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2018 (4) TMI 613

esidential apartments and complexes - projects are undertaken on a joint venture basis, the petitioner being the builder, along with land owners - case of petitioner is 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 and it is incumbent upon the respondent to check 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. - Held that: - AS 7 deals with the recognition of income from building projects on the basis of the Project Completion Method' - The emphasis and thrust of each methodology is in alignment with the different purposes that they bear reference to AS 7, in the context of the preparation of financials, addresses the how much of the transaction over the term of contract whereas Rule 3 of the Rules addresses the when in relation to the rendition of service for computing taxability under the Finance Tax Act 1994. - The foundation of the assessment is flawed. - Rule 3(a) provides for a situation where the accrual of service is predicated upon .....

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1994 for the period January, 2013 to March, 2015. (ii)The respondent at paragraph 4.2 of the SCN, states as follows: '4.2. Since it appeared that in terms of Rule 3 of Point of Taxation Rules, 2011 the assessee is required to pay service tax immediately on raising invoices and the practice adopted by the assessee i.e making payment of Service Tax only on realization basis from the clients as against the accrual basis is in contravention of Rule 3 of the Point of Taxation Rules 2011. From the verification of value declared as Revenue from Operations in the Profit and Loss account and payment of service tax declared in the respective ST-3 returns, it appeared that the assessee have short paid service tax for the period 2012-13 (January to March 2013), 2013-14 and 2014-15. The service tax actually payable as per Profit and Loss account, service tax actually paid and service tax due were calculated and it appeared that the assessee are liable to pay the differential Service Tax amount of ₹ 1,70,07,530/- from January 2013 to March 2015 on account builder's portion and ₹ 16,34,586/- on account of land owner's portion which were already handed over to the owner. .....

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receipt of advance. The assessee had averred that they had paid service tax on receipt basis and there was no short payment of service tax by them and the demand of service tax leads to double taxation on the service income for which service tax has already been paid. However, the assessee have neither given any statement/details on the receipt of consideration received from the buyers during the material period and payment of service tax within the time nor given any break-up details of income reflected as Revenue from Operations in the balance sheet to get exclusion from service category. Assessee had only furnished Annexure A- which is a sample of details reflecting only the advance received from buyers and recognized as income in the subsequent years. The assessee has not given any details of Advance received from the buyers project wise & year wise and details of payment of service tax within relevant date on such advances received during notice period. The assessee have all along stated the method of computation in ST-3 and AS-7 but not furnished any details for the difference in value between ST-3 Return and Balance sheet. In absence of any details, mere averment by the .....

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a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment: (Provided that for the purposes of clauses(a) and (b),- (i) in case of continuous supply of service where the provisions of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; (ii) Wherever the provider of taxable service receives a payment up to rupees one thousand in excess of the amount indicated in the invoice, the point of taxation to the extent of such excess amount, at the option of the provider of taxable service, shall be determined in accordance with the provisions of clause (a).] Explanation For the purpose of this rule, wherever any advance by whatever name known, is received by the service provider towards the provisions of taxable service, the point of taxation shall be the date of receipt of such advance.] 10.Ru .....

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struction contract can be estimated reliably when all the following conditions are satisfied: Construction Contracts 73 (a) total contract revenue can be measured reliably; (b) it is probable that the economic benefits associated with the contract will flow to the enterprise; (c) both the contract costs to complete the contract and the stage of contract completion at the reporting date can be measured reliably; and (d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. 23. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied: (a) it is probable that the economic benefits associated with the contract will flow to the enterprise; and (b) the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably. 24. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is .....

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ed for work performed upto the reporting date bear to the estimated total contract costs; or (b) surveys of work performed; or (c) completion of a physical proportion of the contract work. Progress payments and advances received from customers may not necessarily reflect the work performed. 30. When the stage of completion is determined by reference to the contract costs incurred upto the reporting date, only those contract costs that reflect work performed are included in costs incurred upto the reporting date. Examples of contract costs which are excluded are: (a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and (b) payments made to subcontractors in advance of work performed under the subcontract. . . . . 15. AS 7 thus provides for a detailed methodology for the reporting and determination of the percentage of income from the contract over the term of the project and sets out the mode of computation for arriving at the same. Th .....

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he construction of apartments. The agreement provides for demarcated activities, described stage-wise (in short landmarks ) upon the completion of which, payments are to be released by the customer. The rendition of the service results in the accrual of the receipt of consideration in respect thereof. 21.The relevant clause in the construction agreement dated 30.12.2014 (provided as a sample) reads thus: .. 1.The party of the Second Part shall pay the party of the First Part a sum of ₹ 1,75,43,320/- (Rupees One Crore Seventy Five Lakhs Forty Three Thousand Three Hundred And Twenty Only) for the construction of a Three Bed Room Flat measuring 2055 sq. ft. as per the specifications mentioned in Schedule B and Schedule C in the following manner: At the time of booking - ₹ 25,43,320/- On completion of Basement work - ₹ 26,00,000/- On completion of Ground Floor Roof - ₹ 18,00,000/- On completion of First Floor Roof - ₹ 18,00,000/- On completion of Second Floor Roof - ₹ 18,00,000/- On completion of Third Floor Roof - ₹ 18,00,000/- On completion of Brick Work - ₹ 18,00,000/- On completion of Internal Plastering - ₹ 18,00,000/- On compl .....

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provisions of Rule 3, the respondent relies upon the P and L accounts to conclude that the amounts reflected therein have not been offered for service tax. The reporting of income in the P and L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous. 26.It is a well settled position that when a statutory provision or Rule addresses a specific scenario, such rule/provision is liable to be interpreted on its own strength and context and one need look no further to alternate sources to seek clarity in regard to the issue that has been addressed by the aforesaid rule/provision. 27.I am conscious of the fact, and indeed Mr.Sundar has repeatedly emphasized, that there is an alternate statutory remedy available in respect of the impugned order and as such there is no warrant for the interference of this court in extra-ordinary jurisdiction under Article 226 of the Constitution of India. However, all relevant facts are on record. Both learned counsel concur on the position that the agreements that provide for the landmarks or stages of completion of work by the petitioner and consequential payments by the customers, is .....

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sists that the materials in support of the petitioners stand have not been produced and relies upon the finding in the impugned order to this effect at paragraph 13.5 thereof (extracted earlier). The petitioner has, admittedly, produced the agreements setting out the slabs for payment and an annexure tabulating the receipts, upon completion of each stage of completion of the project before the authorities. It was for the respondent to have looked into the same and called for further information if necessary to assess the receipts in line with Rule 3 of the Rules. Admittedly this has not been done and the respondent merely adopts the income reflected in the P and L account as the receipts for the purpose of service tax which is contrary to the method set out in Rule 3 for the determination of point of taxation and the quantification thereof. 34.In the light of the discussion above, the impugned order of assessment dated 21.04.2017 is set aside and the matter remitted to the file of the Respondent to be re-done de novo strictly in accordance with the provisions of Rule 3 of the Rules and in the light of the observations made in this order after affording due opportunity to the petiti .....

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