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FIRM FOUNDATIONS & HOUSING PVT LTD Vs PRINCIPAL COMMISSIONER OF SERVICE TAX, CHENNAI

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2018-VIL-170-MAD-ST

FIRM FOUNDATIONS & HOUSING PVT LTD Vs PRINCIPAL COMMISSIONER OF SERVICE TAX, CHENNAI

Service Tax - construction of residential apartments and complexes – petition challenging assessment by computation of service tax as per the Profit and Loss account prepared on the basis of the AS 7 – demand of differential tax - Relevance of the P&L accounts of the petitioner in the determination of point of rendition of service and the method of quantification of receipts in respect thereof - application of Rule 3 of the Point of Taxation Rules, 2011 –

HELD - AS 7 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. The basis of such recognition and reporting is the apportionment of the income earned and expenditure incurred over the tenure of the project. This is entirely different and distinct from the scope, object and application of the Point of Taxation Rules that seeks to set out a methodology for determination of when the service was rendered and consequently when the receipt of income from such rendition be taxed - Rules 3(a) and (b) provide for the point of taxation to be either the point of raising of invoice or in a case where the service provider has received the payment even prior to the time stipulated in the invoice, upon receipt of such payment - Instead of such determination by application of the provisions of Rule 3, the department relies upon the P&L accounts to conclude that the amounts reflected therein have not been offered for service tax.

The reporting of income in the P & L being irrelevant for the purposes of determination of service tax payable, the basis of the impugned assessment is erroneous - The petitioner is recognizing revenue under the 'Project Completion Method' in terms of AS-7 issued by ICAI. We need not concern ourselves with the method followed for the preparation of financials as the same has no impact upon the Point of Taxation Rules. Suffice it to state that the AS provides a certain methodology for the computation of income from projects that is at variance with the method set out under Rule 3 - Insofar as Rule 3 sets out a specific modus operandi in this regard, it assumes priority and is the only relevant factor to be taken into account in the determination of point of rendition and accrual of services for the purpose of imposition of service tax - the impugned order of assessment is set aside and the matter remitted to the Respondent to be re-done de novo strictly in accordance with the provisions of Rule 3 of the Rules - The Writ Petition is allowed

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