Advances received in Tax Period under Consideration are Taxable: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the advances received in tax period under consideration are taxable.

It is the case of the assessee that it is engaged in the business of civil construction, it was awarded a contract for construction of factory building by M/s. Lotte Foods India Pvt. Ltd. [hereinafter referred to as ‘LFI’] for Rs.1,78,53,39,880/-. The said contract was signed during the year 2008–09. During the course of audit of the accounts of the assessee by the Internal Audit Group, the audit team appears to have noticed the said agreement and the fact that the customer of the assessee was to make an advance payment of 25% of the contract price.

It is the further case of the Revenue that, from the financial statements like balance sheet and Profit & Loss account for the year 2008–09, at Schedule 8 of the Balance Sheet, an amount of Rs.37,55,76,899/- was shown as current liabilities and provisions – advances from customers.

It was contended that even if it is to be held that the assessee should have paid Service Tax on the invoices raised plus the unilateral credit made, there was no further tax liability on the assessee since the CENVAT Credit lying in their books of accounts for the year ending 31.03.2009 amounting to Rs.79,73,916/- was more than sufficient to take care of the fictitious liability proposed against the assessee. Moreover, it was also claimed that the tax liability worked out in the Show Cause Notice was not based on cum-tax.

A Two-Member Bench of the Tribunal comprising M Ajit Kumar, Technical Member and P Dinesha, Judicial Member observed that “Therefore, there is no doubt that Service Tax was payable upon receipt of the consideration. No other factor such as the time of accrual of the consideration was relevant. Hence, the advance of Rs.37,55,76,899/- having already been received, would become taxable in the month in which the same was received by the appellant. This is of course subject to the qualification that if the appellant is able to establish that any portion of the advance so received was either refunded to its customer or no services were rendered in respect of any portion of the advance, then such portion would not be taxable.”

“Therefore, we hold that the advances, to the extent they have been received in the tax period under consideration (i.e., 2008-09), would be taxable” the Bench concluded.

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