2025 (5) TMI 1530 - AT - Service Tax

Non/short-payment of service tax - Preferential Location or External or Internal Development of Complex Service - Club Construction cost received by Appellant under the head Club or Association Service - difference in tax payable on receipt basis and as per the Point of Taxation Rules 2011 POT Rules 2011 - cash recovered which was allegedly collected from customers over and above the Agreement cost - tax collected from customers on account of cancelled bookings of flats which was not refunded - Burden of proving the taxability. Demand of service tax of Rs.52, 43, 416/- under the head Preferential Location or External or Internal Development of Complex Service on the amount of advances received from the prospective buyers - HELD THAT - In the present case on perusal of the agreements with buyers provided by the Appellant we observe that the entire services provided by the Appellant form a single transaction. A single Agreement was done for the sale of flats/units and preferential location charges (if any) were a part of the cost of such unit. No separate charges were collected for the preferential location distinct from the original agreement. Similarly the preferential location was a part of the transaction of construction service and no separate service was provided over and above the Agreement. The fact that such PLC was separately mentioned in the bifurcation of cost provided to customer is immaterial. A bifurcation of cost by its very definition refers to a breakdown of the entire cost based on various elements. It does not imply that such costs were separate and in addition to the original agreement cost. Therefore the Adjudicating Authority has erred in holding that the Appellants were providing a separate service under the head of Preferential Location or External or Internal Development of Complex Service . Reliance is placed on the Order of this Bench in the case of M/s SJP Infracon Limited Vs. Commissioner of Central Excise Service Tax Noida 2018 (12) TMI 253 - CESTAT ALLAHABAD in this respect wherein it was held that amounts like preferential location charges included in the total construction cost are to be considered as a bundled service of construction and cannot be held to be taxable under separate heads for the sake of disallowing benefit of abatement to taxpayers. The demand of service tax of Rs.52, 43, 416/- confirmed in the impugned Order under the head of Preferential Location or External or Internal Development of Complex Service set aside. Demand of service tax of Rs.11, 27, 850/- under the head Club or Association Service on the allegation that the Appellant collected Club membership fees from their customers - HELD THAT - In the present case the Appellant is collecting an amount of Rs.50, 000/- from its buyers towards cost of construction of club and associated facilities. We find that since no club or association is in existence in the relevant period the question of any service being provided by a club or association does not even arise. The concerned amount is merely a cost of construction which will naturally be a part of the taxable value of construction services provided by the Appellant. Consequently the Appellant would be entitled to avail the benefit of abatement as provided under Notification No.01/2006 dated 01.03.2006 and Notification No.26/2012 dated 20.06.2012. There are no merit in the contention of the Adjudicating Authority stating that such club construction cost is nothing more than club membership fees. Since the club is not even in existence such demand based on an assumption without any basis is bad in law - the demand of Rs.11, 27, 850/- confirmed in the impugned Order under the head of Club or Association Service set aside. Demand of service tax of Rs.25, 65, 993/- based on the POT Rules 2011 - HELD THAT - The Adjudicating Authority has disregarded the payment of tax and interest by the Appellant in favour of unilaterally confirming demand under the Point of taxation Rules. We do not find any merit in this approach. The Point of Taxation Rules is a procedural requirement the final aim of which is to ensure timely and correct payment of tax. Since tax has been eventually and correctly paid by the Appellant and interest has been deposited in lieu of any late payment there are no reason to sustain the demand. Such demand would amount to double taxation and hence cannot be sustained. The learned Authorized Representative of the Appellant has referred to an Order of this Bench in the case of M/s Ganpati Infrastructure Development Company Ltd. Vs. Commissioner of Central Excise Service Tax Agra 2024 (7) TMI 1636 - CESTAT ALLAHABAD wherein it was held that where payment of service tax has been made on receipt basis demanding service tax on due basis again would amount to double taxation. In such case the taxpayers would only be liable to pay interest from the due date as determined under the POT Rules 2011. The above Order squarely applies to the present case and there are no reasons to deviate from the same. Accordingly the demand of Rs.25, 65, 993/- is set aside. Demand of service tax of Rs.24, 40, 589/- on cash receipts alleged to have been received by the Appellant form its buyers over and above the Agreement cost - HELD THAT - It is the minimum requirement to prove the above mentioned aspects for there to be a basis chain of events which may potentially indicate clandestine removal by Appellant. However no evidence has been brought on record by Revenue. It is noted that no cross-verification has been done by the Revenue with the buyers to determine whether any cash was paid by them to the Appellant. There are no merit in the Adjudicating Authority s contention that since no evidence has been brought on by Appellant; such entries refer to cash received for clandestine removal. Tax payer cannot be expected to provide justification for any loose sheet of paper which is not a part of its books of account in absence of any credible evidence supporting the legitimacy of such paper. The Adjudicating Authority has failed to establish even a proper reasoned chain of events based on any evidence which may lead to a believable probability of receiving cash in excess of agreement. Accordingly the allegation of receiving cash by Appellant over and above the agreement cannot be sustained. Thus the demand of Rs.24, 40, 589/- confirmed in impugned Order set aside. Demand of Rs.59, 085/-based on the allegation that such amount pertains to service tax collected by the Appellant from its customers which retained in cases of transferred/cancelled bookings and was neither refunded o the customers nor paid to the Government - HELD THAT - No explanation or reasoning has been provided with respect to this issue in the appeal memo. It is observed that Appellant in its Additional Submission has accepted such demand and has stated that such amount along with applicable interest has already been paid. A copy of Challan has been brought on record before us in this regard - such payment made be adjusted towards the same. Thus the demand confirmed is set aside. Burden of proving the taxability - HELD THAT - Throughout the impugned Order the Adjudicating Authority has denied the Appellant s contentions and confirmed demand based on an alleged lack of evidence. Irrespective of the un-sustainability of the demand as discusses in the above paragraphs the burden of proving the taxability was on the Revenue and the same has not been discharged. No documentary evidence has been brought on record by the Revenue to support its allegations. The Tribunal set aside all confirmed demands of service tax interest and penalties arising from the impugned Order-in-Original - appeal allowed.

Summary

The core legal questions considered by the Tribunal in this matter encompass the following issues:

1. Whether the amount received by the appellant as Preferential Location Charges (PLC) constitutes a separate taxable service under Section 65(105)(zzzzu) of the Finance Act, 1994, or forms part of the bundled construction service eligible for abatement.

2. Whether the amount collected as club construction cost from buyers is taxable under the head 'Club or Association Service' as per Section 65(105)(zzze) of the Finance Act, 1994, or is part of the construction service eligible for abatement.

3. Whether the appellant's payment of service tax on receipt basis instead of due basis under the Point of Taxation Rules, 2011, justifies additional demand for service tax and interest.

4. Whether the alleged cash receipts over and above the agreement cost, as indicated by loose papers recovered during search, amount to clandestine receipt of income liable to service tax.

5. Whether the service tax collected on cancelled or transferred bookings, retained by the appellant and neither refunded nor paid to the government, is liable to be demanded.

6. The overarching issue of burden of proof regarding taxability of transactions and whether the Revenue has discharged this burden adequately.

Issue 1: Taxability of Preferential Location Charges (PLC)

The legal framework involves Section 65(105)(zzzzu) of the Finance Act, 1994, which defines taxable service relating to preferential location or development of a complex. The Department's Circular No.334/1/2010-TRU dated 26.02.2010 clarifies that charges for preferential location are taxable if separately charged over and above the construction service. Section 66F(3)(a) of the Finance Act, effective from 01.07.2012, governs interpretation of bundled services, stating that if various elements are naturally bundled, the bundle is treated as a single service with the essential character prevailing.

The Tribunal noted the following conditions for PLC to be taxable separately: provision of a specific advantageous location, separate consideration charged over construction cost, and the service being over and above the original construction service.

In the present case, agreements with buyers showed a single transaction encompassing all costs, including PLC, without any separate additional charge. The Tribunal held that PLC is an element naturally bundled within construction service, thus eligible for abatement under Notification Nos. 01/2006 and 26/2012. The mere bifurcation of cost for transparency does not amount to separate service.

The Tribunal relied on precedents, including a recent order of the same Bench, which held that hypothetical or notional calculations of PLC without actual receipt of additional consideration do not attract service tax separately. The Tribunal concluded that the Adjudicating Authority erred in treating PLC as a separate taxable service.

Issue 2: Taxability of Club Construction Cost under 'Club or Association Service'

Section 65(105)(zzze) defines 'Club or Association Service' as services provided by clubs or associations to members for a subscription or amount. Section 65(25aa) defines 'club or association' and excludes certain bodies.

The appellant collected Rs.50,000 per flat towards construction of club facilities, which had not yet come into existence. The Tribunal found that since no club or association existed during the relevant period, no service was provided by such entity. The amount was part of construction cost and thus eligible for abatement.

The Tribunal rejected the Revenue's contention equating the amount to club membership fees, emphasizing the absence of any club or association providing services. Reliance was placed on a prior decision of the Bench holding that club building charges included in construction cost form part of bundled construction services and are not separately taxable.

Issue 3: Payment of Service Tax on Receipt Basis vs. Due Basis under Point of Taxation Rules, 2011

Rule 3 of the Point of Taxation Rules, 2011 mandates payment of service tax on due basis. The appellant admitted payment on receipt basis and paid interest on late payment.

The Tribunal acknowledged that the tax and interest were ultimately paid on the correct due dates. It held that since tax was not evaded but paid with interest, confirming additional demand would amount to double taxation, which is impermissible. The Tribunal relied on a precedent where similar facts led to dismissal of additional demand, holding that interest suffices to address delayed payment.

Issue 4: Alleged Cash Receipts Over and Above Agreement Cost

The Revenue alleged that loose papers recovered during search showed entries under 'INTT' indicating cash received clandestinely over and above agreement cost. The Adjudicating Authority relied on the principle that proof on balance of probabilities suffices for clandestine removal.

The appellant contended that 'INTT' likely refers to notional interest calculations, that the loose papers were not part of books of accounts, and that no corroborative evidence was produced by the Revenue. The appellant also cited case law emphasizing that serious allegations like clandestine removal require tangible corroborative evidence and cannot rest on assumptions or presumption.

The Tribunal reviewed relevant judgments holding that loose slips or private records not linked conclusively to the appellant cannot form basis for demand. It underscored that the burden of proof lies on Revenue to establish linkage, legitimacy of entries, and actual receipt of cash. No cross-verification with buyers or other corroboration was done by Revenue.

Consequently, the Tribunal held that the demand based on such unsubstantiated allegations was unsustainable and set aside the demand of Rs.24,40,589/-.

Issue 5: Service Tax on Cancelled or Transferred Bookings

The Revenue demanded Rs.59,085/- on account of service tax collected from customers on cancelled or transferred bookings that was neither refunded nor paid to Government.

The appellant accepted the demand and produced evidence of payment along with interest. The Tribunal accordingly held that the payment made should be adjusted against the demand and set aside the confirmed demand.

Issue 6: Burden of Proof on Taxability

The Tribunal emphasized that the burden of proof regarding taxability of a transaction lies on the Revenue, especially since the Finance Act, 1994 does not impose burden on the taxpayer to prove taxability unless exemption is claimed. The Tribunal referred to Sections 101 and 103 of the Evidence Act, 1872, which place the burden on the party asserting a fact.

The Tribunal noted that the impugned Order repeatedly emphasized lack of evidence from the appellant to disprove taxability, which is legally incorrect. The Revenue must discharge the burden of proving taxability with documentary evidence, which was not done in this case.

Accordingly, the Tribunal held that the entire demand confirmed on the basis of unsubstantiated allegations and lack of evidence from the appellant was erroneous and liable to be set aside.

Significant Holdings and Core Principles Established:

"For an activity to be taxable under the head 'Preferential Location or External or Internal Development of Complex Service', the following conditions must be satisfied: there should be provision of a specific location; such location must be more advantageous than a general location; a consideration must be charged from buyer for the said location; such provision of preferential location must be over and above the original transaction of construction service; and such consideration must be separate and additional to the consideration received for construction service."

"If various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character."

"Amounts like preferential location charges or club building charges included in the total construction cost are to be considered as a bundled service of construction and cannot be held to be taxable under separate heads for the sake of disallowing benefit of abatement to taxpayers."

"Where payment of service tax has been made on receipt basis, demanding service tax on due basis again would amount to double taxation. Taxpayers would only be liable to pay interest from the due date as determined under the Point of Taxation Rules, 2011."

"Allegations of clandestine removal based on loose papers or private records not linked conclusively to the appellant cannot be made the basis of confirming demand. The burden of proof lies on the Revenue to establish linkage, legitimacy of entries, and actual receipt of cash."

"The burden of proving taxability of a transaction lies upon the Revenue, especially before the Negative List regime, and cannot be shifted to the taxpayer. Lack of evidence from the appellant to prove non-taxability does not justify confirming demand."

"Demand confirmed on unsubstantiated allegations by contending lack of evidence on part of appellant is liable to be set aside."

In conclusion, the Tribunal set aside all confirmed demands of service tax, interest, and penalties arising from the impugned Order-in-Original, allowing the appeals with consequential relief as per law.