M/s. Auromatrix Hotels Pvt. Ltd. Versus Commissioner of GST & Central Excise
Service Tax
2019 (2) TMI 1246 – CESTAT CHENNAI – TMI
CESTAT CHENNAI – AT
Dated:- 18-2-2019
ST/120/2010 – Final Order No. 40308 / 2019
Service Tax
Hon'ble Ms. Sulekha Beevi C.S., Member (Judicial) And Hon'ble Shri Madhu Mohan Damodhar, Member (Technical)
Ms. Radhka Chandrasekar, Advocate for the Appellant
Shri K. Veerabhadra Reddy, ADC (AR) for Respondent
ORDER
Per Bench
The appellants are providing consultancy and management services to hotels and resorts. They are registered under the category of Management Consultancy Services and Intellectual Property Service. During the course of audit of accounts, it was noticed that they did not pay service tax within the prescribed statutory due dates and belated the payment of service tax for the period from April 2007 to December 2007. Further, they did not discharge appropriate service tax demand on the gross service charges received by them
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
firmed the demand of Rs. 64,13,890/- for the period April 2006 to December 2006 along with interest and also imposed penalty of Rs. 75 lakhs under section 78 of the Finance Act, 1994 with option to pay reduced penalty of 25%. Aggrieved, the appellants are now before the Tribunal.
2.1 On behalf of the appellant, ld. counsel Ms. Radhika Chandrasekar explained that the appellants entered into a resort operation and licence agreement dated 14.4.2005 with M/s. Sterling Holiday Resorts India Ltd. (SHRIL for short). As per the agreement, the appellant was entrusted with the responsibility of operating 11 resorts owned by SHRIL. For rendering such services, SHRIL was to pay various charges to the appellant. However, both the parties, that is the appellant herein and SHRIL reviewed the agreement and mutually agreed to terminate the above service agreement by Final Settlement Agreement dated 1.3.2006. As per the settlement agreement, it was agreed that balance of Rs. 3,29,81,431/- was payable a
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
money only. Thus any consideration received other than money was not subject to levy of service tax prior to 18.4.2006. The department has referred in the show cause notice the said section as it stands after the amendment with effect from 18.4.2006. Therefore, the demand of service tax on the value of immovable property is incorrect. Section 67(1)(ii) prior to 18.4.2006 contemplates amount in money, which is equivalent to the consideration. Consideration also includes amount that is payable. Therefore levy can be made only when consideration is passed on in the nature of money. Further as per Rule 6(1) of Service Tax Rules, service tax shall be paid on the payments received and service tax is on receipt basis.
2.4 The settlement amount was arrived by mutual agreement and then the mode of payment of such settlement was both in nature of money and property. As the settlement took place prior to 18.4.2006, even if property was received as consideration, the value of such property cannot
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
mand of service tax only on the amount relating to the value of the property acquired by them towards the final settlement. She also submitted that the point of taxation rules have come into effect only in 2011 wherein the service tax is thereupon liable to be discharged on accrual basis instead of receipt basis.
3. In grounds para 33, 34 and 35, the appellants have contested the penalties imposed. It is submitted that the service tax of Rs. 33,53,890/- and interest of Rs. 2,93,093/- was paid on 27.3.2008 which is much before issuance of show cause notice which is dated 15.5.2008. She prayed to set aside the penalties.
4. The ld. AR Shri K. Veerabhadra Reddy supported the findings in the impugned order. He submitted that as per Section 67, the appellants are liable to pay service tax upon the monetary value of the immovable property received by them which is also consideration for final settlement of providing the service. The appellant has discharged service tax on amounts received
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
accounts in terms of money only. Merely because a portion of the service charges was paid by the service provider by way of immovable property, does not take away the liability to pay service tax.
5. Heard both sides.
6.1 The assessee is contesting only the demand of service tax raised on the value of immovable property which was given to them as part of settlement deed.
6.2 M/s. SHRIL had entered into an agreement with the appellant for operating the various resorts owned by SHRIL. However, both the parties later agreed mutually to terminate the above agreement by a final settlement agreement dated 1.3.2006. The relevant portion of the settlement agreement is reproduced as under for better appreciation of the facts:-
“AND WHEREAS the parties have had detailed discussions with regard to the settlement of accounts and the mode of payment of the settled accounts consequent to the termination of the said agreement and mutually agreed to freeze the amount payable by STERLING under th
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
five lakhs only) against the amount payable as stated in clause 1 herein above leaving a balance of Rs. 2,09,81,431/- (Rupees two crores nine lakhs eighty one thousand four hundred and thirty one only).
3. Sterling agree to pay another sum of Rs. 1,20,00,000/- (Rupees one crore twenty lakhs only) towards royalty and management fee for the period 1.4.2006 to 31.3.2007.
4. Sterling have agreed to pay the balance of Rs. 3,29,81,431/- (Rupees three crores twenty nine lakhs eighty one thousand and four hundred and thirty one only) as per Annexure A in the following manner:-
ANNEXURE A
I Amount due as per agreement dated 14.4.2005
28,500,000.00
II Management fee upto March 2006
3,400,288.00
III Royalty fee upto March 2006
1,581,143.00
33,481,431.00
Less amount paid till 24.2.2006
12,500,000.00
20,381,431.00
IV Royalty fee for the period April 2006 to March 2007
8,000,000.00
8,000,000.00
V Management Fee for the period April 2006 to
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nt charged by the service provider of such service provided or to be provided. By him.
xxxx xxxxx xxxxx xxxxx xxxxx
Explanation. – For the purposes of this section, –
(a) “consideration” includes any amount that is payable for the taxable services provided or to be provided;
(b) “money” includes any currency, cheque, promissory note, letter of credit, draft pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value.
(c) “gross amount charged” includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called “Suspense account” or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise”.
6.4 Later with effect fro
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.”
6.5 Thus, after 18.4.2006, it can be seen that even if consideration is received as kind or other than money, the value of such kind other than money is also subject to levy of service tax. The value of any immovable property received as consideration would be subject to levy of service tax after 18.4.2006. In the present case, the appellants have received consideration in the nature of money as well as in the nature of immovable property. They paid up the service tax on the consideration received in the form of money. Even if the value of the immovable property is shown in the books of accounts in terms of money, it will not change the nature of the consideration received. The amendment brought forth with effect from 18.4.2006 makes it clear that prior to this date there was no intention to levy service tax on consideration received in the nature other than
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
riods mentioned in Annexure A of the agreement does not indicate that the appellant has provided services from April 2006 to March 2007 or royalty fee was paid from April 2006 to March 2007. The periods mentioned in the said final settlement is only for the purpose quantification of the final settlement amount. The conclusion of the Commissioner that the amount settled by way of selling the immovable property is for the services provided for the period from 1.4.2006 to 31.3.2007 is incorrect. After the final settlement, undisputedly there has been no service provided by the appellant to SHRIL. Though part payments might have been received, such payments including the immovable property is for the services provided (or settled) upto 1.3.2006. It is also to be mentioned that prior to 2011, the service tax has to be discharged on receipt basis and not accrual basis. Though balance payments in the nature of money was received after 1.3.2006, the appellant is liable to pay service tax on su
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
taxable value in cases where the consideration received for taxable services provided is not wholly in money terms and the consideration received is in money terms but not known explicitly. Separate valuation rules are proposed for this purpose”.
6.8 In Vistar Construction (P) Ltd. Vs. Union of India reported in 2013 (31) STR 129(Del.), the Hon'ble High Court of Delhi held that taxable event for service tax was rendition of service and that rate of tax applicable is the one on date on which services were rendered and not the rate on which payments were received. Since the amended Section 67 has come into effect only with effect from 18.4.2006, the immovable property which is part of consideration of Settlement Agreement dated 1.3.2006 would not be subject to levy of service tax.
7. For these reasons, we hold that the demand of service tax on the value of immovable property to the tune of Rs. 30,60,000/- with the penalties thereon cannot sustain and requires to be set aside which we
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
