07.2024

Service Tax

Advances are adjusted against the bills received on completion of stages of contract and therefore, same are in the nature of earnest money and not liable to tax at the time of receipt

In present case, the Appellant are engaged in providing taxable services in the category of (i) erection, Commissioning or installation (ii) maintenance and repair service (iii) good transportation by road service (iv) man-power recruitment supply agency service etc. During the course of audit, by the department of the appellant's financial records, it was noticed by the department that appellant had received certain advanced payments from their prospective clients.

The department was of the view that as per the explanation 3 provided under Section 67 of the Finance Act, 1994, the appellant should have discharged the service tax on gross amount charge for taxable service which as per the explanation 3 included amount received in advance towards taxable services before, during or after provision of such service. A show cause notice came to be issued demanding service tax of Rs. 2,81,05,210 under Section 73 (1) of the Finance Act, 1994 by invoking the extended time proviso, the provision interest under Section 75 and penalty under Section 76 and 78 of the Finance Act, 1994 have also been invoked. The matter had been adjudicating by the impugned order in origin whereunder all the charges as invoked in the show cause notice has been confirmed by the learned adjudicating authority.

Only issue which is to be decided is whether of an advance payment received by execution a particular contract can be considered as an advance payment towards rendering the service by the appellant.

In this case, the entire amount of advance was received by the appellant in the nature of a loan for purchasing of necessary capital goods, which were required for execution of the service contract obtaining such advance/loan. Same was backed by the appellant by providing bank guarantee of equal amount to the provider of such advance. i.e. service recipient.

Subsequently, as per the contract between the appellants and its customers, the advances so received were adjusted towards supply of service charges. Present Tribunal agree with the submissions of the appellant that the advances are adjusted against the bills received on completion of stages of the contract and therefore same are in the nature of earnest money and not liable to tax at the time of receipt. If contract does not materialize the advance has to be returned back to the customer. Advances were received prior to rendition of service and without specifying a particular stage of service. No event of rendition of service took place and therefore no service tax can be levied on such amount of advance. Appeal allowed.

Tags : Demand Confirmation Legality

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