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Builder's point of taxation determinable per Service-Tax law, not accounting methodology adopted

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HC quashes differential service tax demand of Rs. 1.70 Cr (approx.) raised on builder on the basis of value declared as ‘Revenue from Operations’ in P&L Account vis-a-vis ST-3 Returns; On the other hand, accepts assessee-builder’s reliance on provisions of Rule 3 of Point of Taxation Rules 2011 r/w CBEC Circular No. 144/13/2011-ST whereby service tax was being paid on receipt basis, for continuous supply of service;


Notes that the financials, including P&L Account, are prepared in terms of AS-7 which deals with recognition of income from building projects as per ‘Project Completion Method’ i.e. apportionment of income earned and expenditure incurred over the tenure of project; This is entirely different and distinct from the scope, object and application of Point of Taxation Rules that seek to set out a methodology for determination of when service was rendered and consequently, when receipt of income from such rendition be taxed, remarks HC; Observes, “…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…”;


Finds that agreement for construction provides for demarcated activities described stage-wise upon completion of which, payments are to be released by customer, assessee does not raise invoices as and when a particular landmark is reached; Since assessee claimed to have discharged service tax on lump-sum advances received from customers in accordance with Rule 3(b) of Point of Taxation Rules, it was incumbent upon Revenue to examine whether receipts offered to tax correspond and cover stages in respect of which consideration had accrued as per agreement; States, “…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 resultantly, rejects Revenue’s plea of alternate statutory remedy observing, “…where the basis of the assessment is itself contrary to the provisions of the Finance Tax Act, 1994 and the Rules, I am inclined to interfere…”;

Distinguishes CESTAT decisions referred to by Revenue, stating that they were rendered prior to enactment of Point of Taxation Rules and Rule 3 thereof  : Madras HC

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