The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai Bench observed that unbilled revenue is not consideration and hence not taxable.
Entertaining a doubt that as per the balance sheet for the year under challenge and the Profit & Loss account, the assessee was liable to pay Service Tax on the amount received on accrual basis at the time of debiting / crediting of transactions with the associated enterprise in the books of account, as per Explanation (c) to Section 67 of the Finance Act, 1994, read with explanation to Rule 61 of the Service Tax Rules, 1994.
A Show Cause Notice dated 07.04.2010 came to be issued alleging as per the above and with a proposition to demand appropriate Service Tax, applicable interest under Section 75 and penalty under Sections 76 and 78 of the Finance Act, 1994. In the said Show Cause Notice, the Revenue has, by alleging suppression of the actual taxable income in their S.T.-3 returns with an intention to evade payment of Service Tax, invoked the extended period of limitation.
With regard to the claim of the assessee that they had paid Service Tax on receipt basis during the year, the Commissioner observes that a sum of Rs.23,75,85,656/- was recognised as income in the books of accounts just for the purposes of Accounting Standards-7 and hence the same cannot be treated as income liable for Service Tax as per Explanation (c) to Section 67(4).
Transaction with an associate enterprise has to be strictly construed as gross amount received for the purposes of levy of Service Tax and hence, the unbilled amount of Rs.23,75,85,656/- was required to be added to the billed revenue of Rs.21,67,76,732/- for the purposes of computation of Service Tax; hence, apart from the ‘Income from projects’ of Rs.45,43,62,388/- shown in the books of accounts, the advance received of Rs.37,55,76,899/- is also required to be taken into account for the purposes of computing Service Tax.
A Two-Member Bench of the Tribunal comprising M Ajit Kumar, Technical Member and P Dinesha, Judicial Member observed that “The fact that these amounts continued at the end of the relevant tax period to appear as unbilled revenue demonstrates that no receipts had been made in that respect. Therefore, there is no question that the unbilled revenue did not represent consideration though which has been received by the appellant for services rendered, they would be taxable only at the time of receipt in accordance with the provisions of Rule 6.”
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