MUMBAI, JAN 10, 2018: THE period involved is 16.06.2005 to 31.03.2010.

The appellant assessee is engaged in Commercial & Industrial Construction Service and are paying service tax. They were issued SCN proposing ST demand on the ground that they have not paid service tax on receipt of advance from their customersand which were later adjusted against the bills received on completion of stages of the contract.

Further, demand was raised on the ground that the appellant had availed full credit on the amount of service tax paid on their input services whereas they have retained certain portion of the total amount to be paid to vendor s as safeguard against completion of their various projects in the form of retention amount and thus they were required to take proportionate credit. It was also alleged that appellants were sending their Engineers abroad for supervision, erection & commissioning as per the contract entered and who were paid remuneration. Inasmuch as the consideration received for services rendered abroad does not amount to Export of Service and hence they are required to pay service tax on the consideration under the category of Consulting Engineers.

The adjudicating authority confirmed the service tax demand alongwith interest in respect of the advance payment received by appellant and also imposed equivalent amount of penalty. He, however, dropped the service tax demand on retention amount retained (by appellant) of their vendors and also dropped the service tax demand on services rendered outside India to their sister concern.

Hence, both, the assessee and the Revenue are in appeal before CESTAT.

After considering the elaborate submissions made by both sides, the Bench observed -

In the matter of Assessee appeal:

++ In case of Advance receipt from the customers, we find that the amount was received by the assessee as security/guarantee amount. It is obvious that for big contracts whichare spread over years, the service provider needs to have specific performance guarantee from their customer. The assessee, in turn,has issued Bank Guarantee amount to their customer. Thus the amount is guarantee from both the sides. Such amount cannot be considered as advance receipt since it is normal feature of contracts. [Shri Hanuman Cotton Mills and Ors. Vs. Tata Aircraft Limited AIR 1970 SC 1986 refers]

++ There is no doubt to our mind that the advance-cum-security bank guarantee to the assessee by the contract awarding party is in the form of earnest money. Thus the same is not liable to tax. It is also found from the certificate issued by the Chartered Accountant that the aseessee has discharged service tax liability on the entire amount of such advances. We thus find no reason to hold that the said amount is liable to be taxed at the time of receipt. It became the part of consideration only when it was proportionately included in the stage wise completion of work for which invoices were raised and service tax was paid by the assessee. Even if it is assumed that the said amount was not in the form of earnest money but was received as Advance in that case also no service tax could have been demanded at the time of receipt as the same was not taxable. [M/s Thermax Insulation Ltd. 2015-TIOL-2736-CESTAT-MUM, J.R.Industries - 2009-TIOL-1030-CESTAT-DEL relied upon]

In the matter of Revenue appeal:

++ We find that though the amount against supply of services by the sub contractors was retained by the assessee but the amount of service tax was paid in full to the supplier/ vendor. The amount was retained by the assessee in terms of understanding between the assessee and their vendors and not due to non-payment. The same was agreed to by both the parties. [PATEL AIRFREIGHT 2014-TIOL-739-CESTAT-AHM& Board Circular No. 122/3/2010-ST dt. 30.04.2010 relied upon] We thus do not find any reason to take a different view from the adjudicating authority and hold that the credit is available to the assessee in such circumstances.

++ It is not in dispute that the services (by Engineers) were rendered abroad. It is also not in dispute that the main contractor of the assessee received the consideration in foreign currency who in turn made payment to the assessee. In such case, we find that the services rendered by the assessee falls under the Export of service which is eligible for exemption from service tax. [SUPRASESH GENERAL INSURANCE SER. & BROKERS P. LTD - 2015-TIOL-2225-HC-MAD-ST, NIPUNA SERVICES LTD. - 2009-TIOL-709-CESTAT-BANG, PAUL MERCHANTS LTD. - 2012-TIOL-1877-CESTAT-DEL relied upon] We thus hold that the assessee is not liable for payment of service tax on services rendered abroad.

In fine, the assessee appeal was allowed and that of Revenue was rejected.

(See 2018-TIOL-141-CESTAT-MUM)