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2015 (12) TMI 1222

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..... complete dominion over the amount and therefore the same cannot be treated as a consideration for any service provided. Therefore the findings lack appreciation of the complete facts and evidences. - advance is not received towards taxable service. The advance is the customer's obligation as his part of the mutual commitment between the two parties to honour the terms of the contract. In respect of some customers, the invoices are not issued for periods ranging upto two years after receipt of advances. The defence of the appellant is that these amounts are shown as current liability in their books of accounts and no services have been provided as yet by them. The Commissioner neither refers to these details nor gives any findings on this issue. Therefore we find no reason to disbelieve the statement of the appellant and take it that the Commissioner too does not dispute this fact. In any case it is on record now that the appellant have paid service tax on the unadjusted advances in July 2011. - impugned order has no merits and is liable to be set aside - Commissioner, in the adjudication order, did not dispute the fact that the service tax was paid periodically on invoice value .....

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..... gross value including the proportionate advance which is deducted against every invoice raised. However, a show cause notice was issued on 2/5/2011, which culminated in the impugned order, in which it was held by the Ld. Commissioner that Service Tax of ₹ 18,08,18,228/- is payable on the advances received for the period April 2006 to March, 2011. Interest was also ordered to be paid in terms of Section 75 of the Finance Act, 1994, penalties were also imposed under Sections 77 and 78 of the Finance Act, 1994. 4. Heard both sides and considered their submissions. 5. Ld. Advocate emphasized that the so called advance is only in the nature of security deposit to ensure contractual commitments. The advance is shown as current liability in the books of accounts and not shown as income. It is provisionally transferred to sale / consideration for service as and when proportionate amount is deducted from the invoices raised on the customers. Ultimately the service tax is paid on the advances at the time of raising of invoices and therefore there is no liability to pay service tax again on the advances. According to him, in any case, advance is not received towards value of taxab .....

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..... Thousand Only) of the Contract price valid until the completion of Scope of Work ( payment security ). Upon receipt of the payment security, the Owner shall pay to the Contractor 10% of the Contract Price as an advance payment (Initial Advance ) amount to ₹ 80.50 Lacs (Rupees Eighty Lacs Fifty Thousand Only). 11.1.2 The value of the Payment Security shall be reduced on a quarterly basis in proportion to the amount of advance adjusted in the invoices of the Contractor. 11.1.3 The payment Security will be reduced by the Bank Guarantee issuing Bank of such payment Security based on a letter that shall be issued by the Owner to Such Bank Guarantee issuing Bank authorizing the reduction of the value of the payment Security. We find from the agreement that it true that the security payment is to be reduced in proportion to the amount of advance adjusted in the invoices of the contactors i.e. appellant. We also find from para 11.2 (shown below) of the agreement that the advance payment is made on mobilization of site by the appellant. We note that it is the normal procedure in such contracts to provide advance payment which helps the contractors to mobilize men/mater .....

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..... This Bills Amount (Rs.) 1 2 3 4 5 6 7 8 Value of work completed Add: Service Tax @10% Add: Education Cess @ 2% Add: S H Cess @ 1% Total (1+2+4) Less: Advance Amount payable (5-6) Less TDS @2% on 2803959.48 3,105,160.00 310,516.00 6210.32 3105.16 3,424,991.48 621.032.00 2,803,959.48 56,079.19 Net Amount payable thro LC (7-8) 2,747,880.29 (Rupees Twenty Seven lakhs Forty Seven thousand Eight hundred Eight and Twenty Nine Paise only) Net amount to be payable through LC for the work Completed upto the month of Dec'10 is ₹ 2,747,880.29 As per LC terms and conditions kindly issue above details on your letter head Service Tax No. AACCT1032OST001 Tamilnadu VAT TIN No. 33140821265 Maharashtra VAT TIN No. 2763000038V w.e.f. 01.04.2006 Nature of Service: Erection Commissioning For Thermax Infrastructure Ltd. Authorised Signatory .....

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..... present case the advance is like earnest money for which a Bank Guarantee is given by the appellant. It is a fact that the customer can invoke the Bank Guarantee at any time and take back the advance. Hence the appellant does not show the advance as an income, not having complete dominion over the amount and therefore the same cannot be treated as a consideration for any service provided. Therefore the findings lack appreciation of the complete facts and evidences. 8.1 The Commissioner's findings seem to be based solely on the provisions of Section 67(3) of the Finance Act, 1994 which is as under: The Gross amount charged for taxable service shall include any amount received towards taxable service before, during or after the provision of such service . The Commissioner has not interpreted the law correctly. As per above law, the gross amount charged shall include any amount received towards taxable service. In our considered view, the advance is not received towards taxable service. The advance is the customer's obligation as his part of the mutual commitment between the two parties to honour the terms of the contract. Reliance is placed on the case of Paha .....

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..... ting a levy of ₹ 3,15,253/- that shall not be approved to be taxed without service being provided. On the above reasoning, we dismiss the appeal of Revenue without accepting the reasoning given by the Ld. Commissioner (Appeals). We have shown above that service tax is paid on the total value of services provided periodically. And the advances are deducted from the total value which includes value of services provided. 9. It is also alleged in the show cause notice that in respect of some customers, the invoices are not issued for periods ranging upto two years after receipt of advances. The defence of the appellant is that these amounts are shown as current liability in their books of accounts and no services have been provided as yet by them. The Commissioner neither refers to these details nor gives any findings on this issue. Therefore we find no reason to disbelieve the statement of the appellant and take it that the Commissioner too does not dispute this fact. In any case it is on record now that the appellant have paid service tax on the unadjusted advances in July 2011. 10. Much as we may try to convince ourselves, we are unable to accept Ld AR's suggesti .....

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..... ch verification would show payment of ₹ 6.24 crores only because the rest of the payment is shown in the invoices in which the advances were adjusted. Later the Commissioner was even summoned by the Tribunal but no proper verification could be shown in terms of High Court directions. However this proceeding was only in the context of the Stay Application. 12. As regards the main Appeal, we find that the Commissioner, in the adjudication order, did not dispute the fact that the service tax was paid periodically on invoice value and that the advance was adjusted in each invoice reducing the outstanding amount correspondingly. The Commissioner only determined that service tax is payable on the advances. We have already expressed our view that the service tax was not required to be paid on the advances and further when the amounts of advance were adjusted proportionately in the invoices and service tax was paid on the invoice value. 13 In view of our findings above, the impugned Order is set aside and Appeal is allowed with consequential relief if any, in accordance with law. Stay petition also stands disposed of. ( Order pronounced in court on 2.12.2015 ) - - Tax .....

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