Log in Register

Login to your account

Username *
Password *
Remember Me

Create an account

Fields marked with an asterisk (*) are required.
Name *
Username *
Password *
Verify password *
Email *
Verify email *
Captcha *
View more blog entries

Consult Construction

Consult Us For Construction

No service tax on Advance received as an earnest money

Posted by on in Service Tax
  • Font size: Larger Smaller
  • Hits: 367
  • 0 Comments
  • Subscribe to this entry
  • Print
  • Report this post

Advance received as an earnest money for which bank guarantee of equal amount is given to the customers, is more in the nature of a deposit and accordingly not liable to Service tax unless it is adjusted towards the consideration for services rendered

Thermax Instrumentation Ltd. Vs. Commissioner of Central Excise, Pune – I [2015 (12) TMI 1222 – CESTAT MUMBAI]

Facts:

Thermax Instrumentation Ltd. (“the Appellant”) was providing services in relation to Erection, Installation and Commissioning activity. To meet the contractual commitments, the Appellant use to receive 10% as an advance payment from the customers, for which counter bank guarantee of equal amount was provided to the customers. The amount of advance given by the customer was reduced in proportion to the value of work completed as shown in the invoices raised upto any stage of work executed as per the terms of the contract. The amount of bank guarantee provided by the Appellant was correspondingly reduced in proportion to the amount of advance adjusted by them. Accordingly, Service tax was paid on the invoice value on accrual basis even before the receipt of consideration.

The Department alleged that the advance payment received by the Appellant is liable to Service tax while the Appellant contended that the advance received was only in the nature of security deposit which were shown as current liability in their books of accounts and not shown as income towards consideration for services rendered.

Period involved: April 2006 to March, 2011

Held:

The Hon’ble CESTAT, Mumbai relying upon the judgments in the case of Paharpur Cooling Towers Ltd. Vs. Commissioner of Central Excise and Custom, Raipur [2015 (1) TMI 727 – CESTAT New Delhi] and Commissioner of Central Excise, Ludhiana Vs. JR. Industries [2009 (5) TMI 521 – CESTAT New Delhi], held that in the present case, the advance is like earnest money for which a Bank Guarantee is given by the Appellant. It is a fact that the customer can invoke the Bank Guarantee at any time and take back the advance. Hence, the Appellant does not show the advance as an income, not having complete dominion over the amount and therefore the same cannot be treated as a consideration for any service provided.

The Appellant has rightly paid the taxes that are at the time of issue of invoices on accrual basis even when tax was to be paid on receipt of payment basis as per law existing during the relevant period.

Rate this blog entry:
39
Trackback URL for this blog entry.

Comments

  • No comments made yet. Be the first to submit a comment

Leave your comment

Guest
Guest Monday, 21 August 2017

Like us on facebook

Twitter Feed

ConsultC Session organised by Builders' Association of India on RERA and GST at Mumbai https://t.co/D6bjdqk54I
ConsultC The word is spreading on https://t.co/QI70LPC81h

Address

Address:
304, Super Plaza, Sandesh Press Road, Vastrapur, Ahmedabad
Gujarat-380054
Tel:
+91 - 079 - 40032950
E-Mail:
This email address is being protected from spambots. You need JavaScript enabled to view it.
Website:
www.consultconstruction.com

markerFind on Google Maps

Who we are

We are Ahmedabad based professional consulting firm. We are providing various services to Construction, Real Estate and Project Companies in various areas like Indirect Taxation – Service Tax & Multi state VAT consultancy, ERP implementation, Site & Management audit, Designing Tender & other related contractual documents etc.