Order Date – 13 October, 2023

Parties: Shankaranarayana Constructions Private Limited vs. The Commissioner of Central Tax, Bangalore East Commissionerate

Facts –

• The Appellant, Shankaranarayana Constructions Private Limited, is involved in providing ‘Construction Services.’
• Revenue officers noted that the appellant did not pay Service Tax on mobilization advances as and when it was received, leading to a demand for interest  under Section 75 of the Finance Act, 1994.
• The appellant argued that these advances were akin to loans, fully secured by bank guarantees to obtain machinery, equipments and other resources for the purpose of executing the work undertaken for their customers. Hence money which is received as a loan cannot be considered as an advance as per the definition of ‘Service’ in Section 65B(44).

Issue –

• Whether the appellant is liable to pay interest on the delayed remittance of Service Tax for mobilization advances received for construction services?

Order –

• The Tribunal observed that from the balance sheet produced by the appellant it is clear that  mobilisation advances are fully secured by bank guarantees and personal guarantees of three Directors of the Company and are shown as liabilities in their financial records. Therefore, the question of paying Service Tax at the time of receipt of these advances does not arise since they are only to be taken as loans and it became part of the consideration as and when the invoices were raised.
• Even as per “The Point of Taxation Rules”, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service; In the instant case, the appellant has paid the tax on completion of the service on the invoice value which includes the mobilisation advances received by him.
• Therefore, based on the above decisions and the observations made therein held that there is no merit in demanding interest assuming that the date of payment of tax arose based on the advances received. The impugned order is set aside and the appeal is allowed.